Fisticuffs over FERC

AGIA or reliance on federal regulators — Alaska looks how best protect its interests

Kristen Nelson

Petroleum News

Does FERC protect Alaska’s interests in a gas pipeline? Or are the provisions in AGIA necessary?

That provoked a lively exchange at an Anchorage Chamber of Commerce-Alaska Journal of Commerce gas pipeline briefing May 27.

Rep. Jay Ramras, R-Fairbanks, said the Alaska Gasline Inducement Act duplicates Federal Energy Regulatory Commission requirements.

Ramras said requirements in AGIA “are in fact basic requirements for the issuing of a FERC license.”

“Isn’t it disingenuous,” he asked, “to ascribe all these magic qualities to the AGIA process, when in fact they are fundamental to the process of FERC?”

Alaska Commissioner of Revenue Pat Galvin said under FERC an explorer would have to petition for pipeline expansion, asking FERC to force the pipeline company to expand, a process that could take years, and with an unlikely outcome. The difference between protections provided under AGIA versus FERC — for an open access, expandable pipeline with low tariffs — is the difference between an explorer drilling or not. That’s the difference in Alaska’s future, he said, “whether we’re going to rely upon an uncertain federal regulatory process for explorers to be able to access a pipeline or whether we’re going to rely on commitments from the pipeline company that they will have terms that are going to be favorable to explorers and ultimately favorable to the state.”

Ramras disagreed. “I think that’s a fundamental untruth,” FERC’s “basic premise … is no discrimination; no prejudice; allow everybody in,” he said.

FERC, NEB will make decisions

FERC will make the final decision, as will the National Energy Board in Canada, Palmer said. The issue is what the sponsor pipeline will propose. AGIA requires that the pipeline sponsor support an open-access pipeline, with rolled-in rates up to 115 percent of the initial toll. TransCanada has committed to that, he said.

Rep. Ralph Samuels, R-Anchorage, said he didn’t think a shipper would sign on to ship knowing that the tariff could go up by 15 percent. The crux of the third-party vs. producer-owned pipeline “is what happens to tariffs and would you take a long-term risk,” he said.

The state could also be affected, Samuels said, if a company discovered gas in federal waters and a pipeline expansion — and tariff increase — were required to handle the gas. A tariff increase would lower the wellhead value of gas, and hence its value to the state.

Palmer said it’s normal that expansion shippers want rolled-in rates if they benefit and initial shippers want rolled-in rates if that benefits them; and if rolled-in rates aren’t to the advantage of initial shippers then they want incremental rates.

“That’s normal and natural.”

AGIA requires that the pipeline sponsor propose rolled-in rates. “An independent pipeline is inherently aligned with rolled-in rates,” Palmer said.

As for the State of Alaska, it will benefit whether future oil discoveries are on state land, federal land or private land because the development activity will take place in Alaska and the employment will take place in Alaska.

A gas pipeline will make basin expansion possible, he said, and that’s revenues to the state.

While an expansion that raised tolls could affect the state’s gas if the expansion was for gas from federal lands, “the beneficiary is clearly going to be the State of Alaska and the people in this room who are going to benefit from all of the employment multipliers.”