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House Resources moves in-state gas bill Sponsor substitute for HB 4 includes amendments to role of RCA, removal of ANGDA as marketing arm, confidentiality provisions Kristen Nelson Petroleum News
House Bill 4, designed to allow the Alaska Gasline Development Corp. to move forward with the in-state natural gas pipeline project authorized under HB 369 in 2010, has moved from the House Resources Committee and now goes to House Finance.
Co-sponsors Rep. Mike Hawker, R-Anchorage, and House Speaker Mike Chenault, R-Nikiski, replaced the original bill with a sponsor substitute at the end of January and the bill which passed House Resources March 4 was an amended version of that sponsor substitute.
Among numerous amendments approved by the committee were major changes to the role of the Regulatory Commission of Alaska in the process; elimination of the Alaska Natural Gas Development Corp. as the marketing arm of AGDC; deletion of a finding that state royalty gas would be made available for the line; adding a requirement that once the pipeline is operational information would be released if not covered by confidentiality agreements or necessary to protect the economic interests of AGDC or the state; and adding a provision that upon commencement of construction of the pipeline, AGDC would analyze potential lines connecting to industrial or utility customers in other regions of the state.
RCA Hawker, who offered major amendments in the role of RCA, said in discussion in the committee March 4 that the bill would be sent to the RCA with a request for review.
As amended, HB 4 requires preapproval by RCA of a recourse tariff before an open season is held. The recourse rate is the rate available to customers without negotiation.
With a recourse tariff approved by RCA, the pipeline can hold an open season and negotiate rates with potential customers covering such items as price, volume, where gas comes into and leaves the line, and an agreement reached between the customer and pipeline becomes a precedent agreement. If conditions for the pipeline are met, precedent agreements eventually become firm transportation agreements.
After the open season, precedent agreements are turned into the RCA, which needs to determine if those agreements are “just and reasonable.”
When construction is completed, the pipeline goes back to RCA with actual cost information and updates the recourse rate, which was based on estimates. The pipeline also has to update the recourse tariff in the future when a new open season is planned to expand the pipeline.
Dispute resolution The amendments to HB 4 increase the RCA’s role in resolving disputes, ensuring that all parties with shipping contracts and potential shippers can participate in disputes not directly involving them.
Amendments also require that if contracts between shippers and the pipeline can include a dispute resolution method, the method must be included in the pipeline’s recourse tariff.
RCA can step in when disputes concern things not subject to contractual dispute resolution; when a complaint is brought by someone without a contract with the pipeline; when there are complaints about the conduct of an open season; and when disputes involve a public utility and would result in a threat to public health and safety can’t be otherwise resolved.
Cost studies In addition to submitting cost studies for the recourse rate and when construction is completed, the bill as amended requires the pipeline to provide a detailed cost study to the RCA every three years.
RCA looks at the recourse tariff before the first open season, after construction and in advance of any new open season for new capacity or pipeline expansions.
The RCA must review and approve the initial recourse tariff and any substantial amendments and can deny the recourse tariff, but must rule on the recourse tariff within 30 days.
Removal of ANGDA The 2010 passage of HB 369 created the Joint In-State Gasline Development Team with ANGDA a member of that team. The intent was that ANGDA would act as the marketing arm for the project.
Rep. Craig Johnson, R-Anchorage, had questioned the necessity of including ANGDA in the bill in earlier committee discussions, and on March 4 offered an amendment to drop ANGDA from the bill. Johnson called attention to a Division of Legislative Audit report which said ANGDA had stretched the boundary of its authority, hadn’t adequately coordinated with other state agencies on a gas line and should be considered for sunset.
The audit report concluded that ANGDA coordinated its efforts with large-diameter pipeline projects but “did not successfully coordinate its efforts with agencies pursuing a small-diameter pipeline,” specifically with work done by staff in the Office of the Governor. “The lack of cooperation resulted in both entities pursuing alternative projects that would achieve the same objective,” the report said.
Johnson said he believed ANGDA had “baggage” and said he didn’t want to see that “baggage” attached to the new organization established by the bill.
AGDC has the authority under the bill to establish its own marketing arm, Johnson said.
Hawker said that having heard the concerns expressed earlier about ANGDA, his staff determined that all of the terms of ANGDA board members had expired; ANGDA had no employees; it had no office space; all debts and obligations had been settled; and work product and assets had either been returned to contractors or retained by the State Pipeline Coordinator’s Office.
Separation from AHFC AGDC was established under HB 369 as a subsidiary of the Alaska Housing Finance Corp. HB 4 would establish AGDC as an independent state corporation, separate from AHFC.
HB 4 also provides confidentiality for certain information provided to or created by AGDC, but as amended would provide that once the pipeline becomes operational “the corporation shall make available to the public information that would otherwise be exempt from public disclosure ... unless the corporation determines that” it is necessary to maintain confidentiality to protect economic interests of AGDC or the state or that “disclosure of the information will violate the terms of a confidentiality agreement or other agreement to which the corporation is a party or that is binding on the corporation.”
An amendment sponsored by Rep. Eric Feige, R-Chickaloon, committee co-chair, provided that once construction of an in-state natural gas pipeline has begun, “the corporation shall analyze potential natural gas pipelines connecting to industrial, residential, or utility customers in other regions of the state. If the corporation finds that a natural gas pipeline analyzed under this subsection is in the best interest of the state and can meet the needs of industrial, residential, or utility customers at commercially reasonable rates, the corporation shall finance, construct, or operate the natural gas pipeline as necessary.”
Feige was one of the two dissenting votes on the bill in the committee, noting that the line through Fairbanks to the Anchorage Bowl leaves out a substantial portion of his district, and said he wouldn’t support the bill currently on behalf of his district.
The in-state line has drawn criticism, and Chenault told the committee that nowhere else in the world would a 36-inch pipeline be considered small. Many Alaskans think only a 48-inch line will do, he said, but noted that the Alaska Pipeline Project is talking about a 42-inch line.
He said AGDC is the only project that has permits, that is actually moving ahead. Chenault also said that while he doesn’t really care whether the line goes to Valdez or Cook Inlet, he believes Alaska needs a long-term supply for the Railbelt.
The longer we wait, Chenault said, the less opportunity Alaskans have to benefit from their gas.
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