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Vol. 18, No. 14 Week of April 07, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

AGDC in-state gas pipeline project bill, HB 4, clears House

The Alaska House of Representatives passed House Bill 4 on a party-line 30-9 vote April 1, sending the bill on to the Senate for consideration, which began April 2 in Senate Resources. HB 4 expands the authority of the Alaska Gasline Development Corp., AGDC, establishing it as a standalone state corporation and providing what sponsors have called the tools needed by AGDC to move forward on planning for an in-state natural gas pipeline from the North Slope to tidewater.

AGDC would take a project through open season and if there was sufficient market interest, through project sanction.

The bill would not authorize state monies for a project, but would allow AGDC to bond the project against project receipts. State participation beyond the $400 million for getting the project to sanction would require legislative authorization.

HB 4, whose prime sponsors are Rep. Mike Hawker, R-Anchorage, and House Speaker Mike Chenault, R-Nikiski, is a revision of HB 9, which failed in the Senate last year. HB 4 has been revised both by the sponsors and by House committees since it was pre-filed before the Legislature gaveled in Jan. 15.

The bill is a continuation of work legislators began in 2010 with HB 369, which set the goal of providing natural gas to Alaskans in the shortest possible timeframe and at the lowest possible cost. A mid-2011 plan, required under HB 369, was to be for an operational line by the end of 2015. That date moved out to 2018-19, however, when AGDC delivered its report to the Legislature.

The 2011 report found the project economic but said the 2015 completion date was not realistic given the time required for permitting, holding an open season and securing financing. The report envisaged a completion date near the end of 2018 with first gas in 2019.

Fiscal note reduced

The version which passed the House includes a fiscal note which is about $80 million short of the amount remaining in the $400 million AGDC has said it needs to get an in-state gas pipeline project through an open season and to sanction.

Rep. Alan Austerman, R-Kodiak, co-chair of House Finance, said April 1 just before the committee passed the bill out that the reduction in the fiscal note was a way to ensure that the project came back to the Legislature for consideration. He said the concern had been expressed in the committee, and elsewhere, that legislators wanted an opportunity to talk about the project again and reducing the amount in the fiscal note allowed the project to move forward but also provided an opportunity in the next budget cycle to talk about the remaining money.

Another amendment passed by the committee added “propane and other hydrocarbons associated with natural gas other than oil” to what AGDC would look at.

RCA changes

The bill adds natural gas contract carrier pipelines to statute and provides for Regulatory Commission of Alaska oversight of contract carriers. The bill originally allowed RCA 30 days to approve a recourse tariff for the line; that was revised to 90 days after RCA commissioners expressed concern over the 30-day time period in a March 15 RCA public meeting. The committee substitute which came out of House Finance also allows RCA to suspend the recourse tariff for 90 days on motion or complaint, Rep. Lindsay Holmes, R-Anchorage, said April 1.

Finance co-Chair Bill Stoltze, R-Chugiak, noted that amendments to the CS in committee cut the timeframe from nine months to six months, but said that timeframe didn’t have concurrence from the sponsors.

Rena Delbridge, staff to Hawker, told the committee the sponsors were “troubled” by the addition of the 90-day suspension period, but “very willing” on the request of the commission to extend the recourse tariff review from 30 to 90 days. The 180-day total was a policy call for the committee, she said.

She has told legislators that with every delay, inflation drives up the cost of the line.

Rep. Les Gara, D-Anchorage, was concerned that the time allowed RCA was not enough to protect consumers, and particularly concerned that RCA is not allowed to make a “just and reasonable” finding on the recourse tariff rate.

Stuart Goering, an assistant attorney general with the Department of Law, told the committee that RCA review under HB 4 is narrower than the just and reasonable standard and reflects that the bulk of service on the line would be provided under contracts, not under the recourse tariff.

Under the CS RCA is also allowed to require expansion of the line under commercially reasonable terms, as long as creditworthiness standards are met and the expansion does not result in a violation of AGIA, the Alaska Gasline Inducement Act, which limits competing lines to 500 million cubic feet per day.

Commissioners added

The Finance CS includes a number of other changes.

Two commissioners were added to the five public members of the board, with an amendment to the CS providing that as long as the commissioners of Revenue and Natural Resources are signatories to an AGIA license they may not be appointed to the AGDC board. There are requirements for various kinds of expertise for the five public members appointed by the governor and approved by the Legislature. Their five-year terms are staggered and they serve at the pleasure of the governor.

Under the sponsors’ bill AGDC was exempt from the Executive Budget Act. Under the CS, AGDC’s operating budget will be subject to the act, but not its pipeline work.

The ability of AGDC to create a capital reserve fund is curtailed under the CS, which requires AGDC to come back to the Legislature for permission to form the fund, which might not be required depending on factors such as the creditworthiness of shippers.

Other concerns

The City of Valdez has been running an ad campaign in opposition to HB 4, arguing that only a large line will meet the needs of Alaskans both for natural gas for use by residents and for revenues.

Hawker said in a March 28 presentation to House Finance that legislators don’t know where AGIA is going, and need to move the state forward. He said the goal is to use the talent at AGDC to benefit the state, to be a brain trust and move a gas project forward. Hawker said HB 4 respects the contract the state has with TransCanada under AGIA, but said the bill allows the state to move forward on a viable project that can work if AGIA fails.

Chenault told the committee there was concern about the $9 estimated cost for natural gas with an AGDC project, but said Cook Inlet utilities have told him they paid $22 per thousand cubic feet for peak gas this winter. Some Cook Inlet contracts are at $13 to $15, he said.

Hawker noted that while a larger line would be more economic, no gas pipeline will be an immediate solution and the state has to look at short-, mid- and long-range solutions.

HB 4, he said, protects the state’s interest by creating a place for the state at the table no matter what project moves forward.

—Kristen Nelson

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