RCA schedules hearing on ANGDA request

Two sections of Alaska pipeline act proposed for repeal; authority says state open season requirements, rate-setting rules at issue

Kristen Nelson

Petroleum News Editor-in-Chief

The Regulatory Commission of Alaska has scheduled a public hearing Sept. 8 to hear comments on a proposal by the Alaska Natural Gas Development Authority that two sections of statute governing a North Slope gas pipeline be repealed. It will accept written comments through Sept. 19, including comments in response to oral testimony at the Sept. 8 hearing.

The repeal would require legislative action, but the commission could recommend such an action to the Legislature, if it agrees with the ANGDA proposal after hearing public comment.

The commission discussed the request at an Aug. 24 public meeting and opened docket P-05-10 for public comment. ANGDA has requested repeal of AS 42.06.240(f) and AS 42.06.370(c) (see story in Aug. 7 issue of Petroleum News).

AS 42.06.240(f) concerns the in-state natural gas transportation capacity of an Alaska natural gas pipeline.

Andy Warwick, the chairman of the ANGDA board, said Aug. 1 that the authority looked for “issues that may be impediments” to either a spur line to Cook Inlet from a North Slope gas pipeline or to the authority’s fallback position in the event no major North Slope gas pipeline is built — a smaller line from the North Slope to Cook Inlet. The authority’s concern with section 240(f) of the state’s pipeline act is that it requires that the RCA hold an open season and allocate in-state natural gas pipeline capacity based on firm transportation commitments. But, ANGDA Chief Executive Officer Harold Heinze said Aug. 1, some communities in Alaska that might make use of natural gas in the future might not be in a position to sign gas supply contracts today. Under section 240(f) expansions in in-state gas capacity — changes once the RCA issues an initial decision — would be entirely at the discretion of the pipeline owner/operator.

Utility-style rates also an issue

Heinze said Aug. 1 that ANGDA is considering a rate design for a spur pipeline “never implemented or proposed by any 42.05 utility in the state.” He said “creative financing and cost-recovery options” should be available to a North Slope natural gas pipeline.

The commission said in its Aug. 29 order setting the public hearing date that it has not yet taken a position on ANGDA’s proposal, but noted “that since these statutes were enacted, we have not applied them to a proceeding.”

Administrative Law Judge Janis Wilson reviewed for the commission at its Aug. 24 meeting the sections ANGDA would like to see deleted. In discussing AS 42.06.370(c) Wilson noted that the commission has not had a great deal of experience regulating natural gas pipelines. “I’m not certain why this provision was enacted,” she told the commission. “But it seems to limit the discretion of the commission and limit the arguments” parties could make before the commission in designing rates.

Commissioner James Strandberg asked Wilson if the common carrier concept was involved, saying he wanted “to know what the practical implications are” and to make sure the “law of unintended consequences” didn’t kick in. Wilson said that once the commission has public comments and has had the opportunity to look at it further she could answer more fully, but if a carrier has a right-of-way lease it is required to operate as a common carrier with respect to intra-state shipments.

Section 240(f) might require regulations

Faced with an application the commission would have to do its best to implement the section, “or we would need to issue — promulgate — regulations” for this section, “because it is rather difficult to understand… ”

Commissioner Dave Harbour said that if a gas pipeline contract is brought before a special session of the Legislature, and gets on a fast track, it would be to the benefit of both ANGDA and the public “that the process has begun this early for the industry, for all stakeholders, interested parties, to at least have a forum for coordinating their comments.” It should make any legislative treatment of the issue “much easier, clearer and probably less controversial,” he said.

Harold Heinze told Petroleum News after the Aug. 25 hearing that it seems obvious to ANGDA “that the changes are required. What form those changes take exactly — I think it’s entirely appropriate for the RCA to be very thoughtful about this…”

He said the state statute requirement for an open season “is not compatible with the federal process as defined today.”

A Federal Energy Regulatory Commission open season process “has been defined now, and it is very important — and I know it’s very important to this commission — that we fit within that process.” One of the reasons ANGDA proposed these changes, he said, “is to make sure that there is no inherent conflict between the state process and the federal process.”

On the rate issue, AS 42.06.370(c) says intra-state rates will be designed as for utilities.

Pipeline rates are now judged on a “just and reasonable” standard, Heinze said. “I feel more comfortable with that than being told I have to think like a utility.” Other people may be more comfortable with the utility rate-setting standard, he said, “but the commission can sort all of that out.”

Heinze said when ANGDA did a feasibility study for the spur line, “these provisions showed up clearly as question marks in the financing plan.” The financing section of the Alaska statute is ambiguous, he said, “and ambiguity is death to a financing plan.”

The commission has to sort through some things, Heinze said, but so do the people who are affected. “They’re asking the people who are affected to come forward and speak.”