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RCA looks at size-variable pipeline regs Commission also proposes changing regulations on timing of pipeline filings, and workshop on alternate dispute resolution Kristen Nelson Petroleum News Editor-in-Chief
The Regulatory Commission of Alaska is considering changes to how it regulates pipelines in an effort to reduce costs for pipeline owners and is also looking at alternate dispute regulation for both utilities and pipelines. The commission voted unanimously Nov. 4 to open dockets and seek comments in three areas: alternate dispute resolution, including a workshop; regulating oil or gas pipeline facilities “based upon differences in annual revenue, assets, nature of ownership, and other appropriate distinctions;” and a proposed change in its regulations governing when information is required from applicants to build pipelines.
Commission Chair Kate Giard said the proposed regulation changes allowing pipeline construction to begin before issuance of a final certificate of public convenience and necessity grew out of discussions the commission had with industry in January on how to improve pipeline regulation. There were a number of proposals for change, she said, and this one addresses concerns industry had about tariff filing procedures. Administrative law Judge Janis Wilson investigated and encouraged the commission to move forward with regulatory review.
Giard said she was also approached by Rep. Kurt Olson, R-Kenai, about a statutory change to achieve this goal, and said she told Olson she believed the change could be made within the commission’s regulations. Procedures based on utilities The commission said in its proposed order that when its predecessor agency, the Alaska Public Utilities Commission, took over pipeline regulation in 1984 it required pipelines to submit the same information as utilities. But utilities are allowed to construct plants without the commission’s permission and only apply for certificates before they begin operation.
As John Barnes, production manager for Marathon Oil Co.’s Alaska assets, explained to the commission, its current regulations “require a pipeline carrier to file a complete tariff” as part of an application that must be filed before construction begins, causing “an extreme amount of upfront expense even for a pipeline that knows what its ultimate revenue and expenditures will be.” And once a tariff is filed, objections to the tariff may be raised, so “even before any pipe is placed in the ground the pipeline is faced with having to negotiate the terms of a tariff with persons that may feel it’s necessary to submit a statement of interest or objection.”
Barnes said this is different than Federal Energy Regulatory Commission procedures.
Asked by Commissioner Jim Strandberg if Marathon had had discussions about this proposal with other members of industry Barnes said just at commission-organized forums.
“I can say that if you exclude most of the legal counsel, all parties involved would desire a more efficient and effective manner,” Barnes said, and noted that in discussions during negotiations, “I’ve had conversations that indicate a strong desire for improvement.”
He said he couldn’t say whether any of the specific changes in the commission’s proposed regulations would be contentious.
The commission’s proposed changes would allow a potential pipeline carrier to ask only for a certificate that authorizes construction, and later apply for a certificate to operate the line, allowing a construction application which does not include operational details, such as the tariff. A separate list of requirements for a certificate to operate could also be used, the commission said, “in the event that an existing, previously unregulated pipeline were to apply for a certificate.” Different pipeline regulations A second proposal for changes in pipeline regulation starts with a request for comments on whether the commission should consider regulations for different classes of pipelines, another issue that has developed through discussions with industry.
Barnes told the commission that natural gas is a critical resource for Cook Inlet, but said future discoveries are expected to be smaller and “efficient and effective pipeline regulation will be critical to try and bring these opportunities to market.”
Marathon and others have spent “quite a lot of funds working through pipeline regulation” in recent years, Barnes said, and the company would like to see “minimal filing burdens” for smaller pipelines and limited opportunities for litigation. The company spent “significant funds” on regulatory issues for the Kenai Kachemak Pipeline and other lines and is now working on a lateral pipeline from Kasilof to the Kenai Kachemak line and hopes this short line would not “be subject to the type of regulation that has existed in the past.”
Barnes also said Marathon would like to see “a ring fence” built around inter-field production facilities “to clarify where jurisdiction begins and ends.” He said one way that could work is that a producer-owned pipeline in an area with no other producers and no other initial requests to ship would not be subject to rate regulation. If there are later, third-party requests to ship, those would only be considered if “backed up with actual field development,” he said. And only then would the pipeline be subject to rate regulation.
“For small pipelines with only one or two unaffiliated shippers the RCA could consider a negotiated rate with a party retaining the right to request a hearing. …” Barnes said he believes that procedure is used in other states. Commission recognizes cost The commission said in its proposed order that it recognizes “that for small, producer-owned pipelines the cost of regulation can be prohibitive, discouraging exploration and development of Alaska’s resources.” The commission said it will explore how to “simplify pipeline regulation without jeopardizing the certainty of access and reasonable rates provided unaffiliated producers and end users by the current regulatory structure.”
Giard said administrative law judges Janis Wilson and Blythe Marston worked on this order addressing “some of the concerns … where there may be a pipeline that only really serves the owner of that pipeline.” The question, she said, is whether there are different types of mechanisms for regulating a common carrier pipeline that meets the commission’s statutory requirements and also achieves “some efficiencies in regulation on behalf of our efforts as the regulating body and the industry as the regulatee.”
Wilson told the commission that its statutes allow it by regulation to “classify oil and gas pipelines into classes and provide different regulatory requirements for each class.” This has not been done, she said, “but the statute has always been here. It’s part of the original 1972 enactment and we can do that.”
Marston said that in her role in settlement negotiations over the past year, “it’s become very clear that the business world is very affected by the hand of regulation and it is actually making business decisions based on what it sees as expenses that it has to incur in front of this commission.” ADR consideration Giard said she believes the commission “has made significant strides” in encouraging pipelines “to engage in alternative dispute resolution and arrive at consensus” and bring that to the commission. The commission sponsored a workshop in May by FERC on alternative dispute resolution, and she said the next step is public comment on the need for regulations for alternate dispute resolution and a workshop.
Marston told the commission she has worked through four settlements “and the one message I take away is how amazingly creative the business world is … to resolve its own disputes if given the opportunity to do so. And sometimes that does take the formal arm of the commission to provide that opportunity.”
What the commission is looking at, she said, is the possibility of “formalizing an opportunity for alternative dispute resolution,” which includes options such as settlement negotiations, mediation, early evaluation, arbitration and a hearing in front of a judge who gives a recommended decision.
Marston said that what is appropriate for this commission should be looked at not just by the commission “but also by the parties that practice in front of it.”
FERC has quite a formal process, she said, but there are also “quite loose processes” where mediation occurs at the parties request or at the commission’s suggestion. Workshop, then written comments Commissioner Dave Harbour said he would like to see the commission look at what commissions do in other states.
Commissioner Mark Johnson said he thought it was important in any ADR regulations “that we make it clear that this commission does not express a preference for a particular process,” and noted that a litigator had commented to him that sometimes it’s harder to handle a case through alternative dispute resolution than to try it.
Johnson said it thought it would be most successful if the commission made it clear to parties with issues subject to alternate dispute resolution that they could choose either alternate dispute resolution or traditional commission processes “without the fear that if they don’t choose ADR they will be somehow penalized…” And he said the commission’s jurisdiction has been granted by the Legislature, and the “Legislature expects us to exercise that jurisdiction in appropriate ways,” one of which might be ADR, but “we should not view ADR as in some ways abrogating our obligation to the public under the law.”
The commission said in its proposed order that it would schedule a public workshop on whether the FERC alternative dispute resolution approach is appropriate, or whether the commission should consider a different method. Written comments will be accepted after the workshop.
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