Legislature(2009 - 2010)BARNES 124

02/15/2010 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Moved CSHB 280(L&C) Out of Committee
Moved Out of Committee
                       HB 280-NATURAL GAS                                                                                   
3:39:35 PM                                                                                                                    
CHAIR OLSON announced that the next order of business would be                                                                  
HOUSE BILL NO. 280, "An Act  relating to natural gas; relating to                                                               
a gas storage facility; relating  to the Regulatory Commission of                                                               
Alaska; relating to the participation  by the attorney general in                                                               
a  matter involving  the  approval  of a  rate  or  a gas  supply                                                               
contract;  relating to  an income  tax credit  for a  gas storage                                                               
facility;  relating  to  oil  and  gas  production  tax  credits;                                                               
relating  to the  powers and  duties of  the Alaska  Oil and  Gas                                                               
Conservation Commission;  relating to production tax  credits for                                                               
certain   losses   and    expenditures,   including   exploration                                                               
expenditures; relating to  the powers and duties  of the director                                                               
of the  division of lands  and to lease  fees for the  storage of                                                               
gas on state land; and providing for an effective date."                                                                        
3:40:01 PM                                                                                                                    
REPRESENTATIVE MIKE  HAWKER, Alaska State  Legislature, explained                                                               
that this  is the second hearing  in this committee.   He related                                                               
that HB 280  was introduced at the request of  the RCA to provide                                                               
clarity and determine whether the  legislature intends the RCA to                                                               
have  regulatory authority  over  gas storage  facilities.   Some                                                               
technical  changes   are  necessary  to  "clean   up"  the  bill,                                                               
incorporated  in  an  amendment labeled  26-LS1185\S.2,  Bullock,                                                               
3:41:06 PM                                                                                                                    
REPRESENTATIVE  NEUMAN  made  a  motion  to  adopt  Amendment  1,                                                               
labeled 26-LS1185\S.2, Bullock, 2/13/10, which read:                                                                            
     Page 2, line 10:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 2, line 13:                                                                                                           
          Delete "feet of gas each"                                                                                             
          Insert "cubic feet of gas a"                                                                                          
     Page 2, line 17:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 2, line 18:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 2, line 20:                                                                                                           
          Delete "operations ceased"                                                                                            
          Insert   "the   gas    storage   facility   ceases                                                                    
     commercial operation"                                                                                                      
     Page 2, line 25:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 2, line 26:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 2, line 30, through page 3, line 6:                                                                                   
          Delete all material and insert:                                                                                       
               "(4)  "gas storage facility" means a tank,                                                                       
       depleted or nearly depleted reservoir or pool, or                                                                        
     other structure in the state that is available for the                                                                     
     storage of gas;"                                                                                                           
     Page 3, following line 10:                                                                                                 
          Insert a new paragraph to read:                                                                                       
               "(7)  "pool" has the meaning given in                                                                            
     AS 31.05.170;"                                                                                                             
     Renumber the following paragraph accordingly.                                                                              
     Page 6, line 6:                                                                                                            
          Delete    "with    certificates    issued    under                                                                
     AS 31.05.032"                                                                                                          
          Insert "that qualifies for a tax credit under                                                                     
     AS 43.20.046"                                                                                                          
     Page 6, line 9:                                                                                                            
          Delete "operations"                                                                                               
          Insert "operation"                                                                                                
     Page 6, line 10:                                                                                                           
          Delete "operations"                                                                                               
          Insert "operation"                                                                                                
     Page 6, line 12:                                                                                                           
          Delete "operations"                                                                                               
          Insert "operation"                                                                                                
     Page 6, line 18:                                                                                                           
          Delete "AS 38.05"                                                                                                 
          Insert "this chapter"                                                                                             
     Page 6, line 25:                                                                                                           
          Delete "operations"                                                                                               
          Insert "operation"                                                                                                
     Page 6, line 26:                                                                                                           
          Delete "operations"                                                                                               
          Insert "operation"                                                                                                
     Page 6, line 29, following "a":                                                                                            
          Insert "rate or a"                                                                                                    
     Page 7, line 1:                                                                                                            
          Delete "from"                                                                                                         
          Insert "of"                                                                                                           
     Page 7, following line 19:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 7. AS 42.05.990(4) is amended to read:                                                                      
               (4)  "public utility" or "utility" includes                                                                      
     every  corporation  whether   public,  cooperative,  or                                                                    
     otherwise,  company,  individual,   or  association  of                                                                    
     individuals,  their  lessees,  trustees,  or  receivers                                                                    
     appointed by a court,  that owns, operates, manages, or                                                                    
     controls any plant, pipeline, or system for                                                                                
               (A)         furnishing,     by    generation,                                                                    
      transmission, or distribution, electrical service to                                                                      
     the public for compensation;                                                                                               
               (B)  furnishing telecommunications service                                                                       
     to the public for compensation;                                                                                            
               (C)  furnishing water, steam, or sewer                                                                           
     service to the public for compensation;                                                                                    
               (D)      furnishing    by   transmission   or                                                                    
       distribution of natural or manufactured gas to the                                                                       
     public for compensation;                                                                                                   
               (E)    furnishing   for  distribution  or  by                                                                    
     distribution  petroleum or  petroleum  products to  the                                                                    
     public  for  compensation  when  the  consumer  has  no                                                                    
     alternative in  the choice of supplier  of a comparable                                                                    
     product and service at an equal or lesser price;                                                                           
               (F)    furnishing   collection  and  disposal                                                                    
     service  of  garbage,  refuse, trash,  or  other  waste                                                                    
     material to the public for compensation;                                                                               
               (G)    furnishing   injection,  storage,  and                                                                
     withdrawal services for natural gas  that is owned by a                                                                
     utility regulated under this chapter;"                                                                                 
     Page 8, line 3:                                                                                                            
          Following "facility":                                                                                                 
          Insert "described in (b) of this section"                                                                             
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 8, lines 5 - 6:                                                                                                       
          Delete "beginning after the date the gas storage                                                                      
     facility commences commercial operations"                                                                                  
          Insert "in which the gas storage facility                                                                             
     commences   commercial  operation   or  the   tax  year                                                                    
     immediately following"                                                                                                     
     Page 8, following line 12:                                                                                                 
          Insert a new subsection to read:                                                                                      
          "(b)  A gas storage facility qualifying for the                                                                       
     credit in this section must                                                                                                
               (1)   have a working gas  storage capacity of                                                                    
     more  than 500,000,000  cubic feet  of  gas other  than                                                                    
     cushion gas;                                                                                                               
               (2)  have a  minimum withdrawal capability of                                                                    
     10,000,000 cubic feet a day  as certified by the Alaska                                                                    
     Oil    and    Gas   Conservation    Commission    under                                                                    
     AS 31.05.032;                                                                                                              
               (3)   be  available  for the  storage of  gas                                                                    
     that is  owned by  a utility regulated  under AS 42.05;                                                                    
               (4)  if  located on state land  and leased or                                                                    
     subject   to  a   lease  under   AS 38.05.180,  be   in                                                                    
     compliance with the terms of the lease."                                                                                   
     Reletter the following subsections accordingly.                                                                            
     Page 8, line 16, following "capacity":                                                                                     
          Insert "and withdrawal capability"                                                                                    
     Page 8, line 17:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 8, line 19:                                                                                                           
          Delete "form"                                                                                                         
          Insert "application"                                                                                                  
     Page 8, line 21:                                                                                                           
          Delete "shall submit the form"                                                                                        
          Insert "under (d) of this section shall submit                                                                        
     the application"                                                                                                           
     Page 8, line 23:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 9, line 12:                                                                                                           
          Delete "determined"                                                                                                   
          Insert "the capacity certified"                                                                                       
     Page 9, line 18:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 9, line 22:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 9, line 23:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 10, line 5:                                                                                                           
          Delete "(g) and (h)"                                                                                                  
          Insert "(h) and (i)"                                                                                                  
     Page 10, line 13:                                                                                                          
          Delete "operations within 10 calendar years after                                                                     
          Insert "operation within nine calendar years                                                                          
     immediately following the calendar"                                                                                        
     Page 10, line 14:                                                                                                          
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 10, line 16:                                                                                                          
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
     Page 10, line 18:                                                                                                          
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
          Delete "April"                                                                                                        
          Insert "May"                                                                                                          
     Page 10, line 19:                                                                                                          
          Delete "operations"                                                                                                   
          Insert "operation. The notice required in this                                                                        
       subsection is considered a return for purposes of                                                                        
     AS 43.05.260"                                                                                                              
     Page 10, line 20:                                                                                                          
          Delete "operations,""                                                                                                 
          Insert    "operation,"    "commences    commercial                                                                    
     Page 10, line 26:                                                                                                          
          Delete "an expenditure or action taken"                                                                           
          Insert "a lease expenditure incurred"                                                                             
     Page 11, line 19:                                                                                                          
          Delete "AS 38.05.032"                                                                                                 
          Insert "AS 31.05.032"                                                                                                 
     Page 11, lines 29 - 30:                                                                                                    
          Delete "for activity"                                                                                             
          Insert "incurred"                                                                                                 
     Page 12, line 1:                                                                                                           
          Delete "for activity"                                                                                             
          Insert "incurred"                                                                                                 
     Page 13, line 18:                                                                                                          
          Delete "expenditure"                                                                                                  
          Insert    "lease   expenditure    incurred   after                                                                    
     December 31, 2010"                                                                                                         
     Page 13, line 19, following "well":                                                                                        
          Insert "lease"                                                                                                        
     Page 13, line 23, following "well":                                                                                        
          Insert "lease"                                                                                                        
     Page 13, line 27, following "well":                                                                                        
          Insert "lease"                                                                                                        
     Page 14, line 3:                                                                                                           
          Delete "an expenditure"                                                                                               
          Insert "a lease expenditure incurred"                                                                                 
     Page 14, line 5, following "well":                                                                                         
          Insert "lease"                                                                                                        
     Page 14, line 15, following "of":                                                                                          
          Delete "the"                                                                                                          
          Insert "a [THE]"                                                                                                  
     Page 14, line 16:                                                                                                          
          Delete "AS 43.20.046 or"                                                                                          
REPRESENTATIVE HOLMES objected for purpose of discussion.                                                                       
3:41:31 PM                                                                                                                    
LARRY PERSILY,  Staff, Representative  Mike Hawker,  Alaska State                                                               
Legislature, referred  to Amendment 2, which  he characterized as                                                               
an 8-page  amendment that  contains "clean  up" language  and one                                                               
substantive issue.   He referred to  Section 7, to page  3, lines                                                               
23 - 31, and  page 4, lines 1 - 12, of Amendment  1.  In response                                                               
to a  request by  the RCA,  who could  not determine  whether gas                                                               
regulation  falls under  its  jurisdiction,  this language  would                                                               
amend  the  definition  of  utilities that  are  subject  to  RCA                                                               
regulation.   Thus, if an  entity is furnishing  storage services                                                               
for natural gas that is owned  by a utility regulated by the RCA,                                                               
the storage service would fall under RCA jurisdiction.                                                                          
3:42:48 PM                                                                                                                    
REPRESENTATIVE   NEUMAN  asked   for  clarification   of  whether                                                               
Amendment  1 would  allow rates  to utilities  to fall  under the                                                               
MR. PERSILY  answered yes.  He  related that the RCA  would treat                                                               
the  natural gas  storage like  any other  utility.   The storage                                                               
operator  would have  to present  the cost  and information,  and                                                               
obtain approval for the cost of service from the RCA.                                                                           
3:43:15 PM                                                                                                                    
REPRESENTATIVE BUCH  asked for further  clarification.   He asked                                                               
whether all  gas coming  into the gas  storage facility  would be                                                               
from  a utility.   He  asked whether  the source  of natural  gas                                                               
would be  private sector  gas and  if the  RCA would  cover other                                                               
MR. PERSILY  answered that if  the storage operator  is providing                                                               
storage  service  for  gas  owned   by  a  utility,  the  storage                                                               
operation  would be  regulated.   The fact  that the  utility may                                                               
also have other gas owned by  someone else, such as a speculator,                                                               
someone  marketing gas,  or a  producer,  will not  matter.   Any                                                               
natural gas  in a facility owned  by a utility is  subject to RCA                                                               
jurisdiction.   In further response  to Representative  Buch, Mr.                                                               
Persily explained  that the storage  is subject to  regulation by                                                               
the  RCA, not  necessarily  the  natural gas.    The  RCA is  not                                                               
involved  in  setting  the  rates  for  natural  gas,  but  would                                                               
consider the  natural gas  being stored.   The natural  gas being                                                               
stored could be owned by a  utility or someone attempting to gain                                                               
access to the gas marketing business.                                                                                           
3:45:08 PM                                                                                                                    
REPRESENTATIVE  HOLMES  related  that   Amendment  1  amends  the                                                               
definition  section.   She said  basically any  entity furnishing                                                               
injection, storage, and withdrawal  services for natural gas that                                                               
is  owned by  a utility  would be  regulated under  this chapter.                                                               
She said  it seems somewhat  circular since it  defines "utility"                                                               
as anyone doing something owned by a utility.                                                                                   
MR. PERSILY answered that the natural  gas is owned by a utility,                                                               
but  the  utility would  not  own  the  storage operation.    For                                                               
example, some  producers have their  own storage but they  do not                                                               
make it available  to third parties, but operate  the storage for                                                               
their  own  needs, which  is  not  subject  to regulation.    The                                                               
natural gas being placed into storage  is not owned by a utility,                                                               
although it  may later  be sold  to a utility.   This  bill would                                                               
apply to  storage operations that  provide services  to regulated                                                               
REPRESENTATIVE  HOLMES  described  a  scenario in  which  a  non-                                                               
utility  built a  storage facility,  whether it  could store  gas                                                               
without being  regulated so long as  the natural gas is  owned by                                                               
MR. PERSILY  answered that she is  correct.  He stated  that if a                                                               
non-regulated producer builds a  storage operation and stores its                                                               
own natural gas, and does not  store gas owned by a utility, that                                                               
gas would not be considered as a regulated storage operation.                                                                   
3:47:03 PM                                                                                                                    
REPRESENTATIVE HOLMES  related a scenario  in which gas  is owned                                                               
by producer,  and then  sells the  gas to a  utility, the  gas in                                                               
question being sold would not be covered by this definition.                                                                    
MR. PERSILY  agreed.  The  intent of  Amendment 1 is  to regulate                                                               
storage  services which  are  purchased  by regulated  utilities.                                                               
Just as  gas supply contracts  are currently subject to  the RCA,                                                               
these gas supply contracts will eventually come before the RCA.                                                                 
3:47:45 PM                                                                                                                    
REPRESENTATIVE NEUMAN understood at  the point the non-native gas                                                               
is removed  from the  storage facility  for distribution  the gas                                                               
would fall  under authority  of the RCA.   He  further understood                                                               
that the  costs for storage would  not be passed on  as excessive                                                               
costs to the customer as a regressive tax.                                                                                      
MR. PERSILY agreed.                                                                                                             
3:48:40 PM                                                                                                                    
REPRESENTATIVE  HOLMES   asked  whether  the  RCA   has  reviewed                                                               
Amendment 1.                                                                                                                    
CHAIR OLSON answered that the RCA would be testifying.                                                                          
REPRESENTATIVE HOLMES removed her objection.                                                                                    
There being no objection, Amendment 1 was adopted.                                                                              
3:49:30 PM                                                                                                                    
REPRESENTATIVE NEUMAN made a motion  to adopt the next amendment,                                                               
which  was  referred to  as  Amendment  3, which  read  [original                                                               
punctuation provided]:                                                                                                          
     Page 2, line 22:                                                                                                           
          Delete "operations"                                                                                                   
          Insert "operation"                                                                                                    
REPRESENTATIVE HOLMES objected for the purpose of discussion.                                                                   
MR. PERSILY explained  that Amendment 3 is  a technical amendment                                                               
to  fix  one  instance  which   was  previously  missed.    Thus,                                                               
"operations" is changed to "operation".                                                                                         
REPRESENTATIVE HOLMES removed her objection.                                                                                    
There being no objection, Amendment 3 was adopted.                                                                              
3:50:54 PM                                                                                                                    
CHAIR OLSON asked  whether the AOGCC will be able  to comply with                                                               
the provisions in HB 280.                                                                                                       
CATHY  FOERSTER, Commissioner,  Alaska Oil  and Gas  Conservation                                                               
Commission (AOGCC),  Department of Administration,  answered yes.                                                               
She added that  the AOGCC will not have a  fiscal note associated                                                               
with the bill.                                                                                                                  
CHAIR OLSON asked whether the process will work.                                                                                
MS.  FOERSTER  responded that  with  respect  to the  AOGCC,  the                                                               
process will work and is consistent with the commission's work.                                                                 
CHAIR  OLSON asked  whether she  thought  offshore reservoirs  in                                                               
Cook Inlet could be used for storage.                                                                                           
MS. FOERSTER  suggested that if  an operator follows  the AOGCC's                                                               
regulations  for gas  storage,  it does  not  matter whether  the                                                               
facility is offshore or onshore.   The AOGCC insures that when an                                                               
operator  operates a  storage reservoir,  it  is accomplished  to                                                               
maintain and protect the integrity  of the reservoir.  This means                                                               
the operator must  ensure the mechanical integrity  of every well                                                               
that  penetrates the  reservoir.   She related  an incident  that                                                               
happened in  Hutchison, Kansas, in  which a storage  reservoir at                                                               
the Yaggy  field, located approximately  5 miles outside  of town                                                               
caused problems  in the  town of  about 50,000  people.   The gas                                                               
storage approval  process did not  take into account  the complex                                                               
geology  of the  reservoir until  several buildings  in the  town                                                               
exploded.   Since then an  operator must prove the  gas reservoir                                                               
has  integrity  and acts  as  a  closed  system, every  well  has                                                               
mechanical integrity, and  the gas will not  seep into unexpected                                                               
places.   If  an operator  met the  AOGCC's requirements  for gas                                                               
storage, the  facility would be safe  on shore or offshore.   She                                                               
related  that  the  cost  or logistics  of  the  reservoir  falls                                                               
outside of the AOGCC's jurisdiction.                                                                                            
3:54:24 PM                                                                                                                    
REPRESENTATIVE   CHENAULT  asked   whether  the   AOGCC  is   the                                                               
controller when gas  is reinjected into a reservoir.   He related                                                               
a scenario in  which a storage facility is located  in an area in                                                               
which a private  party owns the mineral rights.   He offered that                                                               
the party  may have an  expectation for compensation on  gas when                                                               
it is injected and again when it is removed from the reservoir.                                                                 
MS.  FOERSTER explained  that  the  AOGCC would  play  a role  in                                                               
protecting  correlative  rights.    The operator  would  need  to                                                               
demonstrate ownership or approval of all owners in the acreage.                                                                 
3:55:44 PM                                                                                                                    
REPRESENTATIVE NEUMAN  remarked that  the AOGCC would  ensure the                                                               
gas fields do not leak.                                                                                                         
MS. FOERSTER agreed.                                                                                                            
3:56:56 PM                                                                                                                    
REPRESENTATIVE  HOLMES   recalled  prior  testimony   that  AOGCC                                                               
foresees no  problems in  complying with the  terms of  the bill.                                                               
She asked whether the AOGCC is "already signing off."                                                                           
MS. FOERSTER  offered a scenario  in which an  operator indicates                                                               
it  wants to  inject gas  into a  reservoir.   The operator  must                                                               
inform  the AOGCC  of the  anticipated maximum  pressure it  will                                                               
subject  the reservoir,  provide  geological  information of  the                                                               
reservoir  boundaries, and  prove that  every penetration  of the                                                               
reservoir has  sufficient mechanical  integrity to  withstand the                                                               
anticipated pressures.  The AOGCC  checks the data, and using the                                                               
beginning  and ending  pressure,  as well  as  a good  production                                                               
history or physical  description of the reservoir,  the AOGCC can                                                               
obtain a good estimate of the amount  of gas will be stored.  She                                                               
stated this  is something  the AOGCC  already performs  and their                                                               
estimates are very close.                                                                                                       
3:59:07 PM                                                                                                                    
REPRESENTATIVE HOLMES  asked whether  the requirements in  HB 280                                                               
are acceptable.                                                                                                                 
MS.  FOERSTER suggested  that the  AOGCC  may need  to tweak  the                                                               
regulations  to require  operators to  provide more  information,                                                               
similar to the process the AOGCC uses as technology changes.                                                                    
3:59:51 PM                                                                                                                    
REPRESENTATIVE HOLMES asked for the  gas or reservoir capacity in                                                               
the Cook Inlet that is in use, authorized, or pending.                                                                          
MS. FOERSTER  explained that the  AOGCC has three  physical areas                                                               
of approval.   She  recalled that five  or six  storage injection                                                               
orders  have  been approved,  but  these  orders encompass  three                                                               
basic geographical  areas.   Additionally, two  more applications                                                               
for storage  injections have  been received.   She  detailed that                                                               
two of  the three areas  with approved storage include  the Kenai                                                               
and Sterling,  with 6 billion  cubic feet (Bcf).   However, given                                                               
that  the  start  and  end   pressure  entails  only  100  pounds                                                               
increment, which is  a tiny increment, the  reservoir could store                                                               
up to  25 Bcf  of gas.   Thus, every 100  pounds per  square inch                                                               
(psi) of pressure  would yield approximately 25 more  Bcf of gas.                                                               
She  related  that  at  some  point  the  wells  would  not  have                                                               
mechanical integrity and  the AOGCC would not  allow the producer                                                               
to go above  that amount, noting the AOGCC has  not been asked to                                                               
do  so.   The Kenai  and  Sterling Area  comprise 25  Bcf of  gas                                                               
storage.    The  Pretty  Creek   gas  storage  facility  has  two                                                               
intervals using  that same  method of  determining volume  have a                                                               
storage capacity composite  of 2.5 Bcf.  Swanson  River has three                                                               
reservoirs  intervals have  a  composite of  5.3  Bcf of  storage                                                               
capacity.  The  Department of Natural Resources (DNR)  may show a                                                               
lower  capacity   based  on  the   operator's  intent,   but  for                                                               
authorized pressures  the operator has  more ability.   She noted                                                               
that Aurora Gas, LLC, has  applied for storage injection order at                                                               
Nicolai  Creek for  another  0.8 Bcf,  and  another operator  has                                                               
applied for 3 Bcf  at Ivan River, for a total of 36  to 37 Bcf of                                                               
gas  storage  capacity  that  is  approved  or  in  the  approval                                                               
4:02:48 PM                                                                                                                    
REPRESENTATIVE  HOLMES  asked how  much  gas  is being  used  for                                                               
storage at the current time.                                                                                                    
MS. FOERSTER  related her  understanding that  a small  volume is                                                               
being stored, but not near the full capacity.                                                                                   
REPRESENTATIVE  HOLMES expressed  interest in  the reason  gas is                                                               
not being stored if the producer has the capacity to do so.                                                                     
MS. FOERSTER  suggested this question  is better answered  by the                                                               
4:03:44 PM                                                                                                                    
REPRESENTATIVE  NEUMAN  related  his   interest  in  knowing  the                                                               
mechanics  of  a  scenario  in   which  a  development  plan  was                                                               
proposed, but was  disapproved by the department.   He offered to                                                               
pass on the question for now.                                                                                                   
4:04:15 PM                                                                                                                    
REPRESENTATIVE  BUCH understood  an  agent or  producer has  been                                                               
storing and  shipping Liquefied Natural  Gas (LNG).   He inquired                                                               
as to whether this is under the AOGCC's purview.                                                                                
MS. FOERSTER  answered that  the AOGCC's  authority stops  at the                                                               
REPRESENTATIVE  CHENAULT,  in  response to  Representative  Buch,                                                               
clarified that  32 Bcf of  gas per year  is being shipped  out of                                                               
state until 2011.                                                                                                               
4:05:45 PM                                                                                                                    
REPRESENTATIVE CHENAULT asked  to put on the  record that without                                                               
having the ability to access  the storage facility that recently,                                                               
at times,  not enough gas  would have  been available to  run the                                                               
consumer utilities.   He related  that the LNG facility  has been                                                               
an  integral part  to the  overall gas  storage and  distribution                                                               
system in  the Cook Inlet.   He  suggested while some  people may                                                               
believe that  if the LNG facility  went out of business  it would                                                               
provide a solution to the Cook  Inlet gas supply, their belief is                                                               
not based on fact.                                                                                                              
CHAIR  OLSON   pointed  out   that  Representative   Chenault  is                                                               
referring to a  process called "peak shaving" when  some of loads                                                               
destined for  Japan have been  shorted several times in  the past                                                               
few years  to provide additional  gas to Southcentral  during the                                                               
cold winters.                                                                                                                   
REPRESENTATIVE CHENAULT,  in response  to Chair Olson,  stated he                                                               
did not recall the number of times that has occurred.                                                                           
4:06:53 PM                                                                                                                    
REPRESENTATIVE BUCH  clarified he wanted  to place on  the record                                                               
that  the state  has  a  mechanism, integral  to  consumers in  a                                                               
utility,  and gas  storage is  a component  which should  also be                                                               
4:07:36 PM                                                                                                                    
DAN  SULLIVAN,   Mayor,  Municipality  of   Anchorage,  expressed                                                               
condolences  for  the  loss  of  Jim  Bowles,  President,  Conoco                                                               
Phillips,  who was  recently killed  in  a tragic  accident.   He                                                               
emphasized  that  HB  280  is   important  to  Anchorage  and  to                                                               
Southcentral  Alaska.   He had  the opportunity,  as part  of the                                                               
Municipality  of  Anchorage's Energy  Task  Force,  to meet  with                                                               
Representative Hawker  on the  bill.  The  three main  areas this                                                               
bill covers are essential to  the long-term energy future of Cook                                                               
Inlet gas, including  the ability to create  gas storage, provide                                                               
incentives  to  maintain  and increase  gas  production  in  Cook                                                               
Inlet,  and to  clear any  regulatory hurdles  that may  occur as                                                               
these types  of contracts are  being considered.  He  stressed it                                                               
is  also important  to  keep  the consumer  in  mind during  this                                                               
process.   The Municipality of  Anchorage is concerned  about the                                                               
declining  production  of  natural  gas,  in  particular,  as  it                                                               
relates  to pressure.   He  stated that  pressure is  the key  to                                                               
deliverability on  cold winter  days.  He  pointed out  events in                                                               
the last two or last  three years that resulted in deliverability                                                               
concerns.  He  characterized the Cook Inlet gas issue  as not one                                                               
of  shortage,  but  of  pressure  in the  fields.    Gas  storage                                                               
facilities are  important since they will  help control pressure.                                                               
The  MOA  has  taken  several steps,  including  instituting  the                                                               
Energy Watch  Program, which requests  consumers turn  down their                                                               
thermostats  for heat  and turn  off lights  to conserve  energy.                                                               
Initially,  the results  of this  program have  been outstanding,                                                               
but  the state  cannot rely  on  energy conservation  alone as  a                                                               
long-term solution.                                                                                                             
4:10:10 PM                                                                                                                    
MAYOR SULLIVAN recalled  during a discussion of  the proposed gas                                                               
line and bullet line that  someone once remarked "the solution to                                                               
Cook Inlet  is Cook Inlet."   He agreed.   He surmised  that Cook                                                               
Inlet holds 10  to 15 years of the necessary  natural gas supply,                                                               
not  counting any  new  discoveries.   This  bill,  HB 280,  does                                                               
several   things  the   MOA   supports,   including  the   strong                                                               
requirement  that any  financial benefit  from incentives  in the                                                               
bill would flow through to the  utilities to the benefit of their                                                               
consumers.  He offered his belief  that the 40 percent credit for                                                               
exploration expenses  against production  taxes provides  a great                                                               
incentive  to   garner  increased   production  in   Cook  Inlet.                                                               
Finally, directing the  Department of Law to  consider the impact                                                               
on  consumers  is  important  in  the event  the  RCA  rejects  a                                                               
utility's gas  supply contract.   Thus, these three  key elements                                                               
in HB  280 are  reasons the  MOA supports the  bill.   He related                                                               
that he would not go into the financial aspects of the bill.                                                                    
4:12:14 PM                                                                                                                    
REPRESENTATIVE HOLMES asked how much  of the gas storage capacity                                                               
in Cook  Inlet is actually being  used and any reasons  it is not                                                               
being used.                                                                                                                     
KEVIN BANKS,  Director, Division  of Oil  and Gas,  Department of                                                               
Natural Resources  (DNR), offered his belief  that Ms. Foerster's                                                               
answer is  correct, but to obtain  a precise answer, it  would be                                                               
necessary  to ask  the  operators.   He  suspected the  increased                                                               
capacity that results  in gas storage costs money  so an operator                                                               
would consider whether  to drill another well  or add compression                                                               
to the existing  well.  Gas storage may not  be needed unless the                                                               
operator has customers to purchase the  gas.  He surmised that if                                                               
a producer has  a market due to contract  supply obligations, the                                                               
producer  would  likely  spend  to increase  the  capacity.    He                                                               
suggested decisions for  gas storage thus far may  have been made                                                               
because  it was  less  expensive to  construct  gas storage  than                                                               
drill new  wells since new  wells might  not be as  productive as                                                               
older wells used to be.                                                                                                         
4:14:27 PM                                                                                                                    
REPRESENTATIVE HOLMES stated that she  does not have any specific                                                               
objections to  the bill.   She related  that she  was considering                                                               
many aspects  of natural  gas in Cook  Inlet, including  that new                                                               
wells are not  being drilled, that the  current Liquefied Natural                                                               
Gas (LNG)  facility will  be closing,  any supply  contracts, and                                                               
many  other factors.   She  acknowledged the  effort made  in the                                                               
bill and expressed her interest  is to be certain that everything                                                               
is considered in order to obtain sustainable gas in Cook Inlet.                                                                 
CHAIR OLSON  noted three  people from  the Department  of Revenue                                                               
are available to answer tax questions.                                                                                          
4:15:19 PM                                                                                                                    
REPRESENTATIVE  HOLMES asked  whether Amendment  1 addresses  the                                                               
concerns that the RCA had about jurisdiction.                                                                                   
RICHARD GAZAWAY, Advisory  Section Manager, Regulatory Commission                                                               
of Alaska  (RCA), answered that the  RCA did ask for  guidance on                                                               
jurisdiction over gas  storage and the intent of  the drafters is                                                               
clear.  He  offered that the RCA did not  participate in drafting                                                               
so while the intent is clear,  some improvements could be made in                                                               
the drafting.                                                                                                                   
4:16:35 PM                                                                                                                    
MR.  GAZAWAY, in  response  to  Representative Holmes,  suggested                                                               
that the DOL  could review the language.  He  referred to page 4,                                                               
line 12 of Amendment 1, which read:                                                                                             
               (G)  furnishing injection, storage, and                                                                      
     withdrawal services for natural gas that is owned by a                                                                 
     utility regulated under this chapter;"                                                                                 
MR.  GAZAWAY   suggested  that  the   latter  clause   could  use                                                               
MR. GAZAWAY, in response to  Representative Holmes, agreed to the                                                               
specific cite in Amendment 1.                                                                                                   
MR.  GAZAWAY, in  response to  Chair Olson,  agreed that  the RCA                                                               
could work to improve the specified language at next committee.                                                                 
4:18:00 PM                                                                                                                    
REPRESENTATIVE NEUMAN  asked whether  this bill  would complement                                                               
an industrial  user of gas  who may  need the flexibility  to use                                                               
different volumes of gas.                                                                                                       
MR. BANKS related his understanding  that the expectation is that                                                               
storage would  be similar to  when an industrial user  would shut                                                               
down during peak  demand and inject gas to the  local market.  He                                                               
surmised  that   physically  this   would  happen.     Currently,                                                               
industrial  users such  as  the  LNG facility  also  do not  have                                                               
storage relationships  with the  local consumers  of gas.   Thus,                                                               
unlike  the proposed  gas storage  destined  for consumers,  with                                                               
presumably  transparent  pricing  for   the  service,  a  similar                                                               
transparent   pricing  does   not  exist   for  the   LNG  plant.                                                               
Additionally, there is  not necessarily a market for  gas that is                                                               
redirected by the producer from the  LNG facility.  It is part of                                                               
their normal  supply contract obligation.   He restated  that the                                                               
LNG plant  does not participate in  the local market in  the same                                                               
way as the proposed storage facility would participate.                                                                         
CHAIR OLSON  characterized that the proposed  storage facility as                                                               
operating more like a bank, with  the owner having the ability to                                                               
pull out  its gas when  needed, but  can also deposit  any excess                                                               
MR. BANKS  answered that is correct.   He said to  the extent gas                                                               
is  owned by  the  utility,  the state  has  some indication  and                                                               
regulation  over  the  price  of the  storage.    However,  price                                                               
indicators  are not  present in  other situations,  including the                                                               
LNG and producer-owned storage facilities.                                                                                      
4:21:32 PM                                                                                                                    
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 280.                                                                                     
4:21:50 PM                                                                                                                    
REPRESENTATIVE NEUMAN  related his  understanding of the  need to                                                               
regulate gas facilities.                                                                                                        
REPRESENTATIVE  NEUMAN  moved  to  report  HB  280,  Version  26-                                                               
LS1185\S,   as  amended,   out  of   committee  with   individual                                                               
recommendations and the accompanying fiscal notes.                                                                              
There being no objection, CSHB 280  (L&C) was reported out of the                                                               
House Labor and Commerce Standing Committee.                                                                                    
4:24:10 PM                                                                                                                    

Document Name Date/Time Subjects
HB280 Fiscal Note-CED-RCA-02-08-10.pdf HL&C 2/15/2010 3:15:00 PM
HB 280
HB315 ver A.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB280 Fiscal Note-DOA-AOGCC-02-08-10 (2).pdf HL&C 2/15/2010 3:15:00 PM
HB315 Sponsor Statement.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB315 Sectional Analysis.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB315 Fiscal Note-CED-CBPL-2-11-10.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB315 American Institute of CPAs FAQ.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB315 AICPA Mobility.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB315 AICPA Mobility Table.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB315 ASCPA Resolution.pdf HL&C 2/15/2010 3:15:00 PM
HB 315
HB238 Sponsor Statement.pdf HL&C 2/15/2010 3:15:00 PM
HB 238
HB238 Fiscal Note-CED-COM-2-11-10.pdf HL&C 2/15/2010 3:15:00 PM
HB 238
HB238 AHFC Comments.pdf HL&C 2/15/2010 3:15:00 PM
HB 238
HB238 HUD Letter 7-18-07.pdf HL&C 2/15/2010 3:15:00 PM
HB 238
HB280 Amendment S.2.pdf HL&C 2/15/2010 3:15:00 PM
HB 280
HB280 Sectional Analysis ver S as amended by S.2.pdf HL&C 2/15/2010 3:15:00 PM
HB 280
HB280 Summary of Amendments ver S.2.pdf HL&C 2/15/2010 3:15:00 PM
HB 280
HB280 Gas Storage Map.pdf HL&C 2/15/2010 3:15:00 PM
HB 280
HB280 Amendment S.3.pdf HL&C 2/15/2010 3:15:00 PM
HB 280