Alaska Legislature: Senate Finance, 6/9/26, 1:30pm

Call the Senate Finance Committee back to order.

This afternoon we will be hearing from the Alaska— the Regulatory Commission of Alaska. Present today, Senator Keele, Senator Merrick, Senator Kaufman, Senator Olson, myself, Senator Hoffman. We have a quorum to conduct business.

Mr. Chairman, John Espendola, please identify yourself and introduce the rest of your commission to the Finance Committee. Commission. For the record and through the chair, my name is John S. Kandola, chair of the Regulatory Commission of Alaska. Good afternoon and thank you for allowing the Regulatory Commission of Alaska the opportunity to present to the Senate Finance Committee. Today I am joined by my colleagues Commissioner Steve DeVries and Commissioner Julie Vogler, both here with me to present.

They are also available to help answer questions the committee may have. Next slide, please.

Please proceed. We are here today to cover a few topics requested by the committee. The first item we will cover is a— is our high-level understanding of the project, which by now this committee is very familiar with. The next items will address our commission pipeline jurisdiction the State Right-of-Way Leasing Act, our role in the project, and last, Commissioner Vogler will speak to additional commission roles as they relate to gas supply contracts. Please feel free to ask questions throughout the presentation.

Next slide, please.

Our understanding is that Phase 1 of the project will focus on construction of the pipeline to address address the critical need for in-state gas supply due to the imminent natural gas shortfall in the rail belt. Phase 2 will build out remaining elements required to treat, transport, and liquefy gas for export. Now Commissioner Steve DeVries will speak to commission jurisdiction as it relates to pipelines. Next slide, please. For the record, which slide are you on?

We are at slide 4. Slide 4, okay.

Please proceed. Okay, for the record, this is Steve DeBries. I'm a commissioner with the Regulatory Commission of Alaska. This is a brief overview of the pipeline jurisdiction that the commission holds. It's generally held under two specific sets of statutes.

The Pipeline Act, which is AS4206, and the— and AS4208, which pertains to contract carriage pipeline jurisdiction. Under 4206, our jurisdiction is generally set for common carrier status, and that status is specifically limited to situations where we have a common carrier pipeline. 4208 Jurisdiction will applies when we have contract carriage situations. We've also— there's also a bulletin that provides jurisdiction— I'm sorry, statutory references to specific carve-outs for exclusions from our jurisdiction where federal jurisdiction applies. Those statutes are in essence just a restatement of federal preemption, which would on a constitutional level bar us from maintaining any state jurisdiction over a— in an area where federal jurisdiction is otherwise exclusive.

But we do have state statutes that provide for the same criteria. If we can move to the— unless there's questions, we can move to the next slide. Next slide, slide 5. Okay, the next slide talks about the State Right-of-Way Leasing Act. This is generally where Commission pipeline jurisdiction arises under AS 4206 and AS 4205 under the State Right-of-Way Leasing Act.

A state lease for right-of-way purposes carries with it by statute an obligation for the pipeline carrier to hold itself out as a contract— I'm sorry, as a common carrier under— that's under AS 835-120 subsection A-1. And in situations where contract carriage is contemplated, then jurisdiction is carried through under the subsequent statute, AS 835-121. Those are the two statutory— basis for the commission's pipeline jurisdiction as it currently exists under existing law. I'd now turn the— I'd now turn it over to Commissioner Espadola to talk about the commission's role in the pipeline project as we understand it. If you could turn to the next slide, that would be slide 6.

Mr. Chairman. Through the chair and for the record, John Espandoro with the Regulatory Commission. We understand the two phases of the project are still under the purview of FERC jurisdiction, as we have not seen a different determination of jurisdiction in the FERC docket. Under its 2020 decision, jurisdiction lies entirely with FERC for both in-state and export as it relates to the AK LNG project. Now I will turn it over to Commissioner Vogler to provide an overview on the commission's authority as it relates to gas supply contract— contracts.

Next slide, please. Mr. Vogler, for the record, Julie Vogler through the chair. AS4205-141B, adopted by the legislature in 2010, requires specific consideration by the commission when determining whether to approve a gas supply contract that provides a reliable supply of gas for a reasonable price. I will note here that this statute was implemented when utilities were entering into gas supply contracts with Cook Inlet producers. LNG imports and North Slope gas was not yet contemplated.

AS4205-141 requires the Commission to recognize the public benefits of allowing these utility to negotiate different pricing mechanisms with different suppliers and to maintain a diversified portfolio of gas supply contracts, thereby protecting consumers from the risks of inadequate supply or excessive costs that may arise from a single pricing mechanism, and to consider whether the utility could meet its responsibility to the public in a timely manner and without undue risk to the public. If the Commission fails to approve the proposed gas supply contract. When a utility files a gas sales contract with the Commission, the utility addresses the statute demonstrating that the contract is in the public interest. It is the Commission's duty to ensure that gas supply contracts are in the public interest and protect consumers from excessive costs. This requires a known, reliable, and deliverable supply of natural gas to a point of view.

And there I will turn it over to Chair Escondola for the next slide or open it up to any questions. We have questions. Senator Kaufman. Thank you, Mr. Chair.

This is Senator Kaufman, and I kind of want to slow down a little bit. This was a For someone who suffered through long committee hearings, it was a blessing that y'all ripped through it as quick as you did. But I'd just like to break this down a little bit. So if you would, and I'm going to have a few questions here. I want to walk through some of these things because they're very important to the people of Alaska who are looking at this pipeline and wondering how it's going to affect them at the burner tip where the— where the magic happens.

So if you would, please explain common carrier and contract carrier in a way that the folks at home and I myself can understand. And if you would, when you're explaining what each one is, explain what the essential differences are between those designations.

A common carrier is one that— where you have a pipeline that holds itself open to all comers, basically under a tariff that lays out the same price, the same terms of service, the same conditions of service for anybody who— or any producer that wants to ship either oil or gas on a pipeline. Contract carriage is different because the way it's set is by a contract instead of by a specific tariff provision. And so the, the carrier or the pipeline negotiates with the producer for how they want to supply or how they, how they will transmit their product and the terms and conditions under which it will be shipped. That's essentially the two differences. One is by a set, like a menu price, which is the common carrier, versus an individual contract price, which is the contract carriage.

So an example of a common carrier would be the Trans-Alaska Pipeline? That's— through the chair, Senator Hoffman, that's correct. Senator Kaufman. Okay, thank you. And so then the— for folks, we're on slide 4 right now.

And so the next bullet you have on that slide says that you have no jurisdiction over intrastate natural gas pipelines where FERC has established exclusive jurisdiction. And so explain the intent of that bullet. Through the chair, Senator Kaufman. Perfect example is the 2020 decision that FERC issued with regard to the current project that you're looking at. That project, as it was presented to it, FERC exercised its Section 3 jurisdiction over the export of gas to foreign markets and included with within its ambit because it was within the project also potential off-takes for in-state use as well.

FERC said that that was its Section 3 jurisdiction. By federal law, that is exclusive jurisdiction. So even though there are intrastate components to it, meaning that there are off-takes that were contemplated for intrastate use, at the At the time that decision was issued, those all fell within FERC's exclusive jurisdiction. There was no carve-out for state jurisdiction at that time. Senator Kaufman.

Thank you for that. So part of the— there's a lot of things here I'm trying to unpack. And I guess if this project has been separated into the in-state piece as Phase 1, and ultimately, hopefully, the Phase 2 piece, which is the big money play. Phase 1 is just— I think of it as almost an in-state utility line that we're building to bring gas from north down the south, and then we're going to hope that we get Phase 2. How does this jurisdiction— how does that play out when indeed we're looking at a two-stage project and Phase 2 is not a given, and we're working to make Phase 1 even possible.

So should there be some distinction between those project phases that, that are more beneficial for either the project or beneficial for Alaskans that may see other needs for this other than simply a one point of entry, North Slope gas in and then gas out down south?

Regulatory Commission through the chair to Senator Kaufman. As I ran through in slide 6, we understand the two phases are still under the purview of FERC jurisdiction because we had not seen a different determination in the FERC docket. And again, as I mentioned, in 2020, the decision lies entirely with FERC for both in-state state and export as it relates specifically to the AK LNG project.

Senator Kaufman, then Senator Neal. Okay. And so, and by that, this project is considered a contract carrier.

Through the Chair, Senator Kaufman, I'm not sure that how the project was characterized to FERC as either common carrier or contract carrier. I think it was characterized to FERC as an export project for purposes of Section 3 of the Natural Gas Act. Whether or not within the filings made there was a characterization of it as a common carrier or contract carrier I'm not aware of the particulars of the filing that would have differentiated one from the other. Senator Kaufman? Yes, I believe in prior testimony the project said that they were designated as a contract carrier.

Thank you, Senator Kaufman. Senator Keel? Thank you, Mr. Chairman. Thanks, Commissioners, for this. And I'll just preface questions by saying that There's no gas, no pipelines in my district, so I'm likely to ask ignorant questions, and I hope you'll tune your answers to me and my constituents who just don't have any familiarity with these things in our region.

But they matter to the whole state. So I guess the first question is a follow-up on Senator Kaufman's question. If Phase 1 happens and Phase 2 doesn't, at what point does this become an intrastate project without an export interstate element and revert to the jurisdiction of the RCA? If no gas goes overseas, and no gas looks likely to, I mean, we all hope we don't end up there, but is there a point where that happens?

Through the chair to Senator Keele, John Espendola for the record. Because to your specific question, the Commission would potentially have to adjudicate that matter, it would be inappropriate for us to speculate on any aspects of that scenario.

Senator Keele. Fair enough, fair enough. We are talking to quasi-judicial folks, so I'm not looking to put anybody in a box.

Box. So I guess the next question that comes up then, we have this contract carrier language in one of your slides in the— you mentioned in the right-of-way leases. That the pipeline runs down. So do you have a sense if, or how should I understand the enforcement of contract carrier requirements if we don't know whether this thing is meeting the requirements of the Right of Way Leasing Act? Or maybe we do and I'm a step off.

Can you help me with that?

Senator Kiel, through the Chair, this is Commissioner Steve DeVries. I'm not sure—. Could you please try to rephrase your question? I want to make sure that I'm answering what it is that you're— what you're getting at. I'm not sure I understood.

Thank you. Mr. Chairman, I'm lost, so I'm leading you astray.

I'm trying to figure out On slide 5, you talk about the requirements of the Right-of-Way Leasing Act. And certainly the pipeline project we've got in front of us uses some state rights-of-way. So that refers to contract carriers service for natural gas pipelines, your third full bullet. On an earlier slide, you said that your contract carrier laws don't apply because FERC does. So how do we figure that out?

How do we figure out if they're really operating as a contract carrier under the law? The way slide 5 says they're going to have to for the purpose of their leases? Senator Kyl, through the Chair, this is Steve Devries answering your question. Well, the first step would be for FERC to decline or express or to demonstrate that it no longer is exerting exclusive jurisdiction over the pipe. If that was the If that's the case, then we would see the situation come before us, the regulatory commission, as to whether or not the state would— state meaning the regulatory commission— would have jurisdiction to regulate that, the pipeline under those circumstances.

And since, as you've laid it out, it's a contract carrier situation, then the contract carrier provisions of AS4208 would typically come into play by virtue of, I'm assuming, the Right-of-Way Leasing Act requirements under 3835. I hope that's answered your question. If not, I'd be happy to follow up if you want me to provide any additional guidance. Senator Keehl. Mr. Chairman, if I might, I think what I understood Commissioner to say, and please correct me where I get this wrong, is that you're not going to look at it unless FERC says they're not going to look at it and any other questions about rights of way should go to DNR?

Did that oversimplify it or did I get that right? At a high level— I'm sorry, through the Chair, Senator Keele, I think at a high level that's Correct. Right now, the plate that we have before us is that FERC has asserted exclusive jurisdiction. Until that changes, FERC and federal jurisdiction preempt state law and would preempt the regulatory commission from taking any action. Senator Keel?

I'll hold off for another go-around. Thank you, Senator Keel. Senator Kaufman? Thank you. My question is if this designation has any linkage with permitting.

Does the— does FERC's role or the state's role, does that in any way affect the permits?

Through the chair, for the record, John Espindola to Senator Kaufman. As of right now, we're not involved in any aspect of the project, so specifically speaking to the regulatory commission, we would have no nexus with what happens at this point regarding permitting. Thank you. Thank you, Senator Kaufman. I'm going to think about all this for a minute.

Senator Keele. Thank you, Mr. Chairman. Different, different line of questioning, if I may. I, I know that there's a reference in some of the slides, and I looked over at pointed me at— well, I didn't, let's be honest. Google pointed me at something in the Federal Natural Gas Act.

They both use the term non-discriminatory contract carrier, and I could use some very rudimentary education on what that means. The commissioners said in a previous answer that you can have separate contracts for separate customers as a contract carrier, different terms, different rules. So how are you— what does nondiscriminatory mean if you can have a different contract and a different price with different folks?

Senator Kiel, through the Chair, this is Commissioner Steve DeBries. Under 4206, under the common carrier status, there is an express requirement for nondiscriminatory service, which makes sense because you have essentially a tariff rate which is set, which provides the same price for the same service for all comers. Under contract carrier situation, there is a general requirement for nondiscriminatory status as well, but you're dealing oftentimes with contracts for different kinds of service, or you can have contracts for different kinds of service. So for example, you can have a contract for firm service at a certain price or under certain terms for certain circumstances. You can have a contract for non-firm service or interruptible service, which could be at a different price under different terms of service for different reasons and different circumstances that would be negotiated between the pipeline and the individual supplier.

So at a high level, you can have differences that occur because of differences in need or differences in types of services that are offered. So I hope that answers your question. Senator Kiel? That's helpful, thank you. Thank you, Senator Kiel.

Senator Kaufman? Thank you. Yes, so— I'm gonna come at this a little bit different way. Let's just say we're not even talking about the Alaska gas pipeline, but we're talking about a pipeline that will cut all the way across a state and be filled with gas and be used by citizens for an indeterminate period of time, and maybe there's a global market for it or not. What we would— Since we think of that as essentially a monopoly, and that's often what utilities are, they're a monopoly that has— there's not likely to be a competitor because who else would build a parallel line right next and try and compete that way?

So what we're working on is what will essentially be a monopoly to transport gas long distance across this theoretical state. If we were to just consider this in a vacuum, and considering that the state may have gas supply at different places around it, all the way from the far end of it to the nearest end of it from the user's perspective, what would be the best designation for a line operating under those circumstances where it's got in-state customers— and there could be sources of supply anywhere along the length of that pipeline. Should there be considerations for what the tariff is going, you know, the further the distance? Is it like a toll road where you're paying a toll by the mile? What's the best construct for a pipeline that is essentially doing this task of gathering gas at one end potentially along the way, or even gas that's at its termination at the other end.

And so the geography of all that and the fact that we have to manage for the best, you know, best results for the people of Alaska— what would be the optimal characterization of that line?

There's a lot to unpack there, so I'll just try to— I'll try to start at the end, and you can remind me when I forget about the other questions that you would like me to address. But the last question that you— that you talked about was how you would price, or is there an optimal way to price where you're dealing with a pipeline that transects a long distance? One of the problems that we have as a quasi-adjudicatory body is that we don't want to speculate about things that we don't have before. But I can point you to the Trans-Alaska Pipeline as an example. So the Trans-Alaska Pipeline does have mileage-based rates.

So that might be a model that you could look to for an example. —Of how pricing can often happen. In other contexts, what is not unusual in either utility pricing for gas or for other— in other pipeline contexts is a— is what's called a postage stamp rate, where the same rate is charged for distribution of gas on a pipeline regardless of where the off-takes are. That can be on a pipeline-by-pipeline basis. So it just depends, and it depends on how it's presented to the commission about what structure will or will not be approved.

That, I think, answered your last question, and I apologize for not remembering the other questions that you may have posed. But if you would like to restate them, I'll be happy to try to answer them. Senator Kaufman. Thanks. I guess the one piece of it is which form is most amenable to the potential for other sources of supply coming into the line?

I think he means common. Senator Coffman, this is through the chair, Steve DeVries again.

It's, I think, impossible for me speculate which would or which would not be a preferable mechanism because that would depend on the particularized facts that would be presented in any docket where that particular issue was being addressed. There could be variables that we are not considering as we think about that as an issue that you're grappling with now, but it would— I would be reluctant to to at this point engage in speculation about what would or would not be the best mechanism to employ given our status as a quasi-judiciary body. Thank you. Senator Kaufman. Thank you for that.

I appreciate the situation, but I guess is either configuration, and I don't know if you can answer this either, but just another, just sort of from a technical basis. Is either configuration more compatible with the idea of multipoint input rather than point-to-point where you are putting it in one end and getting it out the other?

Senator Kaufman, through the chair, this is Steve DeVries again. I cannot answer that question other than to point to the fact that as we see as we sit here today, I'm not aware of any certificate being issued to any pipeline in the state under AS 428, which is the contract carrier jurisdiction that we have. All other pipelines are common carrier pipelines. Senator Kaufman. Thank you.

Senator Keele. Thank you, Mr. Chairman. I wonder if we might get a little more help then with some of the Commission's rules on slide 7, looking at the gas supply contracts to Alaska Utilities. And I guess the first question would be, while the language you quote on this slide from the law talks about diversity of supply.

Does the commission retain the right, the power to look at an Alaska utility's comparative cost of gas from a FERC-regulated pipeline?

Senator Kiel, through the chair, this is Steve DeBries. So if I can restate your question, I want to make sure I understand it. You want to know what authority that we, the Commission, has to regulate or to review the pricing of gas from a FERC Pipeline? Yes, please, Mr. Chairman.

If the price is regulated by FERC, which I'm not aware of that being the case, then we would have no jurisdiction if FERC has maintained jurisdiction over it. If it's not FERC-regulated and it's gas that's provided by a utility from a for a pipeline or intrastate use by a utility, then that would be a gas supply contract that would generally fall under our jurisdiction. Senator Keele. Okay. Thank you.

That's helpful. How deep can the Commission— will the Commission look Let me change that. How deeply into the elements of that price is the Commission charged by law in looking? And I'll just, again, right, I— my district doesn't have any gas, but on more than one occasion over the decades, the RCA and its predecessor have said to a utility, you can't include element X or element Y in the rates you charge customers because they're gold-plated, or they're not truly necessary, or you have some standards you apply.

How deeply into the elements of a gas contract price do you look? Are you charged with looking? Okay, Senator Kiehl, through the Chair, this is Steve DeVries. There's a big difference in how the Commission reviews costs to consumers from gas supply contracts and how the commission reviews all other costs. And the reason for that is because there's a specific provision in Title 42, and that statute is on slide 7, which specifically and narrowly constrains our review authority.

And so it's very, very different in the structure of what we can and what we can do and the criteria that we use to evaluate gas supply contracts versus other costs that are incurred by a utility in providing the services that they do to consumers. One thing not mentioned in the statute, which is a requirement that we look at in all contexts, is prudence. An imprudently incurred cost is one that is generally excluded excluded from rates. That's a general high-level discussion point at this point, but in essence, that's the rule of thumb that is also applied to all contract costs or all utility-related costs that are flowed through to consumers. And to follow up, Senator Keeough.

So thank you, Commissioner. Are you— did I understand you then to say that you don't consider prudence you look at a gas supply contract?

Senator Kiehl, through the chair, no, we would look at prudence if the issue is raised. Utility practices are presumed prudent unless they are challenged when a cost is being reviewed by us in a docket. It is when they are challenged and a record is to be developed that shows that it is likely or that serious questions have been raised as to the prudent practices or prudent utility practice of a utility in question that calls the prudence of that decision into question, then we would— then it would be before us to adjudicate. But in other situations, we are— and utility management decisions are considered prudent be overturned unless challenged in that manner. Senator Kiel.

Thank you, Mr. Chairman. So to delve just a little deeper on that, I'll draw you a ridiculous and absurd example so that we don't get into, you know, pre-adjudicating anything. If this in-state phase of a gas line is built and all of the compressors are solid gold and every employee is chauffeured in a Bentley, But all, um, all NSTAR is able to bring you is a final gas cost, and that is challenged. Can you look at the prudence of the elements of that cost?

Through the chair, for the record, John Espindola, Regulatory Commission. Yes, we would, and that would be determined in an adjudicatory proceeding based on a full record. Thank you, Mr. Chairman. That's helpful to understand how that works. Thank you, Senator Keele.

Senator Kaufman. Thank you. One of the hot-button issues as we're considering the gas line proposal, folks, the consumers are worried about how we're going to assure that they're getting the lowest possible cost of gas considering all the logistics or restrictions and things that we have to deal with. And just in that line of thought, I anticipate a day where you're looking at approving contracts that— where the big picture option may be bringing gas through this gas line project, should it get constructed, purchasing gas on the open market in liquid form, and then having to go through all the cost of transportation, changing it, phase shifting it from liquid to gas and the cost that's implied with that. And then along with that is the potential that there's other smaller sources of it, of gas inside Alaska and how they sit with this whole big system.

For the folks out there, could you just go over all that you're going to consider as you're looking at these contracts and what you might be taking into account to assure that the ratepayers are going to be getting the lowest possible cost of gas.

For the record, Julie Vogler through the chair. So as we— I've been listening to some of the presentations presented by John Sims— and my— just in that instance, my understanding, there's going to be 3 contracts in one. Without having that contract in front of us, we do not know what's going to be proposed, what will be presented, how they will satisfy the requirements of 4205.141. So those are unknowns to us at this time.

Senator Kaufman.

Does a member have the question that Senator Steadman had? I do. Thank you, Mr. Chairman. I was just bringing that back up. Senator Keele.

Thank you, Mr. Chairman. Question posed by another member of the committee who is not able to be with us this afternoon, Commissioners, was about how costs costs of a spur line may be allocated.

If this pipeline is built and we have a line that runs into connected supply with another— with the Interior Gas Utility, does the law allow that cost to be spread across all consumers in the state? All gas consumers in the state? Through the chair, for the record, John Espandola, Regulatory Commission of Alaska, to Senator Kiehl. It's an open question regarding jurisdiction and cost for the spur lines because we don't know how they'll be construed in terms of the project as a whole. So it's an unknown at this time.

Mr. Chairman, could I ask not— could I ask what the elements are that will be considered? Please don't weight them. Please don't get us into any pre-decisional discussion. Simply a description for my understanding of what the elements are that the Commission would need to consider.

Senator McKeown, through the chair, this is Steve DeVries.

If the— if what you're talking about is how rates would be set if the commission had jurisdiction over a spur line, then it would be set in, uh, in one of two ways. It would either be be set under AS4206 as a common carrier, or if it was a contract carrier situation, would be set by contract under AS4208. The mechanisms by which the Commission approves or disapproves or requires modifications to a tariff under the common carrier requirements of AS4206 are generally well known. Pipeline would present a tariff. We would review it for reasonableness and determine whether or not the rates that are proposed are just and reasonable after taking into consideration any intervenors' objections or evaluations of the issues that are presented.

It would be a general adjudicatory decision. If your question is, would rates be structured on a post- mileage stamp versus a mile or mile per barrel, you use it— I mean, I recognize that's an oil term rather than a gas term, but mileage basis. That would have to be determined on the— in the docket itself as well. We can't prejudge or predetermine what would be the proper way or what would be the allowed way that such a cost structure would evolve depending on the— it would have to depend on the facts presented to us at that particular time. I hope that's answered your question.

Senator Kiel. Thank you, Mr. Chairman. Very helpful for understanding the commission's rate setting. I think that Senator Steadman's question was more likely along the lines of if the natural gas utility serving the Cook Inlet region brought a gas supply contract that included some amount in the charge to customers that would cover a portion of a Fairbanks spur line as part of the construction of the total pipeline and face some challenge. Senator Keogh, through the chair, if— let's just use your— using the example of AntStar, which has a certificated service area that does not include Fairbanks.

So its certificated service area is only allowed to charge rates for services it provides in its certificated service area. If it wanted to expand its service area to include Fairbanks, it would need to apply for a new certificate in order to do so. Whether rates charged for a Fairbanks service area would be the same as those charged for Anchorage or current service area would have to be decided in a particular docket to see whether or not there was a justifiable reason for doing so.

I think that's an answer. Thank you, Mr. Chairman. Thank you, Senator Keel. Do members of the Finance Committee have additional Questions of the Commission?

Do we have any closing comments, Mr. Chairman?

Yes, for the record, John Espadola through the Chair— through the Chair, for the record, John Espadola, we would like to thank the Committee for allowing us this opportunity in front of you to answer some of your questions. Thank you. Thank you. That concludes the meeting this afternoon. The next meeting is going to be tomorrow, June 10th, at 9:00 AM, where we will be hearing from the Fairbanks North Star Borough, the Denali Borough, Matnuska-Susitna Borough, and the Municipality of Anchorage.

Is there anything else Mr. to Comey, for the committee. With that, we are adjourned.