Senator Lisa Murkowski Welcomes FERC Ruling on Gas Line

SENATOR LISA MURKOWSKI WELCOMES FERC RULING ON GAS LINE

Says ruling should permit line's construction; Alaska to benefit

Senator Lisa Murkowski today welcomed a landmark ruling by the Federal Energy Regulatory Commission, a decision that she said should speed construction of an Alaska natural gas pipeline project, encourage the discovery of more natural gas in Alaska and ensure that gas can be used in state to fuel Alaska's future economy.

"While the Commission has not yet formally issued its rule, the discussion of the decision by the FERC chairman and commissioners at the Commission meeting today appears to indicate that the Commission largely agreed with the provisions sought by the Alaska Congressional Delegation and the State.

"When we passed legislation last fall providing financial incentives for a gas line and setting up an expedited permitting and regulatory process for a line, we wanted FERC to establish rules that will encourage companies to explore for and develop more natural gas in Alaska, not just our known reserves. We wanted the rules to guarantee that a pipeline be large enough to permit gas to be taken out of the pipeline for in-state heating, electricity general and industrial and petrochemical use. And we wanted the rules to guarantee that anyone who finds more gas in the future can use the pipeline to get their gas to market.

"It appears that the rule will meet all of those needs and some of the other issues that Alaska wanted addressed. It appears that the Commission understood Alaska's needs and agreed with many of our requests that should guarantee that Alaska benefits greatly if the line is built," said Murkowski, who had testified before the Commission's technical conference held in Anchorage on Dec. 3, 2004.

The Commission, under the Alaska Natural Gas Pipeline Act, had 120 days to issue rules to implement last fall's law designed to speed construction of the gas line. Besides the $18 billion loan guarantee and tax credits for Alaska segments of a pipeline and for a North Slope gas conditioning plant, last year's law also set up an expedited permitting process and accelerated court review process plus other administrative procedures for a pipeline. FERC's action concerns rules governing "open seasons" - commercial opportunities for potential customers to compete for and acquire capacity in the proposed pipeline. The rules govern the initial and voluntary expansion capacity for the pipeline and establish a process for allocating capacity to ensure "non-discriminatory access" to the pipeline for any future gas discoveries in the state.

Specifically the rules should require: • Companies to use the results of a future Alaska state gas study to design the pipeline's capacity needs to accommodate future in-state use. The study will guarantee that the state has a say in designing in-state delivery points and pipeline tariffs (rates) for gas to be used in Alaska. • That any pipeline builder avoid discriminatory and preferential treatment in picking which company's gas goes into the pipeline for delivery. The rules set up a strict reporting requirement, including for applicants for affiliate-owed projects, to ensure that competition for the capacity is conducted fairly. • That prospective applicants be required to provide FERC with detailed information on project design, how capacity will be allocated, on proposed rates and on terms and conditions for service. • That any information provided to a potential shipper be made available to all others - a condition specifically sought by the state, delegation and Alaska Legislature. • That any agreements with "anchor" shippers - those that will conduct the largest gas capacities in the pipeline - be made public within 10 days of execution. • And importantly, the rule establishes a preference -- a rebuttable presumption - that if the initial pipeline proves too small to handle all the gas from Alaska, that the cost of any upgrades be rolled into the total cost of the project. The "rolled-in rate treatment" provision should guarantee that new gas from new producers can get to market without having to shoulder the disproportionately higher cost of major pipeline upgrades, compared to the tariff costs for initial gas shippers.

The rule is important because currently backers of a pipeline to the Lower 48 have proposed to design the line to handle 4.5 billion cubic feet of gas a day. With additional compression stations that line could handle up to 6 billion cubic feet a day, but after that any additional shipments would require the cost of construction of a separate additional "looped" pipeline that might greatly increase tariff costs, making additional production from Alaska competitively uneconomic. The ruling establishes a rebuttable presumption that the cost of future expansions will be averaged with the costs of existing facilities in determining rates, rather than setting expansion rates on a stand-alone basis.

"While the actual rule has yet to be issued, my initial reaction is that the Commission tried hard to meet Alaska's needs to have gas available for in-state use, to have a pipeline designed so that a spur line to tidewater will be possible, and to guarantee that everyone who explores for gas can get their gas to market. That is vital for Alaska's full gas potential to be fulfilled," said Senator Murkowski.

http://murkowski.senate.gov/pressapp/record.cfm?id=231906