January 22, 2004
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APPLICATION OF MIDAMERICAN ENERGY HOLDINGS COMPANY AND MEHC ALASKA GAS TRANSMISSION COMPANY, LLC TO STATE OF ALASKA DEPARTMENT OF REVENUE FOR APPROVAL UNDER THE ALASKA STRANDED GAS DEVELOPMENT ACT JANUARY 22, 2004 AN AFFILIATED COMPANY OF BERKSHIRE HATHAWAY INC. LIST OF EXHIBITS................................................................................................................. ii I. INTRODUCTION ........................................................................................................ 2 II. THE ASGDA APPLICATION PROCESS ...................................................................... 4 III. MAGTC’S APPLICATION......................................................................................... 5 A. Project Qualification ................................................................................... 5 1. Description of the Project ............................................................... 5 2. Stranded Gas Production Estimates................................................ 7 3. Prospects for Meeting Intrastate Demand for Gas.......................... 8 B. Sponsor Qualification ................................................................................. 9 1. Description of MAGTC Sponsor Group......................................... 9 2. Statement Regarding Gas Supply Commitments......................... 10 3. ASGDA Criteria ........................................................................... 10 C. Proposed Project Plan ............................................................................... 11 1. Work Accomplished In Furtherance of Project ............................ 12 2. Timetable for Completion of Project ............................................ 14 3. Supply Sources: Lease, Property and Landowner Information ................................................................................... 15 4. Availability of Gas to Meet Intrastate Gas Demand..................... 16 5. Options to Mitigate Impacts on Locally Affected Entities ........... 16 6. Safe Management Options............................................................ 17 7. Reserve/Production Data and Impacts.......................................... 17 8. Plans for Offering and Granting Access to Pipeline Capacity ........................................................................................ 18 CONCLUSION...................................................................................................................... 20 i LIST OF EXHIBITS EXHIBIT 1 FIGURE 1 – PROPOSED MAGTC/CANADIAN PIPELINES AND ANGTS PRE-BUILDS FIGURE 2 – ILLUSTRATION OF NORTH AMERICAN NATURAL GAS PIPELINE GRID EXHIBIT 2 – PART A - MEHC FORM 10-Q PART B - MEHC FORM 10-K PART C - BERKSHIRE HATHAWAY FORM 10-K EXHIBIT 3 - PROBABLE COMPLIANCE REQUIREMENTS IN ALASKA EXHIBIT 4 – PRELIMINARY PROJECT DEVELOPMENT TIMELINE ii APPLICATION OF MIDAMERICAN ENERGY HOLDINGS COMPANY AND MEHC ALASKA GAS TRANSMISSION COMPANY, LLC TO STATE OF ALASKA DEPARTMENT OF REVENUE FOR APPROVAL UNDER THE ALASKA STRANDED GAS DEVELOPMENT ACT MidAmerican Energy Holdings Company and MEHC Alaska Gas Transmission Company, LLC (collectively, “MAGTC”), submit this application to the Alaska Commissioner of Revenue for approval, pursuant to the Alaska Stranded Gas Development Act, as amended, AS 43.82.010, et seq. (“ASGDA”), of MAGTC’s plan to construct an overland pipeline to facilitate the production and marketing of stranded Alaskan natural gas. MAGTC requests determinations by the Commissioner under AS 43.82.140(a) that MAGTC’s Alaska pipeline, as described below, constitutes a “qualified project” as defined in AS 43.82.100 and that MAGTC, including its principal owner, MidAmerican Energy Holdings Company (“MEHC”), 1 and the project’s co-developers are a “qualified sponsor group” as defined in AS 43.82.110. In accordance with AS 43.82.130, MAGTC also submits for review and approval with this application a proposed project plan. MAGTC requests a determination by the Commissioner, and the concurrence of the Commissioner of Natural Resources, pursuant 1 MEHC, an affiliate of Berkshire Hathaway, Inc., headquartered in Des Moines, Iowa, is one of the largest diversified energy companies in the world. Through its various subsidiaries, MEHC is a global leader in the production, transportation and distribution of energy from diversified fuel sources, including natural gas, electric generation, geothermal, hydroelectric, nuclear and coal. Through its subsidiaries, Kern River Gas Transmission Company and Northern Natural Gas Company, MEHC’s interstate natural gas transportation network consists of over 18,000 miles of pipeline facilities, making MEHC the second largest interstate natural gas transmission company in the United States. to AS 43.82.140(b), that the proposed project plan is a “qualified project plan” within the meaning of AS 43.82.130. MAGTC requests that the Commissioner direct all inquiries and other communications regarding this Application to: Mark C. Moench Kirk T. Morgan Vice President Vice President, Marketing and General Counsel and Regulatory Affairs MEHC Alaska Gas MEHC Alaska Gas Transmission Company, LLC Transmission Company, LLC 2755 E. Cottonwood Parkway 2755 E. Cottonwood Parkway Suite 300 Suite 300 Salt Lake City, UT 84121 Salt Lake City, UT 84121 (801) 937-6059 (801) 937-6244 [email protected] [email protected] In support of its application, MAGTC states as follows: I. INTRODUCTION Development of Alaska’s enormous natural gas reserves has long been hampered by unfavorable economics related to the remote location of the resources relative to other supplies available to North American markets and the difficulties and costs of transporting and delivering Alaskan gas to those markets. MAGTC and its sponsors believe that those circumstances are rapidly changing. Demand for natural gas in North America, particularly in the continental United States, continues to grow steadily, spurred by continuing emphasis of natural gas as the fuel of choice for new electric generating facilities, as well as general growth in the U.S. economy. However, production of gas from established supply basins in the lower 48 United States (“Lower 48”) and western Canada has struggled to keep up with the increasing demand. Consequently, gas prices are rising generally, even though storage fields have been substantially full throughout the current winter season. 2 Analysis of trends in the supply and demand for gas confirms that this is not a short-term phenomenon. Technological improvements in pipeline materials, equipment and construction methods since the original Alaska gas pipeline was proposed in the 1970’s likewise underscore the changing fortunes of Alaskan gas. Hence, it appears that the end of this decade will finally be the time when Alaskan gas will begin to play the critical role in meeting U.S. gas demand that many have long looked forward to it having. Along with its owners, MEHC; Cook Inlet Region, Inc. (“CIRI”); and Pacific Star Energy, LLC, and with the cooperation of TransCanada PipeLines Limited, through its wholly-owned subsidiary, Foothills Pipe Lines Ltd. (“TransCanada”), MAGTC is prepared to join Alaska in pursuit of this vision. Accordingly, as explained in more detail below, MAGTC proposes to build a 48-inch diameter natural gas pipeline, with an initial design capacity of 4.5 billion cubic feet per day (Bcf/d) of gas, from the tailgate of a gas conditioning plant in the Alaska North Slope gas fields to the international boundary between Alaska and the Yukon Territory. At the border, MAGTC intends that the Alaska pipeline will interconnect with a new, companion pipeline in Canada to be built by TransCanada (by and through Foothills Pipe Lines Ltd. (“Foothills”)). Foothills and its wholly-owned subsidiaries hold the certificates granted by the government of Canada under the Northern Pipeline Act to build the pipeline in Canada for the transportation of Alaskan gas. The new pipeline could be an extension of the existing Foothills prebuild pipeline or may consist of facilities developed by other entities. In either event, the new Canadian facilities would connect Alaskan gas into multiple, existing downstream pipeline systems for delivery into virtually every market center in the Lower 48 and Canada. Of necessity, commercialization of the project will require concurrent contractual arrangements by 3 shippers for transportation of gas involving both the Alaska pipeline and the downstream Canadian line. With this application, therefore, MAGTC and its sponsors take an important first step in what we anticipate will be continuing and amicable cooperation with the State of Alaska to capitalize on this long-awaited convergence of favorable market circumstances. MAGTC and its sponsors share Alaska’s objectives of ensuring that the state’s stranded gas resources will be developed fully and delivered to the Lower 48 on a timely and economical basis and that the people of the State of Alaska will share equitably in the benefits of this long-sought development. II. THE ASGDA APPLICATION PROCESS The ASGDA has three primary purposes: to encourage new investment to develop the state’s “stranded” gas resources; to provide appropriate fiscal terms and conditions that are tailored to “qualified projects” that target development of those stranded gas resources; and to ensure that the benefits of a successful, qualified project are, to the maximum extent possible, realized by the people of Alaska. Upon demonstrating to the Commissioner