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PENDING FERC ISSUES RELATING TO THE ALASKA NATURAL GAS TRANSPORTATION PROJECT

Presentation byKarol Lyn Newman

Morgan, Lewis & Bockius, LLPNovember 30, 2006

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REGULATORY OVERVIEW

Federal StatutesNatural Gas ActAlaska Natural Gas Pipeline ActAlaska Natural Gas Transportation Act of

1976 Federal Regulations

18 C.F.R. Part 157Subpart A – General RequirementsSubpart B – Open Season for Alaska Natural Gas

Transportation Projects

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PURPOSE OF THE OPEN SEASON REGULATIONS – FURTHERANCE OF

DUAL STATUTORY GOAL

Expediting the processing of an application for a certificate of public convenience and necessity;

Promoting competition in the exploration, development, and production of Alaska natural gas.

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FERC ORDER NOS. 2005 AND 2005-A REGULATIONS GOVERNING OPEN SEASONS

FOR ALASKA NATURAL GAS TRANSPORTATION PROJECTS

Open Season for capacity required before an application may be filed;

Open Season must be conducted in accordance with FERC regulations under 18 C.F.R. Part 157, Subpart B;

Failure to comply with the Open Season regulations will result in rejection of the application.

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MOST SIGNIFICANT ASPECTS OF THE OPEN SEASON REGULATIONS

Initial Capacity may be pre-subscribed – but :

Capacity must be offered on the same terms to all prospective bidders in the open season

All pre-subscription agreements must be made public by posting on Internet Websites and press releases within 10 days of execution

Public Notice containing extensive and detailed information about the project including:

Size and design capacity Possible designs for expansion Estimated dates for expansion In-service date Rates (interstate and in-state) Estimated cost-of-service Negotiated rate options

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OPEN SEASON REGULATIONS (CONTINUED)

Terms and conditions for each service Methodology for valuing bids Methodology for awarding capacity Projected filing date All information in the applicant’s possession pertaining to the proposed

service, capacity, design, tariff provisions and cost projections All information made available to or obtained from any potential shipper

prior to the public notice of the open season Organizational structure of applicant’s parent corporations Identification of all Energy Affiliates and affiliated sales and marketing

units Statement that officers and directors of the applicant's affiliated sales

and marketing units and Energy Affiliates involved in the production of gas in Alaska will be prohibited from obtaining any information about the conduct of the open season that is not posted or otherwise made available to the public and other open season participants

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OPEN SEASON REGULATIONS (CONTINUED)

Pre-Open Season Approval Process

90 days before the Public Notice of the Open Season applicant must file a detailed plan for conducting the open season including all the information that must be in the Public Notice.

Notice and Comment Commission decision within 60 days.

Duration of Open Season – At least 90 days Bids tendered after the close of the open season must be considered and

may not be rejected unless they cannot be accommodated due to:

Engineering; Design; Capacity; Operational constraints; Adversely affect the timely development of the project.

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OTHER IMPORTANT ASPECTS OF ORDER NOS. 2005 AND 2005-A

Rebuttable presumption of rolled-in rates for expansions FERC to consider the extent to which proposed project

has been designed to accommodate all conforming bids and low-cost expansion in the certificate review process

FERC to require changes in project design where necessary to promote competition and offer a reasonable opportunity for access to the project

For any expansions, the open season must provide the opportunity for the transportation of natural gas other than from Prudhoe Bay and Point Thompson

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THE COURT APPEAL

• One Issue – Statutory Authority of FERC to require design changes where necessary to promote competition and offer a reasonable opportunity for access to the project

• Argument Scheduled for December 5

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EXAMPLES OF OTHER REGULATIONS THAT FERC MIGHT WANT TO CONSIDER

Regulations to carry out ANGPA Section 105 – Mandatory Expansion of An Alaska Natural Gas Transportation Project

NOPR to address the applicability of lower 48 policies and rules on capacity release, blanket certificates, affiliate, and preferential rate treatment for foundation shippers

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FERC’S STATUTORY AUTHORITY TO ISSUE REGULATIONS

NGA, Section 16 ANGPA, Section 103 ANGPA, Section 105

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WHEN SHOULD FERC BEGIN THE PROCESS OF DEVELOPING NEW RULES?

As soon as possible Why?

Expedited processing of certificates;Federal Coordinator;Efficient and cost effective;Expedite and facilitate approval process.