(a) For a lease of state land for a right-of-way for which an applicant has applied as a contract carrier under AS 42.08, a noncompetitive lease of state land for a right-of-way for a natural gas pipeline valued at $1,000,000 or more may be granted only on the condition that the lessee expressly covenant in the lease, in consideration of the rights acquired by it under the lease, that

(1) except for the covenants in AS 38.35.120(a)(1), (2), and (5), it will meet the requirements of AS 38.35.120;

(2) it will interchange natural gas and provide connections with each public utility pipeline, common carrier pipeline, or contract carrier pipeline, and facilities for the interchange of natural gas at every locality reached by both pipelines when the necessity exists, as provided in contracts on file with the Regulatory Commission of Alaska;

(3) it assumes the status of and will perform all of its functions undertaken under the lease as a contract carrier and, subject to contracts with shippers, will accept, convey, and transport, without discrimination, natural gas delivered to it for transportation from fields in the vicinity of the pipeline subject to the right-of-way lease throughout the pipeline route, both on state land obtained under the lease and on other land, and that, subject to contracts with shippers, it will accept, convey, and transport natural gas without unjust or unreasonable discrimination in favor of itself or one producer or person against another, but will take the natural gas delivered or offered without unreasonable discrimination;

(4) it will expand the natural gas pipeline on commercially reasonable terms that, when possible, encourage exploration and development of gas resources in this state without increasing transportation costs for a shipper except as provided for in the contract with the shipper; in this paragraph, “commercially reasonable terms” means terms that produce sufficient revenue from transportation contracts to cover the cost of the expansion, including increased fuel costs and a reasonable return on capital, without impairing the ability of the pipeline to recover the costs of existing facilities;

(5) it will not require a shipper to pay a rate in excess of the rates provided for in the contract with that shipper.

(b) A contract carrier may offer to a shipper firm transportation service, interruptible transportation service, or both. In this subsection, “firm transportation service” has the meaning given in AS 42.08.900.

(c) The lessee may not construct or expand or allow the construction or expansion of a natural gas pipeline under (a) of this section to be a competing natural gas pipeline project for purposes of AS 43.90. In this subsection, “competing natural gas pipeline project” has the meaning given in AS 43.90.440.