Legislature(2007 - 2008)HOUSE FINANCE 519

04/30/2007 01:30 PM FINANCE

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01:41:31 PM Start
01:43:32 PM HB177
03:48:22 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
- Continuation of Sectional Analysis:
Pat Galvin, Commissioner Dept. of Revenue
- Rolled in Rate Provision/Contribution
to Rates: Antony Scott, Commercial
Analyst, Div. of Oil and Gas, DNR
- Federal Energy Regulatory Commission
(FERC): Don Shepler, Consultant,
Greenburg Traurig
HOUSE BILL NO. 177                                                                                                            
     An Act  relating to the  Alaska Gasline Inducement  Act;                                                                   
     establishing the Alaska Gasline  Inducement Act matching                                                                   
     contribution  fund;  providing  for  an  Alaska  Gasline                                                                   
     Inducement    Act   coordinator;    making    conforming                                                                   
     amendments; and providing for an effective date.                                                                           
Co-Chair  Chenault  pointed  out   that  there  had  been  an                                                                   
amendment  passed  in  the House  Resource  Committee  (HRC),                                                                   
which had not  been incorporated into the version  before the                                                                   
House Finance Committee.  A corrected  draft of the bill will                                                                   
be forthcoming.   The change  left out  was to Page  15, Line                                                                   
15, a conceptual amendment proposed  by Representative Roses,                                                                   
inserting: "50% of the licensee net cost".                                                                                      
1:43:32 PM                                                                                                                    
PAT GALVIN,  COMMISSIONER, DEPARTMENT  OF REVENUE,  continued                                                                   
his  previous  discussion of  the  bill, beginning  with  the                                                                   
section starting on Page 19, Line 10:                                                                                           
   ·    Section 43.90.250 establishes the Alaska Gasline                                                                        
        Inducement Act (AGIA) coordinator  position, designed                                                                   
        &  created   by   amendments  created   in   previous                                                                   
        committee hearings.     The  position would  continue                                                                   
        for one  year  after  commencement.   He  listed  the                                                                   
        duties of that position.                                                                                                
   ·    Section 43.90.260 describes the expedited review and                                                                    
        action of the State agencies.                                                                                           
   ·    Article 3 identifies the resource inducement                                                                            
        including  Section  43.90.300,  which   indicate  the                                                                   
        qualifications for resource inducement.                                                                                 
1:48:22 PM                                                                                                                    
Commissioner Galvin continued:                                                                                                  
   ·    Section 43.90.310 addresses the royalty inducement                                                                      
        on  Page  20,   Line  31,   which  might   result  in                                                                   
        deductions  for  transportation;  it   is  a  current                                                                   
        contractual right of the State.                                                                                         
Co-Chair Chenault inquired if  stipulations had been included                                                                   
regarding the  size of a  gas contract.  Commissioner  Galvin                                                                   
explained  that  the  royalty  arrangements  are  implemented                                                                   
through the Department  of Natural Resources  and with regard                                                                   
to  AGIA,  that  scenario is  addressed  through  the  actual                                                                   
inducement,  establishing  the  evaluation.   The  Department                                                                   
avoids  individual  contracts.    The  price  is  established                                                                   
through the published price.                                                                                                    
1:52:13 PM                                                                                                                    
Representative  Gara pointed  out the  bill attempts  to make                                                                   
the  bidding   process  attractive   to  potential   pipeline                                                                   
builders.     Commissioner   Galvin   noted  that   up-stream                                                                   
inducement is  tied to the  commitment of the  value provided                                                                   
to the lessee in exchange for making that commitment.                                                                           
Representative  Gara  asked  the   estimated  revenue  value.                                                                   
Commissioner Galvin  suggested that query be  directed to Mr.                                                                   
Scott in the Division of Oil and Gas.                                                                                           
1:53:41 PM                                                                                                                    
ANTONY SCOTT,  COMMERCIAL ANALYST,  DIVISION OF OIL  AND GAS,                                                                   
DEPARTMENT  OF NATURAL  RESOURCES,  advised  that during  the                                                                   
process,  the Division  had looked  at  the value  associated                                                                   
within the State's  provision and that it is  estimated it is                                                                   
worth approximately 2% of the final destination price.                                                                          
1:54:44 PM                                                                                                                    
Commissioner Galvin continued:                                                                                                  
   ·    Section 43.90.310 clarifies the royalty inducement                                                                      
        aspects, which will minimize  retroactive adjustments                                                                   
        to the monthly value  of the Sate's royalty  share of                                                                   
        gas production and provide a method  for establishing                                                                   
        a  fair  market  value  for  each  component  of  the                                                                   
        State's  royalty gas,  based  on  pricing  data  from                                                                   
        reliable   and  widely   available   industry   trade                                                                   
        publications.  It  uses appropriate adjustments.   He                                                                   
        addressed two aspects  of the royalty  commitment and                                                                   
        highlighted the complications  resulting in  a change                                                                   
        in the lease provisions.                                                                                                
1:59:26 PM                                                                                                                    
Representative   Kelly  questioned   the   solidity  of   the                                                                   
commitment to  the producer.   Commissioner Galvin  explained                                                                   
that the  length of the  inducement would  be as long  as the                                                                   
transportation  commitment  is  in place.    If they  make  a                                                                   
commitment, the  contractual right  ends.  The  producer will                                                                   
be linked  in time,  value and  volume to the  transportation                                                                   
2:01:09 PM                                                                                                                    
Commissioner Galvin continued, Page 23, Line 19:                                                                                
   ·    Section 43.90.320 describes the gas production tax                                                                      
        exemption,  which  provides   a  method  for   a  tax                                                                   
        exemption equal to  the tax rate change,  receiving a                                                                   
        credit to  lower the  level they  pay.  The  original                                                                   
        intent was that the  right be contractual.   The bill                                                                   
        has been  structured to  rest  on the  transportation                                                                   
        commitment;   however,   previous   committees   have                                                                   
        changed  the   constitutionality   of  the   original                                                                   
        intent.   The exemption  provides a  steady tax  rate                                                                   
        and remains  in  place for  the  first 10-years,  gas                                                                   
        flows.   It  could  be  changed any  time  in  future                                                                   
   ·    Section 43.90.330 addresses the inducement vouchers.                                                                    
        When purchasing gas  at the wellhead and  through the                                                                   
        voucher system, the  producer makes a  transportation                                                                   
        commitment   through   obtaining    a   voucher   and                                                                   
        transferring  it, which  offers  value  to the  party                                                                   
        making the  commitment.   It  is  an opportunity  for                                                                   
        additional  participation   through  maximizing   the                                                                   
        number of players.                                                                                                      
2:07:48 PM                                                                                                                    
Commissioner Galvin discussed Page 24, Line 28 of the bill:                                                                     
   ·    Article 4, the miscellaneous provisions consisting                                                                      
        of Section 43.90.400,  the Alaska Gasline  Inducement                                                                   
        Act (AGIA) matching contribution  fund, disbursements                                                                   
        & audits.                                                                                                               
   ·    Section 43.90. 410 identifies the regulations.  The                                                                     
        commissioner will adopt  regulations for  the purpose                                                                   
       of implementing the provisions of the chapter.                                                                           
   ·    Section   43.90.420    defines    the   statute    of                                                                   
        limitations, clarifying that a party  may not bring a                                                                   
        judicial action challenging the  constitutionality of                                                                   
        the chapter of the license issued  under the chapter,                                                                   
        unless that action  is commenced  in a court,  within                                                                   
        90-days after the date that a license is issued.                                                                        
Representative  Gara  asked  how  the  90-day  constitutional                                                                   
challenge language relates to  the 30-day to 2-year challenge                                                                   
times  within  the  Statute  of  Limitations.    Commissioner                                                                   
Galvin  advised  that  the  producer would  need  to  make  a                                                                   
commitment   not  to   challenge.     The  decision   of  the                                                                 
commissioners would be the final  action once the Legislature                                                                   
had approved it, given the 30-day  administrative appeal time                                                                   
from that point.                                                                                                                
2:11:13 PM                                                                                                                    
Commissioner Galvin provided a quick overview on:                                                                               
   ·    Section 43.90.430 - interest                                                                                            
   ·    Section 43.90.440 - the licensed project assurances.                                                                    
Representative  Kelly inquired if  that language  indicates a                                                                   
ceiling   limiting  the   exposure.     Commissioner   Galvin                                                                   
responded that the limit would  be the amount expended by the                                                                   
licensee,  based  on the  expectation  of what  the  licensee                                                                   
might be spending and depends  upon the amount matched by the                                                                   
2:17:16 PM                                                                                                                    
Commissioner Galvin continued:                                                                                                  
   ·    Section 43.90.450 deals with the assignments of the                                                                     
Representative  Kelly   questioned  if  that   section  would                                                                   
provided  an  "absolute  right  to  approve".    Commissioner                                                                   
Galvin explained it provides the right to stop action.                                                                          
2:18:50 PM                                                                                                                    
Commissioner Galvin continued:                                                                                                  
   ·    Section 43.90.460 addresses the conflicting State                                                                       
        and federal laws.                                                                                                       
   ·    Section   43.90.470    identifies   State    pipeline                                                                   
        employment development.                                                                                                 
   ·    Section 43.90.900 elaborates the general provisions                                                                     
        and definitions, the conforming amendments to other                                                                     
        statutes and affects the procurement code.  That                                                                        
        language indicates a Public Records Act.                                                                                
2:22:13 PM                                                                                                                    
Representative Joule  referenced Section 43.90.440  and asked                                                                   
if  the State  could  be  gamed-taxed.   Commissioner  Galvin                                                                   
explained   those  provisions   were   intended  to   provide                                                                   
licensing debt unless  there was a violation of  the terms of                                                                   
the  provision.   If  they abide  by  the terms  under  their                                                                   
license,  that language  clarifies that  the State would  not                                                                   
choose an alternate project.   It is incumbent upon the State                                                                   
to assure that  the licensee would fulfill their  part of the                                                                   
agreement with  the State regarding  the risk gain,  in order                                                                   
to move the project forward.                                                                                                    
AT EASE:       2:27:45 PM                                                                                                     
RECONVENE:     2:28:23 PM                                                                                                     
DON  SHEPLER,  ATTORNEY  &  CONSULTANT,   GREENBERG  TRAURIG,                                                                   
explained  his  background  and distributed  a  handout,  the                                                                   
Alaska  Gasline  Inducement  Act,   House  Finance,  4/30/07.                                                                   
(Copy on  File).                                                                                                                
2:29:50 PM                                                                                                                    
Mr.  Shelper  provided  an overview  of  the  Federal  Energy                                                                   
Regulatory  Commission   (FERC)  issues  &   highlighted  the                                                                   
information on Slide 2:                                                                                                         
   ·    FERC's new mandatory expansion authority                                                                                
   ·    AGIA's rolled in rate provisions, and                                                                                   
   ·    Negotiated versus recourse rates.                                                                                       
2:31:08 PM                                                                                                                    
Mr.  Shelper  noted  Slide  3,   FERC's  authority  to  order                                                                   
expansions, which could be problematic because:                                                                                 
   ·    No rate subsidy                                                                                                         
   ·    No adverse effect on financial or economic viability                                                                    
        of the project                                                                                                          
   ·    No adverse effect on overall operations of the                                                                          
   ·    Can not diminish the contractual rights of existing                                                                     
        shippers to previously subscribed certificated                                                                          
   ·    Finding the adequate down-stream capacity exists or                                                                     
        will exist                                                                                                              
2:32:48 PM                                                                                                                    
Slide  4 explains  the Section  105  provisions, which  could                                                                   
invite  litigation.   That statute is  unprecedented  and has                                                                   
not  been  tested  in  Court.     Section  105  criteria  are                                                                   
potentially  ambiguous  and fertile  ground  for  litigation.                                                                   
Once litigation  happens, it  delays and uncertainty  becomes                                                                   
involved  and  the duration  of  the  delay would  likely  be                                                                   
measured in years, not months.                                                                                                  
Mr. Shepler contrasted  the federal process in  regard to the                                                                   
proposed AGIA, taking the mandatory  expansion off the table.                                                                   
AGIA  requires  testing of  the  market and  expansion  under                                                                   
reasonable  terms.   AGIA  avoids the  uncertainty  regarding                                                                   
expansion issues.                                                                                                               
2:39:05 PM                                                                                                                    
Representative  Gara questioned  if the  AGIA contract  would                                                                   
fall into  a mandatory  expansion under  the intent  of FERC.                                                                   
Mr. Shepler emphasized it would  not; the mandatory expansion                                                                 
provision  provides  a  situation where  a  pipeline  company                                                                   
could refuse  expansion  at which time,  the State  initiates                                                                   
Mr. Shepler  explained that violation  of the  license occurs                                                                   
when the pipeline company refuses  to expand.  Representative                                                                   
Gara understood  there would  be no  recourse for the  State.                                                                   
Mr. Shepler thought the State will have other remedies.                                                                         
2:41:51 PM                                                                                                                    
Mr. Shepler discussed  rolled-in rates indicated  in Slide 6.                                                                   
He noted that in the Alaska Natural  Gas Pipeline Development                                                                   
Authority  (ANGPA) statute,  open  season regulations  should                                                                   
"promote  competition  in the  exploration,  development  and                                                                   
production of  Alaska natural gas."   He added that  the FERC                                                                   
directive is  "incremental pricing of expansion,  which could                                                                   
put expansion  shippers at  a significant rate  disadvantaged                                                                   
compared  with  initial  shippers,   and  accordingly,  could                                                                   
discourage exploration, development  and production of Alaska                                                                   
natural gas."   He provided members  with a copy of  the FERC                                                                   
discussion.  (Copy on File.)                                                                                                    
He added  that FERC  requires that any  new pipeline  must be                                                                   
based on incremental rates for  expansion; however, departure                                                                   
from  lower-48 policy  is based  on  recognition of  Alaska's                                                                   
unique circumstances.                                                                                                           
2:47:13 PM                                                                                                                    
Mr.  Shepler  referenced  Slide  8, indicating  that  a  rate                                                                   
increase will not  necessarily provide a subsidy.   FERC left                                                                   
open the  question of whether  to allow rolled-in rates  at a                                                                   
level  that  is not  higher  than  the initial  rate  without                                                                   
subsidies.   Total government  contributions reduce  rates by                                                                   
2:50:20 PM                                                                                                                    
Mr. Shepler referenced  Slide 10, explaining  that AGIA would                                                                   
not intrude on FERC's authority.   AGIA requires the licensee                                                                   
to propose rolled-in rates and  FERC disposal.  AGIA prevents                                                                   
producers from negotiating rates  with themselves, precluding                                                                   
collection  of  the  rolled-in  rates.    He  emphasized  the                                                                   
importance of the rolled-in pricing  as it comes as a trickle                                                                   
down from  a congressional mandate.   It is a good  model for                                                                   
the State.                                                                                                                      
2:52:25 PM                                                                                                                    
Slide  12 indicates  negotiated  versus recourse  rates.   He                                                                   
noted  that  recourse  rates are  old  fashioned,  cost-based                                                                   
rates, such  as utility rates  and are  based on the  cost of                                                                   
providing  the service.   FERC has  stipulated that  shippers                                                                   
must  have access  to  recourse rates  as  an alternative  to                                                                   
negotiated  rates  because  they  are  a  "lifeline"  to  the                                                                   
shippers.  Negotiated  rates are negotiated;  anything can be                                                                   
negotiated, such  as a reserve capacity,  however, negotiated                                                                   
rates  are  presently  the norm  in  the  lower  48.     FERC                                                                   
establishes the  recourse rates though a  regulatory process;                                                                   
whereas,  negotiated   rates  move  through   the  commercial                                                                   
2:55:40 PM                                                                                                                    
Mr. Shepler addressed Slide 15.   AGIA requires commitment by                                                                   
the  licensee not  to enter  negotiated  rate contracts  that                                                                   
preclude rate increases due to  roll-in of expansion costs up                                                                   
to 15%  above the  original negotiated  rates.  By  spreading                                                                   
the expansion  costs over all the billing  determinants, AGIA                                                                   
ensures that the  rolled-in rate treatment can  be offered to                                                                   
expansion  shippers.   The applicant  is  required to  commit                                                                   
that they will not collect past that point.                                                                                     
2:57:38 PM                                                                                                                    
Slide 16 identifies  the Rockies Express Open  Season notice,                                                                   
a project  that used negotiated  rates.  He provided  back-up                                                                   
for the project.  (Copy on File.)                                                                                               
The second  page illustrates  an estimated  recourse  rate of                                                                   
$1.42 with a negotiated rate of  $1.09 and an adjustable rate                                                                   
of $1.04  - $1.14, depending  on the  price of steel.   Those                                                                   
rates would be in place till the end of the project.                                                                            
3:00:23 PM                                                                                                                    
Representative  Kelly  questioned   which  rate  an  "anchor"                                                                   
shipper  receives.    Mr.  Shepler  explained  they  get  the                                                                   
negotiated rate.  The project  will occur in three phases and                                                                   
he referenced  the third phase,  the end-to-end rate  used to                                                                   
illustrate the point.                                                                                                           
3:01:56 PM                                                                                                                    
Representative  Gara commented  that  the Administration  had                                                                   
requested that  pipeline owners  not challenge the  rolled-in                                                                   
rates proposed in  AGIA.  Mr. Shepler explained  that rolled-                                                                   
in rates could hit AGIA twice;  once as the pipeline and then                                                                   
again in up-stream  inducements.  Applicants  are being asked                                                                   
to propose rolled-in  treatment for expansions,  which he did                                                                   
not think was fair to ask them  not to oppose what they asked                                                                   
for.    He  acknowledged  advantages  that  occur  with  FERC                                                                   
establishing  the regulations,  commenting that  FERC has  an                                                                   
easier time applying policy without opposition.                                                                                 
3:05:42 PM                                                                                                                    
In  response  to  a question  by  Representative  Kelly,  Mr.                                                                   
Shepler noted  that the recourse  rate would be  "whatever it                                                                   
is".   It is impossible  to determine  the costs  of building                                                                   
the  pipeline  because  the  price  of  steel  is  uncertain.                                                                   
Companies are  estimating on the  high-side.   Recourse rates                                                                   
are  based on  a  number of  factors,  which  can vary  while                                                                   
negotiated  rates remain  stable.   It could  fall below  the                                                                   
recourse rate,  but most  likely that  will not happen  until                                                                   
the end.  That concluded the testimony of Mr. Shepler.                                                                          
3:08:27 PM                                                                                                                    
ANTONY SCOTT,  COMMERCIAL ANALYST,  DIVISION OF OIL  AND GAS,                                                                   
DEPARTMENT  OF NATURAL  RESOURCES, provided  members with  an                                                                   
overview of rolled-in rates.  (Copy on File).                                                                                   
He noted several key points regarding rolled-in rates:                                                                          
   ·    Rolled-in rates are fair & everyone pays the same                                                                       
        price for the same service.                                                                                             
   ·    Rolled-in rates are effective.                                                                                          
   ·    Rolled-in rates are required for Alaska.                                                                                
3:12:19 PM                                                                                                                    
Mr.   Scott  noted   that   AGIA  rolled-in   rates   promote                                                                   
competition,  exploration and  development.  Rolled-in  rates                                                                   
are  in  the State's  interest  given  uncertainty  of  where                                                                   
expansion  of gas  will come  from.   He  added that  despite                                                                   
protests to  the contrary,  the objective evidence  indicates                                                                   
that  rolled-in  rates  impose  relatively  modest  costs  on                                                                   
producers;  which are  significantly off-set  by AGIA's  $500                                                                   
million and  are unlikely to  affect the producer's  decision                                                                   
to ship.                                                                                                                        
3:17:27 PM                                                                                                                    
Mr. Scot  continued, Slide 7  observes that incremental  fuel                                                                   
costs  are higher  if expansion  shippers have  to pay  them,                                                                   
resulting in  a significant jump  in the rates.   The initial                                                                   
shippers  under the  lower 48  FERC policy  are still  paying                                                                   
$1.96, but  expansion shippers  would be  paying close  to $3                                                                   
dollars.   In  Slide  8, it  is supposed  that  in 2023,  the                                                                   
pipeline  would again  expand and could  be achieved  through                                                                   
looping.    The   incremental  costs  of  looping   would  be                                                                   
significant, but  would not require extra fuel.   The rolled-                                                                   
in  fuel rate  provides a  benefit to  the initial  shippers,                                                                   
which could arguably be subsidized.                                                                                             
3:20:05 PM                                                                                                                    
Page 9 indicates rate treatment,  rolling in expansion costs,                                                                   
exceeding the cap.   In the 3  expansion, shippers  would pay                                                                   
slightly higher rates by rolling-in the expansion costs.                                                                        
Mr.   Scott   commented   on    why   information   regarding                                                                   
determination of the rates matters to Alaska's future.                                                                          
   ·    Without rolled-in rates, it is unlikely that the 3                                                                      
        looped expansion would occur;                                                                                           
   ·    Expected value of generic prospect is negative under                                                                    
        incremental rate treatment (-$15.7 million for the                                                                      
        OCS prospect & -$19.7 million for the on-shore                                                                          
   ·    Expected value of generic prospect is positive under                                                                    
        the AGIA rate treatment ($18.1 million for OCS                                                                          
        prospect & $6.4 million for the on-shore prospect)                                                                      
3:26:49 PM                                                                                                                    
Mr. Scott stated that the State  does not know where gas from                                                                   
an  expansion would  come  from.   The  State  is better  off                                                                   
accepting  the  provisions  of   AGIA.    Slide  14  provides                                                                   
examples  of  background scenarios  ($5.50  gas)  identifying                                                                   
expansion costs.                                                                                                                
3:28:32 PM                                                                                                                    
Mr.  Scott continued  with  the  stylized examples  of  three                                                                   
cases contrasting different values, which might occur:                                                                          
   ·    Case A:  State gas comes first through the expansion                                                                    
        from State lands                                                                                                        
   ·    Case B:  All gas comes from National Petroleum                                                                          
        Reserve-Alaska (NPR-A) lands                                                                                            
   ·    Case C:  All gas comes from the outer continental                                                                       
It is  not known how  it will  play out; however,  presenting                                                                   
the scenarios  allows for assessment of the  basic interests.                                                                   
Without rolled-in  rates, it is unlikely that  all expansions                                                                   
could occur.   Assuming  real constant  prices, the  expected                                                                   
value will  be negative.   However, what has  been identified                                                                   
is that  without rolled-in  rates, the  last expansion  could                                                                   
not occur;  hence, a  loss to  the State.    Rolled-in  rates                                                                   
allow  expansions to  occur  and prove  to  be a  significant                                                                   
return to  the State.   Due to  the uncertainties,  the State                                                                   
would be better off using rolled-in rates.                                                                                      
3:32:57 PM                                                                                                                    
Mr.  Scott addressed  the  relative burden,  which  rolled-in                                                                   
treatment   imposes  on   the   producers,  affecting   their                                                                   
investment  measures.   The assumption  is that producers  do                                                                   
not own  the pipeline.  The  required investment is  at about                                                                   
$4  billion dollars  and assumes  inclusion  of Pt  Thompson.                                                                   
The scale  of investment would  be different if  the pipeline                                                                   
were owned.   Slide 20 illustrates  a worse case  scenario if                                                                   
none of  the producers were  carrying gas to  the expansions.                                                                   
The producers  would received  only the  negative affects  of                                                                   
the  rates from  rolled-in  rate treatment  and  none of  the                                                                   
benefits  of  the  increased  gas flow.    That  scenario  is                                                                   
3:37:03 PM                                                                                                                    
Mr. Scott stated  that if producers do not  own the pipeline,                                                                   
they could  invest as  shippers, thereby,  making a  shipping                                                                   
commitment.   A lot of  the value from  the project  has been                                                                   
moved  from  the  producers  to  the  State  because  of  the                                                                   
effective tax rate, indicating downward movement.                                                                               
3:38:25 PM                                                                                                                    
Slide  21  illustrates  50  different   up-stream  investment                                                                   
opportunities &  projects the producers currently  have.  The                                                                   
Alaska project  is near the  "top" including the  anticipated                                                                   
rates of return.   Rolled in rates should not  be a burden to                                                                   
producers.   Presently, producers believe shouldering  a risk                                                                   
of  net-back  value  is  unattractive   and  that  there  are                                                                   
realistic risks not changing the  economics of rolled-in rate                                                                   
projects.  If  there were no expansions, the  producers would                                                                   
receive roughly  two-thirds with likelihood that  the project                                                                   
would generate  at least  $8 billion  dollars.  He  discussed                                                                   
how the internal  rate of return could affect  a project from                                                                   
the profitability ratio perspective.                                                                                            
3:43:37 PM                                                                                                                    
Slide 25  highlights facts indicating  that a  rolled-in rate                                                                   
provision  would not  present reasons  to not  commit to  the                                                                   
Mr. Scott summarized:                                                                                                           
   ·    AGIA's    rolled-in    rate     provisions    promote                                                                   
        competition, exploration and development.                                                                               
   ·    Given the uncertainties, AGIA's rolled in rates are                                                                     
        clearly in the State's monetary interest.                                                                               
   ·    Protests notwithstanding, the objective evidence                                                                        
        indicates that AGIA's rolled-in provisions costs are                                                                    
        modest to the producer and that they are unlikely to                                                                    
        affect the initial investment decisions.                                                                                
3:44:36 PM                                                                                                                    
Representative  Kelly  asked   about  the  percentage  of  an                                                                   
increase to the  producers, generating new gas  and requiring                                                                   
expansions  for the  State.   Mr.  Scott  responded that  the                                                                   
Administration had not investigated  the query enough to make                                                                   
a determination.                                                                                                                
3:45:27 PM                                                                                                                    
Representative  Kelly   thought  that  the   approach  should                                                                   
include  the producer  also.    Mr. Scott  acknowledged  that                                                                   
would be a reasonable assumption.                                                                                               
Mr.  Scott   assumed  ConocoPhillips  intended   to  own  the                                                                   
3:46:39 PM                                                                                                                    
Representative Gara  asked if building a pipeline  to Alberta                                                                   
with a spur-line to Valdez, would  require an expansion.  Mr.                                                                   
Scott said yes.                                                                                                                 
Representative  Gara  inquired  if there  was  a  significant                                                                   
difference between the rolled-in  rates for a spur-line.  Mr.                                                                   
Scott thought there could be but  was not presently, aware of                                                                   
any structured modeling done by the Administration.                                                                             
3:48:22 PM                                                                                                                    
Co-Chair Chenault requested that  Mr. Scott be present during                                                                   
the   "round-table  discussion"   with   producers  and   the                                                                   
HB 177 was HELD in Committee for further consideration.                                                                         

Document Name Date/Time Subjects