Legislature(2001 - 2002)

03/28/2001 03:10 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HCR 8 - NORTH SLOPE NATURAL GAS PIPELINE ROUTING                                                                              
                                                                                                                                
Number 0072                                                                                                                     
                                                                                                                                
CHAIR OGAN  announced that the  first order of business  would be                                                               
HOUSE CONCURRENT  RESOLUTION NO. 8, Expressing  the legislature's                                                               
opposition  to the  proposed "northern"  or "over-the-top"  route                                                               
for a natural  gas pipeline to transport North  Slope natural gas                                                               
reserves to  the domestic North  American market,  and expressing                                                               
the  legislature's support  of commercialization  of North  Slope                                                               
natural gas for the maximum benefit of the people of the state.                                                                 
                                                                                                                                
CHAIR OGAN  informed members that  in the new  proposed committee                                                               
substitute (CS),  the sections were reordered  and some redundant                                                               
language was consolidated.                                                                                                      
                                                                                                                                
Number 0124                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON made  a motion to adopt the  proposed CS for                                                               
HCR 8, version 22-LS0764\J, Chenoweth,  3/28/01, as a work draft.                                                               
There being no objection, Version J was before the committee.                                                                   
                                                                                                                                
Number 0186                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JIM  WHITAKER,  Alaska State  Legislature,  prime                                                               
sponsor   of  HCR   8,  came   forward  to   give  a   PowerPoint                                                               
presentation.    [He  provided  a   written  copy  later  to  the                                                               
committee, the first page of  which read, "Natural Gas in Alaska:                                                               
What Does it Mean to the People of the State?"]                                                                                 
                                                                                                                                
REPRESENTATIVE  WHITAKER   explained  that  information   in  the                                                               
presentation had  been garnered from  the web site of  the Energy                                                               
Information  [Administration] and  from  Tokyo  Gas Company  Ltd.                                                               
The conclusions were his own,  he emphasized, and were undergoing                                                               
third-party review.                                                                                                             
                                                                                                                                
REPRESENTATIVE WHITAKER  told members  that to  Alaskans, natural                                                               
gas  means $680  million to  $4.2 billion  a year  to the  state;                                                               
significantly lower  energy costs; and major  direct and indirect                                                               
employment  opportunities, "if  we  demand that  our resource  be                                                               
developed in our best interests."                                                                                               
                                                                                                                                
REPRESENTATIVE  WHITAKER referred  to  a  chart showing  national                                                               
trends in  home heating,  furnished courtesy of  BP; he  said the                                                               
trend for  natural gas is increasing  significantly when compared                                                               
to  electricity as  a source  of home-heating  energy.   He noted                                                               
that  for electricity,  even though  heating  use has  decreased,                                                               
other uses  have increased  significantly.   The "energy  mix" is                                                               
getting "lighter,"  and gas  is becoming  a larger  component for                                                               
the production of electricity.                                                                                                  
                                                                                                                                
REPRESENTATIVE WHITAKER  called gas "clean and  green"; the waste                                                               
associated  with   its  use  is  significantly   less  than  that                                                               
associated   with  coal,   he  said,   and  air   pollutants  are                                                               
significantly less  than from  oil or  coal.   He noted  that the                                                               
related charts also were furnished by BP.                                                                                       
                                                                                                                                
Number 0487                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DYSON asked  Representative Whitaker  whether one                                                               
could infer from  the graph that coal and oil  are not being used                                                               
enough in America for heating.                                                                                                  
                                                                                                                                
REPRESENTATIVE WHITAKER  said he  didn't know whether  that could                                                               
be inferred, but one could infer  that gas is being used more, in                                                               
relationship to coal or oil, for home heating.                                                                                  
                                                                                                                                
Number 0540                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON stated his  understanding that in the United                                                               
States most  home heating  [previously done] by  coal or  oil has                                                               
been converted  to electricity, with  coal and oil  going towards                                                               
[electrical] generation.   He suggested that may be  a bit beyond                                                               
the current discussion, however.                                                                                                
                                                                                                                                
REPRESENTATIVE WHITAKER replied:                                                                                                
                                                                                                                                
     I think it  is a bit beyond it, but  I don't think that                                                                    
     your   assumptions  -   given  that   those  are   your                                                                    
     assumptions -  would be  correct.   I think  you'd find                                                                    
     that  indeed gas  has replaced  coal and  oil for  home                                                                    
     heating, and it is also  replacing coal and oil for new                                                                    
     electrical generation in the Lower 48.                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER noted that the  demand for natural gas is                                                               
soaring.   He referred  to a  chart titled  "Supply &  Demand for                                                               
North  America"  and  said  the  numbers  came  from  the  Energy                                                               
Information  [Association].    He   also  noted  that  the  chart                                                               
referred to:   current  and expected supply  from Canada  and the                                                               
Lower  48,  including  a depletion  factor;  expected  additional                                                               
supplies  from  Mexico  and  the Rockies;  gas  from  an  Alaskan                                                               
pipeline  project;  and  gas  supplies  from  a  Mackenzie  delta                                                               
project.  Pointing  out that the supply and demand  curves on the                                                               
chart don't come together, he  offered his conclusion that it can                                                               
be anticipated that higher prices will continue.                                                                                
                                                                                                                                
REPRESENTATIVE  WHITAKER  brought  attention to  a  chart  titled                                                               
"Supply & Demand for the  Pacific Rim," which mentioned "contract                                                               
supply volume," "contract extension  volume," and both an Alaskan                                                               
LNG [liquefied  natural gas] project  - which he  mentioned being                                                               
online  by 200  -  and a  Sakhalin LNG  project.   He  commented,                                                               
"Again,  given that  we probably  don't have  all supply  sources                                                               
included in  this, I  think it's  fair to say  that this  line is                                                               
more  probably aligned  with the  mid-demand  range; but,  still,                                                               
there  is an  upside, meaning  to me  that there  is room  in the                                                               
marketplace."                                                                                                                   
                                                                                                                                
Number 0767                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER  mentioned  the  "world  market  dynamic                                                               
reality."  Referring  to another "slide" in  the presentation, he                                                               
said:                                                                                                                           
                                                                                                                                
     Supply  will   restrict  demand  for   the  foreseeable                                                                    
     future.  That's  an incredible statement to  make for a                                                                    
     commodity as important as natural  gas.  And given that                                                                    
     Alaska's  North   Slope  is  the   largest  undeveloped                                                                    
     reserve of  natural gas  in North  America, we  need to                                                                    
     ask  ourselves,  "How can  we  take  advantage of  that                                                                    
     situation?"  It's very simple:   We ... take our gas to                                                                    
     market.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WHITAKER   briefly  addressed   pipeline  routing                                                               
options shown on  a series of maps,  including the "over-the-top"                                                               
route,  which   he  depicted   as  undesirable;   the  governor's                                                               
preferred  "highway" route;  the TAGS  [Trans-Alaska Gas  System]                                                               
route; and the so-called hub  approach, "hubbing someplace in the                                                               
Interior of Alaska, providing for a significant market access."                                                                 
                                                                                                                                
Number 0872                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER  referred to a "slide"  showing the state                                                               
constitution,   Article  VIII,   Section   2,   which  says   the                                                               
legislature shall  provide for the utilization,  development, and                                                               
conservation  of all  natural resources  belonging to  the state,                                                               
including  land  and  waters,  for the  maximum  benefit  of  its                                                               
people.      He  emphasized   that   it   is  the   legislature's                                                               
responsibility.                                                                                                                 
                                                                                                                                
Number 0913                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER turned  to the question of  how to obtain                                                               
the maximum benefit.  He  highlighted the need for maximum market                                                               
exposure, saying an overland route  alone would exclude worldwide                                                               
markets, especially  in Asia and  probably the West Coast  of the                                                               
United  States.   By  contrast,  connecting  to multiple  markets                                                               
would stabilize market  opportunities.  He noted  that the "over-                                                               
the-top"  and the  Foothills "highway"  routes exclude  Asia, and                                                               
the TAGS  route excludes "middle  America."  Therefore,  he said,                                                               
the hub approach gives maximum market exposure.                                                                                 
                                                                                                                                
Number 0995                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER  turned to  the issue of  maximum dollars                                                               
to the state.  He said:                                                                                                         
                                                                                                                                
     If we're to  truly understand how the  state can accrue                                                                    
     the maximum dollars  from a project of  this nature, we                                                                    
     have  to discuss  financing, because  indeed there  are                                                                    
     dollars  to the  state  associated  with financing,  or                                                                    
     dollars from the state associated with financing.                                                                          
                                                                                                                                
     And  so, we  look  at our  two  options for  financing:                                                                    
     public financing, private  financing.  Public financing                                                                    
     will  exempt  the   financing  component  from  federal                                                                    
     taxes,  which significantly  improves the  economics of                                                                    
     an Alaskan gas project and  increases the return to the                                                                    
     state.                                                                                                                     
                                                                                                                                
     Additionally,  the return  on  financing  a project  of                                                                    
     this size will be 8 to  12 percent of capital costs per                                                                    
     year for 30 years; that's a significant return.                                                                            
                                                                                                                                
Number 1069                                                                                                                     
                                                                                                                                
REPRESENTATIVE   WHITAKER  addressed   public  ownership   versus                                                               
private ownership.  He told  members that under public ownership,                                                               
besides being  exempt from federal income  taxes, the state-owned                                                               
pipeline would  give a  greater netback to  the state  because no                                                               
taxes would  be charged back  against the netback, and  no tariff                                                               
would be charged  to the state.  Under private  ownership, on the                                                               
other hand, taxes would be paid  to the federal government, and a                                                               
tariff would be paid to the producers.  He continued:                                                                           
                                                                                                                                
     So,  in dollars  to  the state,  what's the  difference                                                                    
     between public and private ownership?   Given a six bcf                                                                    
     [billion cubic feet] project,  that's six billion cubic                                                                    
     feet  per  day;  the  numbers are  different,  but  the                                                                    
     theories are  the same whether it's  a four-bcf-per-day                                                                    
     project or  a six-bcf-per-day  project.  We're  using a                                                                    
     six-bcf model.                                                                                                             
                                                                                                                                
     By  the way,  these are  Purvin &  Gertz's assumptions.                                                                    
     You  can read  it  as well  as I  can:   Under  private                                                                    
     ownership,  the state  would  accrue  $680 million  per                                                                    
     year; under  public ownership,  $1.3 billion  per year.                                                                    
     The difference is  ... the tariff that  would accrue to                                                                    
     the  state  and  the  return,   I'm  assuming,  to  the                                                                    
     permanent  fund  on  the capital  invested.  ...  We're                                                                    
     assuming  $2.59  per  million Btu[s]  [British  thermal                                                                    
     units] sold  in middle America; that  is the assumption                                                                    
     that Purvin & Gertz used in their study.                                                                                   
                                                                                                                                
Number 1178                                                                                                                     
                                                                                                                                
CHAIR  OGAN  asked  about amortization  under  either  public  or                                                               
private ownership.                                                                                                              
                                                                                                                                
REPRESENTATIVE WHITAKER replied:                                                                                                
                                                                                                                                
     As  you can  see, there  is a  return to  the permanent                                                                    
     fund; that  is the amortization  cost.  And  instead of                                                                    
     that going to a third  party, that would be returned to                                                                    
     the  state, to  the permanent  fund, assuming  that was                                                                    
     the [Alaska]  Permanent Fund Corporation  that invested                                                                    
     in it.                                                                                                                     
                                                                                                                                
CHAIR  OGAN asked  whether  that would  be the  8  to 12  percent                                                               
[shown in the presentation].                                                                                                    
                                                                                                                                
REPRESENTATIVE WHITAKER  affirmed that, saying it  was assuming a                                                               
12 percent tariff.                                                                                                              
                                                                                                                                
Number 1238                                                                                                                     
                                                                                                                                
CHAIR OGAN asked whether that is  also with an assumption that 25                                                               
percent of the royalty would go to the permanent fund.                                                                          
                                                                                                                                
REPRESENTATIVE WHITAKER  answered that the formulation  would not                                                               
change, given public ownership or private ownership.                                                                            
                                                                                                                                
CHAIR OGAN  asked for  confirmation that  the assumption  for the                                                               
graph is 25 percent of the income.                                                                                              
                                                                                                                                
REPRESENTATIVE WHITAKER affirmed  that.  He specified  that it is                                                               
assuming  a  per-million-Btu field  price  in  middle America  of                                                               
$2.59.   He noted that  the charts also addressed  assumptions of                                                               
gas prices at $4.50 and $8.00.   Emphasizing that it is a 30-year                                                               
project, and  that gas prices  are uncertain, he also  noted that                                                               
the  current price  is $5.34.    He concluded  that assuming  the                                                               
$2.59  price,  under  either  private  or  state  ownership,  the                                                               
producers  would  still get  a  substantial  portion; in  neither                                                               
scenario would the state get more than its fair share.                                                                          
                                                                                                                                
Number 1360                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked what Representative Whitaker's  assumptions are                                                               
regarding the state's purchase of the gas.                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER replied:                                                                                                
                                                                                                                                
     We're not  buying the  gas.  The  gas continues  to be,                                                                    
     once  having  left  the  unit,   the  property  of  the                                                                    
     producers.   We are collecting a  royalty, a severance,                                                                    
     a tariff,  and a return  on investment.  The  rest goes                                                                    
     to the producers.                                                                                                          
                                                                                                                                
CHAIR  OGAN  asked  whether  the state  wouldn't  have  the  same                                                               
problem that YP[C] [Yukon Pacific  Corporation] has, for example:                                                               
wanting to build a line, but having  no gas.  He said, "We've got                                                               
12.5 percent; [we could] take our gas  in kind, ... but how do we                                                               
get there with  the producers, if the state decides  to build the                                                               
gas pipeline?"                                                                                                                  
                                                                                                                                
REPRESENTATIVE WHITAKER replied  that he had an  answer [in other                                                               
legislation],  but   it  wasn't   relevant  to   this  particular                                                               
presentation.   His point is  that there is a  significant return                                                               
to the producers and a reasonable return to the state.                                                                          
                                                                                                                                
Number 1453                                                                                                                     
                                                                                                                                
REPRESENTATIVE   WHITAKER   addressed  maximum   in-state   usage                                                               
opportunity, saying  those opportunities increase in  relation to                                                               
two factors:  the number  of population centers that the pipeline                                                               
crosses,  and the  number of  miles  of pipe  in the  state.   He                                                               
indicated the  "over-the-top" route  [fails] in this  regard; the                                                               
"highway" route is  "close"; the TAGS route is  "closer"; and the                                                               
hub concept works.                                                                                                              
                                                                                                                                
Number 1504                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER addressed  maximum  competition for  gas                                                               
production.   He  told  members that  a  publicly owned  pipeline                                                               
would ensure  that no producer  on the North Slope  would control                                                               
access  to  the  gas  transportation system;  he  emphasized  the                                                               
importance of this  component, noting that one  problem in Alaska                                                               
is  too little  competition and  too few  producers on  the North                                                               
Slope.  Any producer of gas  or oil should have an opportunity to                                                               
produce and sell its product,  he said.  Public ownership ensures                                                               
that access to the transportation system is available.                                                                          
                                                                                                                                
REPRESENTATIVE   WHITAKER  turned   attention   to  maximum   job                                                               
opportunities for  Alaskans.  He  said the state needs  to ensure                                                               
that both long-term  and short-term jobs associated  with the gas                                                               
pipeline  project are  provided to  Alaskans.   Obviously, public                                                               
ownership provides more opportunity for that.                                                                                   
                                                                                                                                
Number 1563                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER concluded  his PowerPoint  presentation,                                                               
summarizing the  reasons that a  hub project, publicly  owned but                                                               
privately operated, is in the best  interests of Alaska.  He said                                                               
the hub approach gives maximum  market exposure for Alaskan North                                                               
Slope  gas,  and  it  allows  maximum  gas  usage  for  Alaskans.                                                               
Furthermore,  public  financing  gives  maximum  dollars  to  the                                                               
state,   ensures  maximum   competition  for   North  Slope   gas                                                               
production, and  ensures both short-term  and long-term  jobs for                                                               
Alaskans.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  WHITAKER emphasized  his  willingness  to have  a                                                               
third-party review.   He said  legislators have no choice  but to                                                               
follow  the constitution,  which is  clear.   He called  HCR 8  a                                                               
first step, highlighting the need  for a northern (but not "over-                                                               
the-top") route,  as well as  the legislature's role  in ensuring                                                               
that  Alaska's gas  goes  to market.   He  pointed  out that  the                                                               
debate  regarding public-versus-private  ownership and  financing                                                               
is for another day.                                                                                                             
                                                                                                                                
Number 1718                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS referred  to the  question of  costs.   She                                                               
asked  Representative Whitaker  whether  he had  looked at  which                                                               
route would  maximize a broader  definition of  profit, including                                                               
not just money, but also jobs and "the greater profit."                                                                         
                                                                                                                                
REPRESENTATIVE WHITAKER answered:                                                                                               
                                                                                                                                
     Again, relating  to the benefits,  we've tried  to list                                                                    
     and define what is in  the maximum best interest of the                                                                    
     state.  Included in that,  of course, is employment and                                                                    
     dollars  to  the  state.    And  it  was  clear,  under                                                                    
     analysis,  that  the  project   that  was  adherent  to                                                                    
     maximum  best interest  of the  state was  the same  in                                                                    
     both cases.                                                                                                                
                                                                                                                                
REPRESENTATIVE   GUESS  stated   her   understanding  that   [the                                                               
analysis]  hadn't looked  at whether  one route  was three  times                                                               
more costly, however.                                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER replied:                                                                                                
                                                                                                                                
     We did, yes.  Again,  we used the "costing" assumptions                                                                    
     association with  the Purvin & Gertz  study, which were                                                                    
     very definitive with  regard to the cost  of a specific                                                                    
     type of pipeline to a  specific point.  And, again, the                                                                    
     program that we have here  is available; we're happy to                                                                    
     provide you  with a copy  of it.   All of  our analysis                                                                    
     data is included.                                                                                                          
                                                                                                                                
CHAIR OGAN requested  that the committee be  provided hard copies                                                               
of that material.                                                                                                               
                                                                                                                                
REPRESENTATIVE FATE  also requested that  Representative Whitaker                                                               
provide  an explanation  of  how  the hub  concept  isn't just  a                                                               
physical concept, but is also a "pricing mechanism."                                                                            
                                                                                                                                
REPRESENTATIVE WHITAKER agreed to both requests.                                                                                
                                                                                                                                
Number 1878                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS turned  attention to  the ownership  issue.                                                               
She asked Representative  Whitaker whether he had  looked at both                                                               
the cost of  operating a pipeline - even if  it's privately run -                                                               
and what the risks of ownership are.                                                                                            
                                                                                                                                
REPRESENTATIVE WHITAKER answered:                                                                                               
                                                                                                                                
     We certainly  have. ...  The cost-of-service  and cost-                                                                    
     of-fuel  assumptions  are  the  same whether  it  is  a                                                                    
     privately  owned entity  or  a  publicly owned  entity.                                                                    
     The  risk,  of  course,  is  that  the  market  is  not                                                                    
     adherent  to  the  project,  and   we  have  to  assure                                                                    
     ourselves  that  the  market is  there.  ...  I'm  very                                                                    
     comfortable  with  the  market  dynamic.    The  market                                                                    
     exists.  ... And  I've  come to  that  conclusion as  a                                                                    
     result  of   years  of  analysis.     I'm   very,  very                                                                    
     comfortable making that assertion.                                                                                         
                                                                                                                                
Number 1933                                                                                                                     
                                                                                                                                
CHAIR OGAN  noted that  a memorandum  of understanding  (MOU) has                                                               
been signed to  deliver LNG from the Timor Sea,  in Australia, to                                                               
the West  Coast of  the U.S.   He  also noted  that an  LNG plant                                                               
owned by  Exxon has  been shut  down due  to political  unrest in                                                               
Indonesia.    He referred  to  testimony  from previous  overview                                                               
hearings  and to  questions asked  of  Mr. Muraki  [of Tokyo  Gas                                                               
Company   Ltd.,  who   had  given   a  presentation   before  the                                                               
committee].  Chair Ogan said:                                                                                                   
                                                                                                                                
     I think  maybe the  shipment of LNG  to the  West Coast                                                                    
     does  indicate  that  one  of  the  strongest  markets,                                                                    
     certainly for  natural gas, in  the world is  the Lower                                                                    
     48,  and  it's unfortunate  that  it's  not Alaska  gas                                                                    
     that's  being   shipped  there  -   or  at   least  the                                                                    
     commitment for Alaska gas being shipped there.                                                                             
                                                                                                                                
Number 2078                                                                                                                     
                                                                                                                                
MICHAEL J.  HURLEY, Government Relations, North  American Natural                                                               
Gas Pipeline Group, came forward to testify as follows:                                                                         
                                                                                                                                
     As you are aware,  the three companies participating in                                                                    
     the group  (BP, ExxonMobil,  and Phillips)  are working                                                                    
     diligently  to develop  an economically  viable project                                                                    
     to commercialize  North Slope  natural gas  by pipeline                                                                    
     through Canada  to the Lower  48 market.  And  in doing                                                                    
     that,  it is  incumbent  on us  to  fully consider  the                                                                    
     options that could help us accomplish that goal.                                                                           
                                                                                                                                
     Indeed,  the   Federal  Energy   Regulatory  Commission                                                                    
     [FERC], before  it will issue  a certificate  of public                                                                    
     convenience  and  necessity,  requires  us  to  analyze                                                                    
     alternative  pipeline  route  options as  part  of  the                                                                    
     application process.                                                                                                       
                                                                                                                                
     This  project  has  the potential  to  be  the  largest                                                                    
     energy  project  in  North America,  and  will  require                                                                    
     capital  investments   in  the  billions   of  dollars.                                                                    
     Indeed, investment  decisions cannot be  taken lightly,                                                                    
     and must be  made with the confidence that  can only be                                                                    
     gained by  a thorough  evaluation of  the alternatives,                                                                    
     and  an  understanding  of  their  relative  strengths,                                                                    
     weaknesses, risks,  and rewards.   Such an  approach is                                                                    
     fundamental to good business decision making.                                                                              
                                                                                                                                
     Our efforts  are focused on creating  and understanding                                                                    
     opportunities, not  prematurely discarding them.   This                                                                    
     resolution seems to suggest that  we do the latter.  We                                                                    
     believe  that   legislative  action   which  recommends                                                                    
     shutting down options before  they are fully understood                                                                    
     limits  dialog  and  interferes  with  the  fundamental                                                                    
     dynamics of a free-market economy.                                                                                         
                                                                                                                                
     It cannot  be forgotten  that any Alaskan  gas project,                                                                    
     whether  it's  LNG,  GTL [gas-to-liquids]  or  pipeline                                                                    
     technology,  must be  able to  deliver products  to the                                                                    
     market  at  a competitive  cost  in  order to  succeed.                                                                    
     There are  many other competing sources  of supply, and                                                                    
     buyers will  be going elsewhere  if a project  fails in                                                                    
     this regard.   If  either Alaska project  advances, the                                                                    
     benefits to  the state and its  citizens and businesses                                                                    
     will  be  substantial,  and  will  make  a  significant                                                                    
     contribution to Alaska's economic future.                                                                                  
                                                                                                                                
     Finally,  the work  we are  undertaking this  year will                                                                    
     yield  information we  believe  will  be necessary  for                                                                    
     reasoned decision  making.  We  have been  listening to                                                                    
     the views  and concerns  of the Alaska  legislature ...                                                                    
     and  of Alaska's  citizens, and  we will  be evaluating                                                                    
     alternatives based on seven  criteria:  overall project                                                                    
     economics, Alaskan  access to  gas, jobs  for Alaskans,                                                                    
     revenues   to   the    state,   safety,   environmental                                                                    
     protection, and project timing.                                                                                            
                                                                                                                                
Number 2271                                                                                                                     
                                                                                                                                
MR. HURLEY,  in response to  a question by  Representative Dyson,                                                               
affirmed  that "overall  project economics"  includes profit  for                                                               
the three companies involved.  He continued:                                                                                    
                                                                                                                                
     We do not  feel that we have enough  information yet to                                                                    
     make a route  decision; indeed, that is  the reason for                                                                    
     our aggressive work program.   Again, we think that the                                                                    
     interests of  commercializing North Slope gas  are best                                                                    
     served by  creating choices, and not  eliminating them.                                                                    
     We expect that there  will be many future opportunities                                                                    
     for legislative guidance and action.                                                                                       
                                                                                                                                
Number 2318                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DYSON asked  whether Mr.  Hurley agreed  that the                                                               
only  thing HCR  8 would  preclude is  the "over-the-top"  route;                                                               
that  it could  facilitate any  of the  other three  options; and                                                               
that it says nothing about hubs or ownership.                                                                                   
                                                                                                                                
MR. HURLEY indicated that is his understanding as well.                                                                         
                                                                                                                                
Number 2375                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked what Mr. Hurley  would say "if we  said we were                                                               
trying to save you 75 million bucks."                                                                                           
                                                                                                                                
MR. HURLEY replied:                                                                                                             
                                                                                                                                
     What  we're going  to have  to do  in our  program this                                                                    
     year   is,  as   yet,  unclear.   ...  Part   of  these                                                                    
     requirements  are  put  on us  by  the  Federal  Energy                                                                    
     Regulatory  Commission.   And even  if the  legislature                                                                    
     were to  appropriately express its desires  to have one                                                                    
     route or another,  I'm not sure that  that changes what                                                                    
     we're required to do by the [federal government].                                                                          
                                                                                                                                
Number 2468                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE asked  whether  the  projected timeline  for                                                               
reporting at the end of the  year on the findings of Mr. Hurley's                                                               
group was still on target.                                                                                                      
                                                                                                                                
MR. HURLEY answered:                                                                                                            
                                                                                                                                
     We  are   in  the  process  of   pulling  together  the                                                                    
     contractors.    And  their  first  task,  once  we  get                                                                    
     contractors  onboard, is  going to  be to  look at  the                                                                    
     timeline we've given them and  tell us whether they can                                                                    
     do it or not.  And  we're waiting right now for them to                                                                    
     get up and running, to be  able to tell us that.  We're                                                                    
     still holding on  to our goal to be  finished and ready                                                                    
     to apply  by the end of  this year, but we'll  find out                                                                    
     more once  the contractors have reviewed  the scopes of                                                                    
     work that  we've outlined  and tell  us whether  or not                                                                    
     we're being reasonable. ... We don't know yet.                                                                             
                                                                                                                                
Number 2476                                                                                                                     
                                                                                                                                
CHAIR OGAN  said he doesn't  doubt the sincerity of  Mr. Hurley's                                                               
group and its efforts.  Referring  to the tight deadline, he said                                                               
if  it  doesn't happen  by  the  end of  this  year,  and if  the                                                               
[legislature]  must wait  for several  more months,  legislators'                                                               
hands  will  be  tied  unless  there  is  a  special  legislative                                                               
session.   Chair Ogan said  that is  one reason he  himself looks                                                               
favorably upon HCR  8 and upon making this policy  statement as a                                                               
legislature.                                                                                                                    
                                                                                                                                
CHAIR OGAN acknowledged that Mr.  Hurley's group needs to use due                                                               
diligence.   However,  he cautioned  against saying  that if  the                                                               
producers decide  the southern route  isn't economic,  then there                                                               
wouldn't be  a project.   He  said the committee  has to  make an                                                               
important policy call.   He asked Mr. Hurley whether  he cared to                                                               
comment.                                                                                                                        
                                                                                                                                
MR. HURLEY  answered that the  legislature, with  the resolution,                                                               
is expressing a preference, which it should do.  He added:                                                                      
                                                                                                                                
     What we're suggesting to you  is not that you shouldn't                                                                    
     have a preference, but that  you should think about the                                                                    
     implications  of that  preference, especially  when you                                                                    
     get into  some of the  language where it says  that the                                                                    
     legislature  will  use all  efforts  ...  to make  that                                                                    
     occur.                                                                                                                     
                                                                                                                                
Number 2625                                                                                                                     
                                                                                                                                
CHAIR  OGAN  suggested that  the  language  to which  Mr.  Hurley                                                               
objected  was on  page  2,  line 31  [continuing  to  page 3]  of                                                               
Version J,  where it  says "the  legislature will  exercise every                                                               
power within  its authority  [to prevent the  routing of  a North                                                               
Slope natural  gas pipeline that  bypasses Alaska"].   He further                                                               
noted  that  on  [lines  26-28] it  says  "the  legislature  will                                                               
exercise  every   power  within  its   constitutionally  required                                                               
authority to  guarantee commercialization  of Alaska  North Slope                                                               
natural gas for the maximum benefit  of the people of the state".                                                               
He commented:                                                                                                                   
                                                                                                                                
     I  remember one  statement by  a member  of your  group                                                                    
     that said that  the producers' interest is  the same as                                                                    
     the  [state's].   And I  disagree with  that statement.                                                                    
     ... I  think that  we have a  lot of  similar interests                                                                    
     and a  lot of  interests that align,  but it's  not the                                                                    
     same  interest,  because  we each  have  our  fiduciary                                                                    
     responsibility.   And there's nothing wrong  with that;                                                                    
     I  think it's  absolutely appropriate.  ... You  have a                                                                    
     fiduciary   responsibility    to   your   stockholders,                                                                    
     basically,  and  ours is  to  our  "stockholders."   We                                                                    
     happen to be  an owner state. ... We  own the resources                                                                    
     collectively.   And  so, I  guess we're  exercising our                                                                    
     fiduciary responsibility by having this discussion.                                                                        
                                                                                                                                
MR. HURLEY said he understands that.                                                                                            
                                                                                                                                
Number 2693                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked whether  this sends  a discouraging  message to                                                               
Mr. Hurley's group or the companies behind it.                                                                                  
                                                                                                                                
MR. HURLEY replied  that he thinks it can.   He clarified that he                                                               
doesn't  think  the  expression  of a  preference  does  [send  a                                                               
discouraging message]  because everyone  will have  a preference.                                                               
However,  the language  that Chair  Ogan had  quoted [on  page 2,                                                               
lines 23-25  and 28-29] may  worry people, especially  people who                                                               
are "out trying to invest billions of dollars in assets."                                                                       
                                                                                                                                
Number 2731                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON  said he appreciates  that Mr. Hurley  has a                                                               
job  to  do, and  that  this  may  be  disconcerting.   He  said,                                                               
however, that it  is hard to see how an  across-the-top route can                                                               
provide jobs  for Alaskans; gas  for Alaskan  consumption, except                                                               
to Kaktovik;  or significant revenue from  the gas transportation                                                               
system.     He  said  he  appreciates   Mr.  Hurley's  good-faith                                                               
presentation  but   has  to  believe  that   the  companies  are,                                                               
foremost, interested in  their own bottom line.   He suggested it                                                               
would be  very difficult to  convince the committee  that leaving                                                               
the  "over-the-top"  option  on  the  table  would  be  best  for                                                               
Alaskans.                                                                                                                       
                                                                                                                                
MR. HURLEY  said he  agrees that it  could be a  tough road.   He                                                               
then stated:                                                                                                                    
                                                                                                                                
     We  envision that  this project  is going  to be  large                                                                    
     enough that  it's not going  to just  challenge putting                                                                    
     all  the  Alaskans to  work,  it's  going to  challenge                                                                    
     getting enough  people in North  America to do it.   So                                                                    
     people who are  going to want to work,  no matter which                                                                    
     direction it  goes, are going  to be able to  get jobs.                                                                    
     It's going to take a lot of people to build this.                                                                          
                                                                                                                                
     With  respect  to gas  for  Alaskans,  there have  been                                                                    
     discussions, and  I believe the  group is  committed to                                                                    
     evaluating  a spur  line down  to  Fairbanks, even  ...                                                                    
     when you're looking at the "over-the-top" route.                                                                           
                                                                                                                                
     So anytime  you're looking  at multiple  criteria, it's                                                                    
     hard to  say you  can maximize  one [criterion]  at the                                                                    
     expense  of  all others.  ...  You've  got to  try  and                                                                    
     optimize  against a  bunch of  criteria.   And what  we                                                                    
     tried  to  do  here  was lay  out  the  criteria  we're                                                                    
     looking at.  And they  do include jobs; they do include                                                                    
     gas  to Alaskans.   And  our problem  is, we  don't yet                                                                    
     have enough  data to be able  to fill in the  matrix of                                                                    
     ... what are the  different attributes of the different                                                                    
     routes in any detail or with any confidence.                                                                               
                                                                                                                                
Number 2889                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE said  he understands that the  bottom line of                                                               
the companies  for which Mr.  Hurley works is  all-important, and                                                               
that internal finances are important  for any company to survive.                                                               
On the  other hand, to  him this is  more than just  indicating a                                                               
preference.   The  constitution mandates  that the  [legislature]                                                               
maximize the resources for the benefit of Alaskans.                                                                             
                                                                                                                                
REPRESENTATIVE  FATE asked  whether the  FERC had  already issued                                                               
certificates of convenience to another  company close to 20 years                                                               
ago, and  now [Mr. Hurley's group]  is reapplying for those.   In                                                               
the alternative,  he asked whether  the group is expecting  a new                                                               
issuance, and thus there would be two "layers" of certificates.                                                                 
                                                                                                                                
MR. HURLEY answered  that at this point, they are  pursuing it by                                                               
doing the  work necessary  to file  a new  "green field."   [This                                                               
isn't on the tape, but was recorded in the log notes.]                                                                          
                                                                                                                                
TAPE 01-21, SIDE B                                                                                                              
Number 2951                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE further  asked whether FERC has  the power to                                                               
negate the other issuances.                                                                                                     
                                                                                                                                
MR. HURLEY answered  that the projects will be  different and, to                                                               
some extent,  don't directly overlap;  they have  different "end-                                                               
points," with different technology.  He further stated:                                                                         
                                                                                                                                
     The routing may mostly be  the same, but it's not clear                                                                    
     to  us how  different it  is  before the  FERC gets  to                                                                    
     separate them  in their own  dockets, if you  will. ...                                                                    
     We  have seen  studies by  the FERC  that say  that the                                                                    
     ANGTA  [Alaska Natural  Gas  Transportation Act]  stuff                                                                    
     does not  preclude putting in  a new  "7C" application.                                                                    
     ...                                                                                                                        
                                                                                                                                
     Quite  frankly,  we've  seen   and  looked  at  several                                                                    
     different legal  opinions, and  they all  say different                                                                    
     things,  and that's  something we're  going to  have to                                                                    
     sort out, as  part of this process.  We  don't know the                                                                    
     answer yet.  That is part of our work program.                                                                             
                                                                                                                                
     Right now, we're assuming that,  if you will, the worst                                                                    
     case is,  you have to  go and  file a brand  new "green                                                                    
     field,"  which  means  you  have to  do  all  the  work                                                                    
     necessary   to  have   all  the   information  for   an                                                                    
     application.   That's the  worst case  in terms  of the                                                                    
     most work  you have to  do, so we're assuming  that for                                                                    
     the time being, as we move the process forward.                                                                            
                                                                                                                                
Number 2856                                                                                                                     
                                                                                                                                
CHAIR OGAN asked Mr. Hurley whether his group opposes HCR 8.                                                                    
                                                                                                                                
MR. HURLEY  answered that  to the  extent HCR  8 is  expressing a                                                               
preference,  they  don't  oppose   expressing  a  preference  but                                                               
suggest,  if anything,  that  it may  be  premature, "given  that                                                               
there's not enough data out there to make a decision."                                                                          
                                                                                                                                
CHAIR OGAN asked whether his  assumption is true that it wouldn't                                                               
change  what  [the group]  is  doing,  because  they have  to  go                                                               
through an  analysis, both to  meet the federal  requirements and                                                               
to have "the holy water, if  you will, sprinkled upon the project                                                               
by the boards that want to invest the money."                                                                                   
                                                                                                                                
MR. HURLEY  replied that to  the best of [the  group's] knowledge                                                               
right now, that is correct.                                                                                                     
                                                                                                                                
CHAIR OGAN reiterated, "Let the  record reflect, we tried to save                                                               
you 75 million bucks."                                                                                                          
                                                                                                                                
Number 2797                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING  referred to page  1, paragraph 5,  of Mr.                                                               
Hurley's written testimony, which read  in part, "We believe that                                                               
legislative action which recommends  shutting down options before                                                               
they are fully  understood limits dialog and  interferes with the                                                               
fundamental dynamics of a free-market economy."                                                                                 
                                                                                                                                
REPRESENTATIVE KOHRING mentioned his  own concerns with regard to                                                               
trying  to force  the eventual  construction of  a pipeline.   He                                                               
said he  appreciates the efforts  of committee members  and other                                                               
legislators, and surmised that his "no"  vote may be the only one                                                               
when something like this gets to the House floor.  He explained:                                                                
                                                                                                                                
     We're supposed  to be a  government that's  promoting a                                                                    
     private-sector  free-market economy,  and I  just don't                                                                    
     see that this is consistent with  that.  And I know our                                                                    
     constitution says  one thing, and  we all took  an oath                                                                    
     of   office   to   uphold   the   principles   of   the                                                                    
     constitution,  but that  doesn't  necessarily mean  the                                                                    
     constitution  is  100  percent right,  either.  ...  It                                                                    
     might have  been God-inspired,  but it's  still written                                                                    
     by men, and it's still subject to errors.                                                                                  
                                                                                                                                
REPRESENTATIVE  KOHRING suggested  that supporting  [every aspect                                                               
of] the constitution  may not always be in the  best interests of                                                               
Alaskans.   He  cautioned  against  acting prematurely,  limiting                                                               
options for the  future, or doing something  that discourages the                                                               
oil and gas  industry - which he believes has  an excellent track                                                               
record and  which has  added enormously to  the state  treasury -                                                               
from acting in a "free-market way."                                                                                             
                                                                                                                                
Number 2650                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS said she agreed  in many ways.  She observed                                                               
that there  is an  oligopoly for oil  and gas  natural resources:                                                               
there  are very  few producers,  which may  cause natural  market                                                               
failures.  It is not a free market.                                                                                             
                                                                                                                                
REPRESENTATIVE  DYSON compared  it to  a table-stakes  poker game                                                               
for  which it  takes $3  billion or  $4 billion  to buy  into the                                                               
game.                                                                                                                           
                                                                                                                                
Number 2561                                                                                                                     
                                                                                                                                
CHAIR OGAN thanked Mr. Hurley and  stated that should HCR 8 pass,                                                               
he and the  committee, to his belief, "stand ready  to assist you                                                               
in whatever  way possible  to get  this ...  gas developed."   He                                                               
asked  Mr.  Hurley   to  "please  convey  the   message  to  your                                                               
colleagues   and  to   your  superiors"   that  this   should  be                                                               
interpreted as positive, not negative.                                                                                          
                                                                                                                                
Number 2520                                                                                                                     
                                                                                                                                
MEAD  TREADWELL  testified  via  teleconference  from  Anchorage,                                                               
noting  that he  would speak  both on  behalf of  former Governor                                                               
Walter Hickel,  who was  unable to  testify that  day, and  as an                                                               
individual.                                                                                                                     
                                                                                                                                
MEAD TREADWELL,  on behalf of  former Governor Hickel,  read into                                                               
the  record a  letter  [dated  March 23,  2001,  in packets],  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Dear Representative Ogan,                                                                                                  
                                                                                                                                
     While  I'd hoped  to visit  you and  the House  Special                                                                    
     Committee on Oil  and Gas before the end  of March, I'm                                                                    
     not able to  do so because I'm traveling  to Moscow for                                                                    
     a meeting  of Northern forum leaders.   Nevertheless, I                                                                    
     want  to  compliment  you  and  the  committee  on  its                                                                    
     efforts  to understand  where  Alaska  stands in  world                                                                    
     markets for natural gas.                                                                                                   
                                                                                                                                
     Any  successful gas  project  requires willing  buyers,                                                                    
     willing sellers,  willing transporters,  and financing.                                                                    
     My work  in this area  has been  to try to  bring those                                                                    
     elements  together, and  I hope  your committee  can do                                                                    
     the same.                                                                                                                  
                                                                                                                                
     If I were there, I would make three points.                                                                                
                                                                                                                                
     First, Alaska  has to look  out for its  own interests.                                                                    
     In the  late 1970s,  an overland  project failed  - but                                                                    
     not  before Alaska's  efforts helped  Canadian reserves                                                                    
     get to market.  If overland  was the best way to go, we                                                                    
     would have  an oil  pipeline to  Bellingham today.   We                                                                    
     don't.  Tidewater gives us  the most options, and while                                                                    
     we can  pursue an  overland route,  we can't  allow the                                                                    
     tidewater  option to  be ignored  by the  state or  the                                                                    
     producers.  We must  aggressively pursue Asian markets,                                                                    
     and  that   means  ensuring  that   a  gas   supply  is                                                                    
     independently offered for  sale.  So far,  that has not                                                                    
     been  done.   Instead, we're  telling the  Asian market                                                                    
     we're not ready to sell.                                                                                                   
                                                                                                                                
     Second, I've attached  an excerpt from a  talk the late                                                                    
     Senator  Bob Bartlett  gave to  Alaska's Constitutional                                                                    
     Convention.   He  warned  about  companies with  assets                                                                    
     outside  Alaska  warehousing  assets  they  acquire  in                                                                    
     Alaska.   Of course,  no oil  company would  admit that                                                                    
     they  are warehousing  gas, or  keeping it  out of  the                                                                    
     market because it has other  supplies available.  But a                                                                    
     state owner  of such  a large  resource has  to protect                                                                    
     itself, because  it could  happen.  It  is clear  to me                                                                    
     that we have not protected ourselves.                                                                                      
                                                                                                                                
     What to do?  We must  be tough.  Our options range from                                                                    
     a  reserve   tax  to  taking  back   the  resource  for                                                                    
     nonperformance.   Neither  of  these  options would  be                                                                    
     necessary if a  sufficient gas supply to  serve the LNG                                                                    
     route  were  committed   to  an  independent  marketing                                                                    
     effort.                                                                                                                    
                                                                                                                                
     Third, we  must learn  our lessons  from the  oil line:                                                                    
     Unless  structured  correctly,   a  pipeline  owned  by                                                                    
     producers is  likely to result in  tariff, royalty, and                                                                    
     tax  disputes  because  of  a  conflict  in  incentives                                                                    
     between  profits from  transportation and  profits from                                                                    
     wellhead   production.     Since   TAPS   [Trans-Alaska                                                                    
     Pipeline System]  began, the  state has had  to collect                                                                    
     close to $10 billion in  dispute because of the way the                                                                    
     Trans-Alaska  Pipeline  was  structured.   Two  options                                                                    
     could help  head off  similar disputes  on gas.   First                                                                    
     may be requiring  an independent transportation company                                                                    
     to carry the gas.  Second  may be having the state take                                                                    
     an ownership  interest in the  pipeline at  least equal                                                                    
     to its  royalty interest  in the  gas.   Ken Thompson's                                                                    
     trading hub  idea also  has merit  in heading  off this                                                                    
     kind of conflict.                                                                                                          
                                                                                                                                
     At   least  two   transport  companies   have  invested                                                                    
     millions  of dollars  designing and  permitting systems                                                                    
     to  deliver  North  Slope  gas.   The  state  is  doing                                                                    
     nothing  I'm aware  of to  help  bring these  investors                                                                    
     together with the producers.                                                                                               
                                                                                                                                
     I look  forward to  further discussion  with you  on my                                                                    
     return.   I'm doing  what I can,  as an  individual, to                                                                    
     urge  producers, transporters,  buyers, and  financiers                                                                    
     to get  together.  And  the state  must help to  do the                                                                    
     same.                                                                                                                      
                                                                                                                                
     If this  letter is  presented to  your committee  in my                                                                    
     absence,  Mead Treadwell  -  who works  with  me -  can                                                                    
     attempt to answer any questions you have.                                                                                  
                                                                                                                                
     With best regards.                                                                                                         
                                                                                                                                
     Sincerely,                                                                                                                 
                                                                                                                                
     Walter J. Hickel                                                                                                           
                                                                                                                                
Number 2329                                                                                                                     
                                                                                                                                
MR. TREADWELL referred to the  attachment to the letter, pointing                                                               
out that E.L. Bartlett [at  the time of the Alaska Constitutional                                                               
Convention in 1955]  had noted that Alaska was  becoming an owner                                                               
state, and  had said there  are two dangers  when a state  owns a                                                               
lot  of natural  resources:   First,  there  can be  exploitation                                                               
under the  thin disguise of development;  second, taking Alaska's                                                               
mineral resources without leaving  some reasonable return for the                                                               
support of Alaska's governmental services  and the use of all the                                                               
people will mean a betrayal  in the administration of the state's                                                               
wealth.                                                                                                                         
                                                                                                                                
MR.  TREADWELL highlighted  the  second danger  discussed by  Mr.                                                               
Bartlett:   Outside interests,  determined to  stifle development                                                               
in  Alaska that  might compete  with their  activities elsewhere,                                                               
will attempt to acquire great areas  of public lands in order not                                                               
to develop  them until such  time that "in their  omnipotence and                                                               
the  pursuance  of their  own  interests,  they  see fit."    Mr.                                                               
Treadwell  concluded by  noting that  Mr. Bartlett  had said  the                                                               
following:   If large  areas of  "Alaska's patrimony"  are turned                                                               
over to such  corporations, Alaskans may be even  more the losers                                                               
than if the lands had been exploited.                                                                                           
                                                                                                                                
Number 2262                                                                                                                     
                                                                                                                                
CHAIR  OGAN remarked  that he  had  found the  statement by  E.L.                                                               
Bartlett, made in  1955, so prophetic that he had  read a portion                                                               
of it on the [House] floor.                                                                                                     
                                                                                                                                
CHAIR  OGAN  referred  to  the  statement  in  Governor  Hickel's                                                               
letter, "Instead, we're telling the  Asian market we're not ready                                                               
to sell."  He asked who "we" is.                                                                                                
                                                                                                                                
MR. TREADWELL answered that in  this instance, he thinks Governor                                                               
Hickel is  referring to what appears  to be a policy  "where they                                                               
returned from  a trip  to Asia  and kind  of reported  that there                                                               
isn't a  market."  He  suggested [Governor Hickel's]  position is                                                               
that if someone is trying  to sell something, that person doesn't                                                               
tell his or her customer there is no market there.  He added:                                                                   
                                                                                                                                
     We watched, very  closely, the visit that  you had from                                                                    
     the  representative  of  Tokyo Gas  [Mr.  Muraki],  and                                                                    
     we're also  watching very closely what  you reported to                                                                    
     the committee  at the beginning of  this session, which                                                                    
     is that there  are now at least  two projects announced                                                                    
     to bring Australia gas to  the West Coast of the United                                                                    
     States or the West Coast of Mexico. ...                                                                                    
                                                                                                                                
     Take a look  at the clear difference  there. ... You've                                                                    
     got  oil producers  in that  case announcing  projects.                                                                    
     Those   projects   don't    necessarily   have   market                                                                    
     commitments  as yet,  but they  announce  an intent  to                                                                    
     sell and  an intent  to go  out and try  to sell.   And                                                                    
     we've never  had that similar kind  of intent announced                                                                    
     on behalf of  Alaska gas in the  Asian marketplace that                                                                    
     I'm aware of.                                                                                                              
                                                                                                                                
Number 2157                                                                                                                     
                                                                                                                                
CHAIR  OGAN referred  to other  markets and  the Timor  Sea.   He                                                               
asked  Mr. Treadwell  whether he  was aware  of any  disincentive                                                               
clause such  as a  reserves tax  or a  "use-it-or-lose-it-type of                                                               
scenario  built into  their statutes"  that might  motivate these                                                               
types of agreements.                                                                                                            
                                                                                                                                
MR. TREADWELL  answered that he didn't  have firsthand knowledge,                                                               
although he  had heard, in  several cases, that most  leases have                                                               
performance clauses,  which in  some cases  have a  "short fuse."                                                               
He added, "We have a performance  clause, but our gas is mixed up                                                               
with our  oil, so that there  is performance on the  leases right                                                               
now because  the oil is being  produced."  He suggested  it would                                                               
be  a  good  issue  for  the committee  to  try  to  obtain  more                                                               
information about.                                                                                                              
                                                                                                                                
CHAIR  OGAN   replied,  "We've  been   attempting  to   get  that                                                               
information, and  it's difficult  to obtain.   But we  have asked                                                               
the  producers  if they're  aware  of  any, and  we're  expecting                                                               
responses."                                                                                                                     
                                                                                                                                
Number 2080                                                                                                                     
                                                                                                                                
CHAIR  OGAN  asked what  former  Governor  Hickel meant  when  he                                                               
talked about an  independent marketing effort on  the second page                                                               
of  his   letter.    Chair   Ogan  said  he  believes   too  much                                                               
responsibility  has  been delegated  by  the  legislature to  the                                                               
executive branch.  He further asked,  "What could we do better to                                                               
market our gas?"                                                                                                                
                                                                                                                                
MR. TREADWELL responded that former  Governor Hickel mentions, in                                                               
the idea of  an independent marketing effort,  that options range                                                               
from a  reserves tax  to "taking back  for nonperformance."   If,                                                               
however,  the  legislature  -  through  incentives,  creating  an                                                               
authority,  or  working  with the  existing  authority  and  "the                                                               
existing permitted transporter  for LNG" - were to  see whether a                                                               
commitment  allowing  the project  to  go  forward could  be  put                                                               
there,  then it  could  live or  die  on its  own  merits in  the                                                               
marketplace - without a question of  its being held back from the                                                               
marketplace  because of  other competing  projects  owned by  the                                                               
same North Slope producers.                                                                                                     
                                                                                                                                
MR. MEAD went on to say  that the gas doesn't necessarily have to                                                               
be confiscated.   The idea would be to get  agreement to "put the                                                               
marketing rights  for that gas  in a  position where a  group has                                                               
the sole  incentive to  get that  gas to  market with  a positive                                                               
return  to  the  state  and  ... the  producers,  as  opposed  to                                                               
comparing the  return from Alaska  gas to  any other kind  of gas                                                               
out there."   If  Alaska sells  that gas,  then Alaska  makes the                                                               
money.   But if  it doesn't  sell and somebody  sells gas  out of                                                               
Irian  Jaya  or  the  Northwest shelf  of  Australia,  the  state                                                               
doesn't get any return at all.                                                                                                  
                                                                                                                                
Number 1920                                                                                                                     
                                                                                                                                
CHAIR OGAN stated  his understanding, then, that it  would take a                                                               
cooperative agreement  between the producers  and the state.   Or                                                               
perhaps the  legislature would delegate  an agent or  designee to                                                               
market the  state's gas on its  behalf.  He mentioned  that a big                                                               
stumbling  block  with the  Pacific  Rim  is that  Yukon  Pacific                                                               
[Corporation]  doesn't  own  gas.    He asked  Mr.  Mead  how  he                                                               
envisions something like that would be done.                                                                                    
                                                                                                                                
MR.  TREADWELL replied  that there  are  couple of  options.   He                                                               
suggested  reviewing  Mr.  Thompson's  proposal  that  the  state                                                               
commit to, in essence, moving the  wellhead to Fairbanks.  If the                                                               
state assessed  the feasibility  of that option  - in  return for                                                               
providing help in the infrastructure  that could potentially help                                                               
both the overland project and the  LNG project - then perhaps the                                                               
quid pro  quo is that  there would be a  commitment of gas  to an                                                               
independent marketing entity.                                                                                                   
                                                                                                                                
MR. TREADWELL  pointed out  a second option:   to  incorporate an                                                               
independent marketing entity or to  offer the state's royalty gas                                                               
to a  marketing entity that is  able to get the  other gas there.                                                               
He explained  that there  are a number  of disincentives  for the                                                               
state such as reserve stacks; however,  it may be possible to get                                                               
a positive finding.                                                                                                             
                                                                                                                                
MR. TREADWELL  offered a third  option:  looking  at "antitrust."                                                               
If there is a competitive  disincentive to sell, maybe there's an                                                               
antitrust rule  whereby a  settlement could  put an  option [for]                                                               
this gas into an independent  marketing effort.  He remarked that                                                               
he thinks  Governor Hickel is  suspicious of ever  having serious                                                               
consideration of the  Asian market unless all  the incentives for                                                               
Alaska are working together.                                                                                                    
                                                                                                                                
CHAIR OGAN remarked that he  would prefer, philosophically, to do                                                               
something  in a  positive  light, rather  than  "holding guns  to                                                               
people's heads."   He  said he  would like  to discuss,  with the                                                               
committee, exploring and taking the  lead on the hub issue, which                                                               
probably needs to be developed in  the interim.  He remarked that                                                               
it probably  would be fairly  complex to  figure out how  to move                                                               
the wellhead to  Fairbanks, for example, and it  likely will take                                                               
extensive statutory and policy changes.                                                                                         
                                                                                                                                
Number 1731                                                                                                                     
                                                                                                                                
CHAIR OGAN went  on to say he thinks the  "wellhead to Fairbanks"                                                               
or  hub idea  probably addresses  the third  issue brought  up by                                                               
[former  Governor  Hickel], about  structure  and  disputes.   He                                                               
noted  that  he  says "requiring  an  independent  transportation                                                               
company  to  carry the  gas."    Chair Ogan  said  Representative                                                               
Whitaker addressed  that in  his presentation.   He asked  if Mr.                                                               
Treadwell could expand on this.                                                                                                 
                                                                                                                                
MR. TREADWELL offered  some history in reply.   When Alaska North                                                               
Slope gas  was discovered,  there initially  were at  least three                                                               
proposals  to get  it  to  market:   an  over-the-top route,  the                                                               
Alaska  Highway route,  and  the  El Paso  LNG  route.   Congress                                                               
stepped in and passed ANGTA,  which said the President would make                                                               
a choice  and avoid  a competitive  choice by  what was  then the                                                               
Federal Power Commission,  which preceded FERC.   There was never                                                               
a  question   that  gas   would  be  brought   to  market   by  a                                                               
transportation  company,  rather  than  the  owners  of  the  gas                                                               
itself.  Later,  the owners of the gas became  part owners of the                                                               
Alaska  Natural Gas  Transportation System  (ANGTS), which  then-                                                               
President Carter chose to have go  down the highway.  Even later,                                                               
a "waiver of laws" package may have "increased that."                                                                           
                                                                                                                                
MR.  TREADWELL continued,  stating that  since then,  the country                                                               
has  gone through  deregulation  whereby  the difference  between                                                               
transporter companies  and producer companies has  been erased in                                                               
the law.  There was a reason for  that law in the first place; he                                                               
suggested the  state should look  at its own reasons  for whether                                                               
or  not it  wants to  have independent  transportation companies.                                                               
He explained that one argument  for an independent transportation                                                               
company is  it provides good  transparency regarding the  cost of                                                               
delivering  the gas,  in order  to fully  know what  the wellhead                                                               
[price] is, and to avoid disputes later on.                                                                                     
                                                                                                                                
MR. MEAD explained that another  advantage can be getting the gas                                                               
to  market  if somebody  wants  to  hold  [gas] off  the  market,                                                               
whereas now there  is no "check" on that.   He suggested it would                                                               
be worthwhile for the committee to study that issue.                                                                            
                                                                                                                                
MR. MEAD further suggested that if  the state is going to spend a                                                               
lot  of money  permitting  new  projects -  on  routes that  have                                                               
already been permitted by  independent transportation companies -                                                               
it may be  worthwhile to try to get  the transportation companies                                                               
and producers to  work together.  That hasn't been  seen yet.  In                                                               
fact,  he said,  the  unstated assumption  of the  administration                                                               
appears  to be  that  there must  be  a different  transportation                                                               
company.  That assumption shouldn't go unquestioned.                                                                            
                                                                                                                                
Number 1480                                                                                                                     
                                                                                                                                
CHAIR  OGAN noted  that  in  the same  paragraph  of the  letter,                                                               
former  Governor  Hickel  talks   about  the  state's  having  an                                                               
ownership interest at least equal  to its royalty interest in the                                                               
gas,  which  is about  12.5  percent.    Chair Ogan  offered  his                                                               
perception of the advantage of that:   at least [the state] would                                                               
be  at  the  table,  and  the  information  no  longer  would  be                                                               
proprietary.   He  asked Mr.  Treadwell whether  [former Governor                                                               
Hickel would agree].                                                                                                            
                                                                                                                                
MR. TREADWELL answered that he  thinks [former Governor Hickel's]                                                               
argument is this:   "If you look  how money has been  made in the                                                               
oil  business   since  '77,  when  tax   began  flowing,  there's                                                               
certainly been money made at  the wellhead, but there's also been                                                               
money made in  transportation."  A question is how  much money is                                                               
made on transportation  versus how much is made  at the wellhead.                                                               
If the  state is an  owner in the  pipeline, then it  is neutral,                                                               
and there  aren't conflicting  incentives.   He added  that other                                                               
arguments include the "information  argument" brought up by Chair                                                               
Ogan;  the  question  of transparency,  which  Mr.  Thompson  had                                                               
brought up;  moving the gas;  and Alaska's long-term  position in                                                               
the gas  market.   He added,  "It doesn't come  from any  kind of                                                               
socialist impulse.  ... It comes  from, basically, the  state, as                                                               
an owner, using a development tool to help make this happen."                                                                   
                                                                                                                                
CHAIR  OGAN further  noted that  the letter  says, "The  state is                                                               
doing  nothing  I'm  aware  of  to  help  bring  these  investors                                                               
together  with the  producers."     He  asked,  "What  can we  do                                                               
better?"                                                                                                                        
                                                                                                                                
MR. TREADWELL replied that there are  carrots and sticks.  On the                                                               
carrot  side, if  the legislature  or the  committee brought  the                                                               
people who got  the permits for this project  together, the state                                                               
might save a lot of money in processing new permits.                                                                            
                                                                                                                                
Number 1284                                                                                                                     
                                                                                                                                
CHAIR OGAN  remarked that he would  talk with the governor  as to                                                               
how the legislature  can do its job better,  by persuasion rather                                                               
than coercion, if possible.                                                                                                     
                                                                                                                                
MR.  TREADWELL  stated  that he  thinks  that's  former  Governor                                                               
Hickel's point of view as well.                                                                                                 
                                                                                                                                
CHAIR OGAN  asked Mr.  Treadwell what  he thinks  former Governor                                                               
Hickel's position is on [HCR 8].                                                                                                
                                                                                                                                
MR. TREADWELL  answered that [Governor  Hickel] did not  have the                                                               
chance to specifically review the  resolution; however, he stated                                                               
in  his letter  that he  is not  crazy about  the Alaska  Highway                                                               
pipeline.   He remarked  that he  thinks [Governor  Hickel] would                                                               
support  what  is stated  about  the  constitution and  what  the                                                               
legislature's roll is in the policy  of the state.  He added that                                                               
he  doesn't  think  [Governor  Hickel]  has  any  objection  with                                                               
expressing  preferences.    Finally, he  said  [Governor  Hickel]                                                               
would argue that a resolution  could be passed against something,                                                               
but would also argue to try  to make something positive happen at                                                               
the same time.                                                                                                                  
                                                                                                                                
Number 1009                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE made  a motion  to move  the CS  for HCR  8,                                                               
version  22-LS0764\J,  Chenoweth,  3/28/01, from  committee  with                                                               
individual recommendations and the attached zero fiscal note.                                                                   
                                                                                                                                
Number 0974                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING objected.   He explained that  he would be                                                               
more  amenable to  the resolution  if it  did not  have the  word                                                               
"guarantee"  on page  2 [line  27].   He remarked  that he  has a                                                               
problem:   while  the government  is  [advocating] a  free-market                                                               
economy, it  is forcing  the issue  and the  hand of  industry in                                                               
terms of attempting to guarantee a certain outcome.                                                                             
                                                                                                                                
CHAIR  OGAN asked  Representative  Kohring if  he  would be  more                                                               
comfortable with the word "facilitate".                                                                                         
                                                                                                                                
Number 0860                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING said he would.   He made a motion to adopt                                                               
a   conceptual  amendment,   "to   substitute  'guarantee'   with                                                               
facilitate'."  There being no objection, it was so ordered.                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING  withdrew  his objection  to  moving  the                                                               
resolution from committee.                                                                                                      
                                                                                                                                
Number 0785                                                                                                                     
                                                                                                                                
CHAIR  OGAN  announced  that  without  further  objection,  CSHCR                                                               
8(O&G)  was moved  from the  House Special  Committee on  Oil and                                                               
Gas.                                                                                                                            

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