Legislature(2001 - 2002)

03/14/2002 10:44 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 410-ALASKA NATURAL GAS DEVELOPMENT AUTHORITY                                                                               
                                                                                                                                
[Contains testimony pertaining to SB 221]                                                                                       
                                                                                                                                
Number 0040                                                                                                                     
                                                                                                                                
CHAIR OGAN announced the first  order of business, HOUSE BILL NO.                                                               
410,  "An Act  establishing  the Alaska  Natural Gas  Development                                                               
Authority,   a  public   corporation,  and   providing  for   its                                                               
structure,  management,  responsibilities,   and  operation,  and                                                               
requiring the development of a  project plan for the construction                                                               
and operation of  a natural gas transmission  pipeline project by                                                               
the  authority."   [HB 410  was  sponsored by  the House  Special                                                               
Committee on Oil and Gas.]                                                                                                      
                                                                                                                                
CHAIR  OGAN  explained that  he'd  decided  to introduce  HB  410                                                               
because of  his belief that [Initiative  01GSLN, "The All-Alaskan                                                               
Gasline Initiative"]  would be certified  [to go on  the November                                                               
ballot], which  had since happened.   He offered his  belief that                                                               
the bill almost exactly mirrors  the initiative, with a couple of                                                               
minor  changes; he  referred members  to the  bill packet  [which                                                               
contained two memorandums, dated February  8, 2002, and March 13,                                                               
2002, from  Jack Chenoweth, drafting attorney,  Division of Legal                                                               
and Research Services] with regard to the changes.                                                                              
                                                                                                                                
CHAIR OGAN said  this creates the Alaska  Natural Gas Development                                                               
Authority as  a public corporation  in the state;  that authority                                                               
would acquire  and condition North  Slope natural gas,  and would                                                               
construct a pipeline  to transport that gas.  The  route would be                                                               
from Prudhoe  Bay to  tidewater in Prince  William Sound,  with a                                                               
spur  line to  Glennallen and  the Southcentral  gas distribution                                                               
grid.    The  authority  would   operate  and  maintain  the  gas                                                               
pipeline, and  would ship and market  the gas.  He  pointed out a                                                               
five-page  indeterminate  fiscal  note  from  the  Department  of                                                               
Revenue, saying he  wanted to have discussion about it.   He also                                                               
noted that  the bill is silent  with regard to how  it interfaces                                                               
with the  proposed gas pipeline  [that would parallel  the Alaska                                                               
Highway].    He  said  he  believed  there  should  at  least  be                                                               
discussion  of  this issue,  since  it  will  be on  the  ballot;                                                               
because it  is a committee bill,  however, he would defer  to the                                                               
will of the committee with regard to how to proceed.                                                                            
                                                                                                                                
Number 0230                                                                                                                     
                                                                                                                                
CHAIR OGAN noted that the  constitution allows the legislature to                                                               
amend an  initiative at  any time,  or to  repeal it  [after] two                                                               
years.   He suggested looking at  whether there are flaws  in the                                                               
initiative.  He also suggested this  is a huge policy call, since                                                               
he said it  puts the State of Alaska in  the business of building                                                               
a pipeline  and doing what  usually the private sector  does; the                                                               
state  would take  the risks.   In  the alternative,  legislators                                                               
could let  the initiative  go forward,  with what  "our attorneys                                                               
think are  a couple  of flaws in  the bill,  constitutionally and                                                               
statutorily."   Chair Ogan called  on Scott Heyworth [one  of the                                                               
primary sponsors of the initiative that HB 410 would supplant].                                                                 
                                                                                                                                
Number 0393                                                                                                                     
                                                                                                                                
SCOTT HEYWORTH testified via teleconference, as follows:                                                                        
                                                                                                                                
     As guaranteed by our state  constitution and state law,                                                                    
     the  citizens of  Alaska have  gathered  more than  ...                                                                    
     enough  signatures  required  to place  this  gas  line                                                                    
     initiative  on the  November ballot.   I  have seen  or                                                                    
     commissioned  four statewide  polls  in  the last  year                                                                    
     showing  that the  people of  Alaska favor  this Valdez                                                                    
     route by over  65 percent.  My poll done  by Ivan Moore                                                                    
     Research  in just  Anchorage alone  shows a  70 percent                                                                    
     "favorability" in the town that  controls 40 percent of                                                                    
     the statewide votes.   I've also polled  the state with                                                                    
     the  exact  ballot  language ...  you  just  read,  Mr.                                                                    
     Chairman, and it passes by 65 percent statewide today.                                                                     
                                                                                                                                
     My  petitioners  told  me  it   was  the  most  popular                                                                    
     petition that  they've ever worked  on in the  state of                                                                    
     Alaska.   That is why  we were  able to gather  so many                                                                    
     signatures in  the dead  cold of  winter, in  so little                                                                    
     time, and without the state fair.                                                                                          
                                                                                                                                
     The bottom, bottom line of  this initiative is that the                                                                    
     people  of   Alaska  will  now   have  a  say   in  the                                                                    
     development  and  commercialization  of  one  of  their                                                                    
     resources,  natural gas.   But  the legislature  of our                                                                    
     great  state has  an even  more wonderful  opportunity.                                                                    
     You all can pass  ... substantially similar legislation                                                                    
     that we  would agree  on, that  would speed  this whole                                                                    
     project up  by one  year and allow  for a  much earlier                                                                    
     construction  startup date.    Representative Ogan  has                                                                    
     introduced HB  410, and  Senator Taylor  has introduced                                                                    
     SB  221,  which  is  in front  of  Senator  Torgerson's                                                                    
     Resources  Committee.   I have  reviewed both  of these                                                                    
     bills, and, generally,  I ... in most  cases agree that                                                                    
     they  are   substantially  similar  to  our   gas  line                                                                    
     initiative.                                                                                                                
                                                                                                                                
     There are a  few small things that might be  added.  As                                                                    
     you know, the Alaska Gas  Port Authority, or AGPA, made                                                                    
     up  of the  three large  boroughs of  the North  Slope,                                                                    
     Fairbanks, and Valdez, have been  working long and hard                                                                    
     on  their  own  port  authority   idea.    In  fact,  I                                                                    
     consciously  stole many  of their  very good  ideas and                                                                    
     wrote them  into this  [initiative].   I would  like to                                                                    
     suggest  that  if  a substantially  similar  bill  does                                                                    
     emerge,  that you  incorporate  the seven-member  board                                                                    
     the  initiative  purports  with  the  nine-member  AGPA                                                                    
     board's  model.   The  reason  for  this is,  it  gives                                                                    
     greater  voice to  all of  Alaskans, including  Juneau,                                                                    
     Southeast,  Bristol Bay,  and/or  the Southwest  Alaska                                                                    
     municipal conference.                                                                                                      
                                                                                                                                
Number 0653                                                                                                                     
                                                                                                                                
MR. HEYWORTH  told members he  was extremely pleased to  hear the                                                               
numerous references to  the phrase "in-state gas  use" during the                                                               
presentation by  Mr. Fuhs  earlier in the  meeting [on  behalf of                                                               
Yukon Pacific Corporation (YPC); see  10:08 a.m. minutes for this                                                               
date].  Mr.  Heyworth said the potential for in-state  gas use is                                                               
one of the most exciting aspects  of the initiative.  Alaska must                                                               
develop an  energy plan for  all Alaska  and bring down  the high                                                               
costs of  rural energy  as soon  as possible.   He  reported that                                                               
propane  in Dillingham  costs $4.25  a gallon;  in Anchorage,  it                                                               
costs only  $1.89.  In  Togiak in Bristol Bay,  electricity costs                                                               
28  cents  a kilowatt-hour;  in  Anchorage,  it costs  less  than                                                               
9 cents.   Developing a GTL  [gas-to-liquids] and  LPG [liquefied                                                               
petroleum gas]  or propane extraction  plant in Valdez,  he said,                                                               
could result in  three new energy sources to fuel  all of Alaska:                                                               
compressed gas, propane or LPG, and LNG [liquefied natural gas].                                                                
                                                                                                                                
MR. HEYWORTH said  each coastal, urban, or  rural community might                                                               
be unique  in how its  infrastructure should be built  to receive                                                               
this new "Alaska  energy" from the North Slope; he  said he looks                                                               
forward  to helping  make  this  energy plan  a  reality for  all                                                               
Alaskans.  He added:                                                                                                            
                                                                                                                                
     I want to  remind each and every Alaskan  of one thing:                                                                    
     neither Yukon  Pacific nor I  have ever  purported that                                                                    
     Yukon  Pacific  has  any responsibility  whatsoever  to                                                                    
     deliver in-state gas  directly by them to  any rural or                                                                    
     urban area of Alaska.   That is the sole responsibility                                                                    
     of  this new  gas  authority, and  you as  legislators,                                                                    
     even, perhaps.  It is  an exciting task to look forward                                                                    
     to  creating the  infrastructure  and delivery  systems                                                                    
     from  Valdez and  along the  pipeline  corridor to  get                                                                    
     these  new  energy  resources  delivered.    This  will                                                                    
     [most]  likely  be  done  by   the  private  sector  in                                                                    
     contracts with this new gas authority.                                                                                     
                                                                                                                                
     This   initiative  gives   you,  as   legislators,  the                                                                    
     potential to  capture another revenue  stream, possibly                                                                    
     as early as 2007 or 2008,  to help solve our fiscal gap                                                                    
     and  budget problems.   This  is not  the Delta  barley                                                                    
     farms.  It is not the  milk farms or the hay farms over                                                                    
     at Point MacKenzie.  It  is patterned off the permanent                                                                    
     fund  language.    The   permanent  fund  is  something                                                                    
     Alaskans trust and believe in.   It has worked.  So can                                                                    
     the Alaska gas authority concept.   It is a stand-alone                                                                    
     project.                                                                                                                   
                                                                                                                                
     With the  bonding capacities ... and/or  in conjunction                                                                    
     with the  Alaska Railroad  Corporation bond  ideas that                                                                    
     have emerged, the  state would own 100  percent of this                                                                    
     project.   But  this is  very important  to understand:                                                                    
     it  would contract  out  all the  work  to the  private                                                                    
     sector.  This is how an  authority works.  The State of                                                                    
     Alaska is not building the gas pipeline.                                                                                   
                                                                                                                                
Number 0867                                                                                                                     
                                                                                                                                
MR.  HEYWORTH   suggested  reading  [proposed]   Sec.  41.41.400,                                                               
"Credit of state not pledged",  in order to fully understand that                                                               
this  project doesn't  put the  permanent  fund or  the State  of                                                               
Alaska at risk.  Once this  initiative or [bill] becomes law, the                                                               
newly  appointed board  is charged  with putting  a working  plan                                                               
together  and  presenting  an  economic   model  to  Wall  Street                                                               
investors, he noted.                                                                                                            
                                                                                                                                
MR. HEYWORTH concluded  by saying this model will offer  a way to                                                               
get "our  stranded gas to  the market, something that  has never,                                                               
ever happened before."  He added:                                                                                               
                                                                                                                                
     If the model  is sound - and I  believe your confidence                                                                    
     level should  be a  bit higher  after you've  just seen                                                                    
     the model  presented by  Mr. Fuhs  for Yukon  Pacific -                                                                    
     then Wall Street  investors will buy our  bonds, and we                                                                    
     will   begin  to   fully   commercialize  and   finally                                                                    
     commercialize  our North  Slope  natural gas.   I  look                                                                    
     forward  to working  with all  of  you to  make this  a                                                                    
     reality.                                                                                                                   
                                                                                                                                
Number 0928                                                                                                                     
                                                                                                                                
CHAIR  OGAN pointed  out that  the  fiscal note  prepared by  the                                                               
Department  of Revenue  asserts that  there is  some risk  to the                                                               
state; after confirming that Mr.  Heyworth hadn't seen the fiscal                                                               
note, he  said the committee  had just received it  that morning.                                                               
Referring  to "Development  Costs,"  beginning on  the second  of                                                               
five pages of  the fiscal note and analysis, he  read, "First, it                                                               
is important to point out there  are no guarantees that this bill                                                               
will  result   [in]  a  successful  project   [and,]  under  this                                                               
legislation,  the state  would be  exposed  to taking  commercial                                                               
risks  that no  private firm  has  yet been  willing to  assume."                                                               
Chair Ogan remarked  that it seems to allude to  putting the full                                                               
faith  and  credit of  the  state  at risk.    He  asked for  Mr.                                                               
Heyworth's take on it.                                                                                                          
                                                                                                                                
MR. HEYWORTH  said he  totally disagrees.   He again  referred to                                                               
proposed  Sec.  41.41.400  and  said, "That's  not  the  way  the                                                               
project's set up.   The private sector will invest  in the bonds.                                                               
The project  will sell itself.   It doesn't put the  state at any                                                               
risk."   He acknowledged that  he didn't have [the  fiscal note].                                                               
He also  emphasized his belief  - from recent  conversations with                                                               
Mr. Obinata, general counsel from  Japan, and from testimony from                                                               
Mr. Muraki  a year  ago [at  a joint  hearing February  15, 2001,                                                               
before  the  Senate  Resources   Standing  Committee,  the  House                                                               
Resources Standing Committee, and  the House Special Committee on                                                               
Oil and  Gas] - that the  Asian and Japanese markets  are "hungry                                                               
and would love to buy our gas from  Valdez."  He said in one year                                                               
nothing has changed, and that it is economically feasible.                                                                      
                                                                                                                                
CHAIR  OGAN  indicated  his own  conversation  with  Mr.  Obinata                                                               
hadn't conveyed such a strong commitment.                                                                                       
                                                                                                                                
MR. HEYWORTH offered his belief  that the general counsel is very                                                               
open to it, however.                                                                                                            
                                                                                                                                
Number 1163                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS questioned the  wisdom of specifying a route                                                               
in  a bill  or  initiative, rather  than  having flexibility  and                                                               
allowing the  market or  business [to determine  it].   She asked                                                               
why the  language specifies that  it go to tidewater,  instead of                                                               
just saying it has to end in Alaska.                                                                                            
                                                                                                                                
MR. HEYWORTH replied:                                                                                                           
                                                                                                                                
     I think  my answer would  be simply, number  one, [the]                                                                    
     speed of  the project,  to get  it going,  and because,                                                                    
     obviously,  the  permits are  all  in  line with  Yukon                                                                    
     Pacific to  go to Valdez.   It  was also, at  one time,                                                                    
     tried to  get the  permits to go  down to  Kenai, which                                                                    
     ... passes through Denali State  Park, the Minto Flats,                                                                    
     and the  Susitna wildlife refuge,  and then  under Cook                                                                    
     [Inlet], over  to Kenai.   And  that just  wasn't found                                                                    
     environmentally  -- or  a  smart  way to  do  it.   And                                                                    
     that's why Yukon Pacific got the permitted route.                                                                          
                                                                                                                                
MR. HEYWORTH  also suggested that  once it gets to  Valdez, there                                                               
are multiple  markets, not only to  Alaska but also to  Asia, the                                                               
West  Coast,  Mexico,  and  "everywhere."    He  said  it  is  an                                                               
economic, smart way  to "bring our product to  Valdez," and opens                                                               
up all kinds of different  markets, including that spur line down                                                               
to Anchorage in order to hook into Southcentral Alaska.                                                                         
                                                                                                                                
Number 1270                                                                                                                     
                                                                                                                                
CHAIR  OGAN,  noting  that  the  bill mandates  a  spur  line  to                                                               
Anchorage,  said  the  Department   of  Natural  Resources  (DNR)                                                               
believes  there are  significant gas  reserves that  haven't been                                                               
exploited in  Cook Inlet, where  drilling is just  now beginning.                                                               
He asked  what would  happen if adequate  supplies were  found in                                                               
Cook Inlet for the "near and  maybe mid-term future."  He said he                                                               
has heard this spur line  would be expensive, wouldn't pencil out                                                               
as  far as  what it  would  cost to  build versus  what could  be                                                               
obtained for  the gas,  and wouldn't compete  with what  could be                                                               
produced locally.  He asked, "Have  you done any analysis on what                                                               
the spur line would cost?"  If  a law passes that says there must                                                               
be a spur  line, he asked what would happen  if it doesn't pencil                                                               
out and new  gas sources are found.  If  the initiative passed by                                                               
a vote of the people,  he said, [the legislature] couldn't change                                                               
it for two years.                                                                                                               
                                                                                                                                
MR. HEYWORTH  said he understood  and thought there were  ways to                                                               
get  around it,  if  necessary.   He said  it  is an  intelligent                                                               
question.  He added:                                                                                                            
                                                                                                                                
     There's  a number  of things.   First  of all,  it's if                                                                    
     anybody finds  new reserves.   The cost that  I've seen                                                                    
     on a  paper napkin  is about $300  million; I  could be                                                                    
     high or low, in that I  think it's only about 3 percent                                                                    
     or 4  percent of  the entire project  if we  added that                                                                    
     one, so I  think it's insignificant.  I  say, why don't                                                                    
     we do  things right the  first time? ... We  would wait                                                                    
     to find  a spur  line because  "if somebody  finds some                                                                    
     gas" - it's  "if" and "ands" or "buts" -  it's all I've                                                                    
     heard ... for so many years.                                                                                               
                                                                                                                                
     I think it'd be smart to plan  it and do it, and put it                                                                    
     in.  And  if we need ...  to amend it or  change it, as                                                                    
     you  talked about,  then the  legislature can  do that.                                                                    
     And I'm  not saying  that I think  it should  be forced                                                                    
     down our  throats.  If  you can  show me that  it's not                                                                    
     right or it's not economical  - I'm a reasonable person                                                                    
     - then maybe we can't do it  that way.  But at the time                                                                    
     that we put this  initiative together six, eight months                                                                    
     ago  -- every  report that's  out in  front of  you and                                                                    
     everyone in the state of  Alaska says we're going to be                                                                    
     out of gas in Cook Inlet  in ten years if we don't find                                                                    
     anymore.   Well, there's that  word "if" again.   Well,                                                                    
     what if we  don't find any more and we  haven't put the                                                                    
     pipeline in?   Then  where are  we at?   So I  think we                                                                    
     could work with  it and look at  different options, and                                                                    
     I think ... the wise  people in the legislature can now                                                                    
     work with us and help us figure that out.                                                                                  
                                                                                                                                
Number 1470                                                                                                                     
                                                                                                                                
CHAIR OGAN remarked:                                                                                                            
                                                                                                                                
     One of  the things  that's happened  since then  is the                                                                    
     Regulatory Commission  [of Alaska  (RCA)] has  tied the                                                                    
     price of  gas that  goes into  the ENSTAR  [Natural Gas                                                                    
     Company] system  to Henry  Hub, or  at least  a formula                                                                    
     based on  Henry Hub,  which has increased  the interest                                                                    
     in creating  ... some more competition  for looking for                                                                    
     gas in Cook Inlet.                                                                                                         
                                                                                                                                
MR. HEYWORTH responded:                                                                                                         
                                                                                                                                
     As you know,  some company that I  don't remember their                                                                    
     name suddenly  exposed themselves  six or  eight months                                                                    
     ago and  said they found  all these reserves;  that was                                                                    
     the first report.  And then  when you got to the bottom                                                                    
     of  the whole  newspaper article,  the thing  was, "Oh,                                                                    
     actually  we  haven't found  the  gas;  we're going  to                                                                    
     start looking for it next summer."                                                                                         
                                                                                                                                
     These are the kind of  reports that keep coming out, so                                                                    
     you and  I and your  committee and all of  Alaska never                                                                    
     know  what the  truth is.   They  didn't find  any gas;                                                                    
     they're  going  to look  for  gas  next year,  but  the                                                                    
     headline said  they found 4 billion cubic  feet of gas.                                                                    
     It's misinformation.  Nobody's  found any gas recently.                                                                    
     They may start  drilling for it this  summer; ... we'll                                                                    
     have to  take a look at  that.  Right now,  we're going                                                                    
     to  run  out of  gas,  and  everyone knows  that's  the                                                                    
     truth.                                                                                                                     
                                                                                                                                
Number 1535                                                                                                                     
                                                                                                                                
CHAIR OGAN pointed out that there has been some success in                                                                      
southern Cook Inlet.                                                                                                            
                                                                                                                                
MR.  HEYWORTH replied  in the  affirmative, saying  it is  just a                                                               
little bit,  however, and that  the talk  is about sending  it to                                                               
Homer [and  Kenai], to his  belief, which doesn't  solve problems                                                               
in Anchorage and Southcentral Alaska.   He suggested, "I think we                                                               
can just  all be reasonable and  look at this."   Emphasizing his                                                               
concern over  the last 16 months  that "our gas is  stranded," he                                                               
continued:                                                                                                                      
                                                                                                                                
     We're  being told  by the  administration  and the  oil                                                                    
     companies  that  our  project   doesn't  work;  no  one                                                                    
     provides any  numbers.  You  just said you got  a five-                                                                    
     page [fiscal  note and analysis]  that says it's  a $16                                                                    
     billion project; we  haven't seen it - I  don't have it                                                                    
     in  front of  me.   We  don't know  what we're  talking                                                                    
     about at  all.  And  yet, to make the  Canadian highway                                                                    
     route work,  the one the administration  purports, they                                                                    
     want  a  $10  billion   loan  from  Congress;  the  oil                                                                    
     companies need  to have  price-floor supports  for some                                                                    
     imagined   $1.25   wellhead   price,   all   kinds   of                                                                    
     streamlined regulation, all  kinds of federal corporate                                                                    
     welfare to make the project work.                                                                                          
                                                                                                                                
     Our  project in  Alaska doesn't  ask for  any of  those                                                                    
     things.   And  the  oil companies  today,  as you  well                                                                    
     know, ...  don't even  want to  build the  project, and                                                                    
     they  still haven't  given you  the  studies that  they                                                                    
     promised to  give you December 31;  now they're telling                                                                    
     you  it's  March 31.    Why  won't  they give  you  the                                                                    
     studies?   We're  giving  you our  studies  - at  least                                                                    
     Yukon  Pacific is;  it's right  there in  front of  you                                                                    
     today.                                                                                                                     
                                                                                                                                
Number 1624                                                                                                                     
                                                                                                                                
CHAIR OGAN pointed out that  the power of appropriation lies with                                                               
the legislature.  He asked what happens  if there is a law on the                                                               
books that the state doesn't have the money to [fund].                                                                          
                                                                                                                                
MR. HEYWORTH replied  that he'd heard Senator  Torgerson say that                                                               
someone had  guessed it would  be $3  million to $3.5  million to                                                               
start this.   Mr. Heyworth said  he himself believed it  would be                                                               
more like $1  million to $1.5 million, to bring  a yearly revenue                                                               
stream to  Alaska of at least  $500 million a year,  and possibly                                                               
as high as $750 million to $1  billion.  He pointed out that [the                                                               
legislature]  is being  asked, meanwhile,  to give  money to  the                                                               
tourism industry and to Arctic  Power, for example.  He suggested                                                               
[his proposal] is a small investment  relative to the return.  He                                                               
said the state needs this huge  new revenue source as well as in-                                                               
state gas.  He called it  an "interesting project to look at, and                                                               
soon, not later."  He suggested  perhaps HB 410 could be combined                                                               
with Senator  Taylor's bill  in conference,  and added,  "I don't                                                               
think I'd  move to block it  unless it was just  tremendously not                                                               
substantially similar,  because I  think all of  us in  this room                                                               
today  and on  these conference  calls  are working  in the  best                                                               
interests of Alaskans, and that's what I'm trying to do."                                                                       
                                                                                                                                
Number 1729                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING mentioned projects  such as those at Point                                                               
MacKenzie and Delta  in which the state invested in  the past; he                                                               
voiced concern  that this will  be another  government boondoggle                                                               
and a  colossal waste of money  for which taxpayers will  have to                                                               
pick up  the tab  later.   He asked  Mr. Heyworth what  makes him                                                               
optimistic  that  this  is  viable and  will  provide  some  real                                                               
benefit.   He  also asked  why government  should be  involved in                                                               
something  that, in  his opinion,  the private  sector should  be                                                               
doing.   He suggested that  if the private sector  isn't stepping                                                               
forward  to  do this,  perhaps  it  isn't  a viable  project  and                                                               
doesn't pencil out.                                                                                                             
                                                                                                                                
MR. HEYWORTH replied that the  private sector isn't stepping into                                                               
the LNG project  at Valdez or the "Canadian  highway project" for                                                               
many reasons.   He said  this isn't  a state project  whereby the                                                               
state  builds the  pipeline, in  contrast to  the other  projects                                                               
that    Representative   Kohring    had   correctly    mentioned.                                                               
Mr. Heyworth explained:                                                                                                         
                                                                                                                                
     This is an  authority.  And the way  an authority works                                                                    
     is, the state,  yes, they do own the  authority and the                                                                    
     project.   But  everything is  contracted and  built by                                                                    
     the private sector.  And  that's the difference between                                                                    
     this project and  the Delta barley farms  and the Point                                                                    
     MacKenzie  milk  farms and  hay,  and  every other  one                                                                    
     that's never worked.  It's  a stand-alone project.  The                                                                    
     State  of Alaska  ..., through  bonds  or the  railroad                                                                    
     bonds or whatever, ... could  invest some money if they                                                                    
     wanted to.   But that's not ... the way  the project is                                                                    
     financed, Representative  Kohring.  It's 100  percent -                                                                    
     or  should be  or could  be 100  percent -  financed by                                                                    
     bonds.   That's  not  any investment  by  the State  of                                                                    
     Alaska.  It  doesn't take any money  from the permanent                                                                    
     fund or the State of Alaska.                                                                                               
                                                                                                                                
     I ... personally  think the State of  Alaska should try                                                                    
     to  own  this whole  project,  but  that's through  the                                                                    
     bonding process,  not through investment.   And, again,                                                                    
     I've said  it and I  think Mr. Fuhs correctly  said it,                                                                    
     that if  you put this  economic model together  and put                                                                    
     the plan  in front  of Wall  Street investors,  if they                                                                    
     want to buy  the bonds, that's what  will determine the                                                                    
     efficiency of the model of  the project, is Wall Street                                                                    
     investors themselves.   And if  they don't want  to buy                                                                    
     our bonds, then I'm wrong  and we don't have a project;                                                                    
     you're  right.   But  if  they  do,  we have  a  viable                                                                    
     project that'll  bring a  tremendous amount  of revenue                                                                    
     to the State of Alaska,  far more than any Delta barley                                                                    
     farms [were] ever going to do.                                                                                             
                                                                                                                                
Number 1912                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING  questioned whether government  should get                                                               
involved in  a marketplace  that "should  be strictly  a private-                                                               
sector  effort."   If there  are Asian  markets, for  example, he                                                               
suggested  oil companies  will try  to meet  that demand  and, if                                                               
there is  a profit  to be  made, will rise  to the  challenge and                                                               
step forward with  their own plans and financing,  and will build                                                               
the [pipe]lines.   He said  he believes the private  sector knows                                                               
best and  has the studies, for  example.  He concluded,  "If they                                                               
haven't stepped to the plate,  then I'm really nervous about [the                                                               
government's] getting involved."                                                                                                
                                                                                                                                
MR. HEYWORTH  reiterated that the  state would own  the authority                                                               
and  would  contract with  private-sector  companies  to do  this                                                               
whole project,  including going  to Asia to  "make the  offers to                                                               
develop the  infrastructure to build  the pipeline."   He likened                                                               
it to how the John  F. Kennedy (JFK) International Airport works,                                                               
or  the  Houston Ship  Channel;  he  further reported  that  most                                                               
sports arenas  are under  an authority whereby  the city  owns it                                                               
but the private  sector builds it and then runs  it.  In response                                                               
to Representative Kohring's suggestion that  it should be left to                                                               
the private sector,  Mr. Heyworth said that is what  has been for                                                               
25 years, which is why the gas is stranded.                                                                                     
                                                                                                                                
Number 2050                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE told  Mr.  Heyworth he  may  disagree a  bit                                                               
because  the  stranded   gas  has  to  do   with  the  economics.                                                               
Referring to  Mr. Heyworth's  mention of  efforts at  the federal                                                               
level, he remarked:                                                                                                             
                                                                                                                                
     They're  doing  this  because of  the  tremendous  risk                                                                    
     involved.   This  is  a huge,  huge  project.   They're                                                                    
     doing this to  try to lessen that risk,  and then doing                                                                    
     this  to  raise  the  return on  investments.    You've                                                                    
     implied  here that  this will  be private  people doing                                                                    
     this  work; now,  they're  going to  have  a return  on                                                                    
     their  investment also.    So are  we  saying now  that                                                                    
     there's no  risk in  just going  to tidewater,  or that                                                                    
     there  is  somehow  an  attenuated  risk  that  is  not                                                                    
     comparable to the risk going down the southern route?                                                                      
                                                                                                                                
MR. HEYWORTH replied:                                                                                                           
                                                                                                                                
     I  think ...  the  last sentence  you  said is  exactly                                                                    
     correct,  sir.   Their  project is  a $20  billion-plus                                                                    
     project  trying  to  move  somewhere  between  4  to  6                                                                    
     billion cubic feet of gas  into a market in the Midwest                                                                    
     that doesn't need  the gas, has no gas  shortages.  And                                                                    
     ...  that gas,  if  it  ever does  get  there in  2010,                                                                    
     [2012, or  2015], will flood  the market and  drive the                                                                    
     price of  gas right  down to the  bottom, and  then the                                                                    
     federal price  support will have  to come in,  and then                                                                    
     the taxpayers are  paying for the whole  project.  None                                                                    
     of that happens with this state project.                                                                                   
                                                                                                                                
REPRESENTATIVE  FATE responded  that it  still doesn't  attenuate                                                               
the risk,  and that  supposition cannot  be relied  upon; whether                                                               
the  $16 billion  figure  is valid  or  not, it  will  be a  huge                                                               
number, implying a huge risk.                                                                                                   
                                                                                                                                
Number 2170                                                                                                                     
                                                                                                                                
MR. HEYWORTH  replied that  the risk  would be  taken not  by the                                                               
state,  but by  the  market  itself -  Wall  Street investors  or                                                               
companies that would invest in  the bonds; it wouldn't indebt the                                                               
state or the  permanent fund.  He suggested  looking "happily" at                                                               
these  smaller  numbers  [put  forth  by  Mr.  Fuhs],  which  Mr.                                                               
Heyworth said work because of a  smaller project.  He agreed that                                                               
there would be  risk, but suggested if the model  were put to the                                                               
market, Wall Street  experts would decide whether  the project is                                                               
viable, and would  give either a "thumbs up" or  "thumbs down" to                                                               
people to buy the bonds.  He added:                                                                                             
                                                                                                                                
     We don't incur any debt  until the bonds are bought and                                                                    
     we  start the  project.   That's when  it happens.   We                                                                    
     don't accrue any  risk to go forward with  this and see                                                                    
     what happens, to  see if it is viable.   Let the market                                                                    
     decide.   We're not  going to go  into debt.  ... We're                                                                    
     not investing  in the project before  it's been decided                                                                    
     by Wall Street that it's  a viable project.  It doesn't                                                                    
     work that  way.   And I really  believe that  it's just                                                                    
     such an economy of scale  of the Canadian highway route                                                                    
     that makes it such a big  project that you have to have                                                                    
     all those federal - what  I call corporate welfare - to                                                                    
     make sure  that it all  works, as opposed to  this much                                                                    
     smaller project that is much  more sensible, deals with                                                                    
     multiple markets,  and has many, many  places to spread                                                                    
     that risk out that you talk about, sir.                                                                                    
                                                                                                                                
Number 2245                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked Mr.  Heyworth whether he  was willing  to share                                                               
the polling numbers.                                                                                                            
                                                                                                                                
MR.  HEYWORTH answered  in the  affirmative, noting  that he  has                                                               
given  them out  freely but  hasn't had  success in  getting them                                                               
published in newspapers.                                                                                                        
                                                                                                                                
CHAIR OGAN offered to fax  Mr. Heyworth the five-page fiscal note                                                               
and analysis.                                                                                                                   
                                                                                                                                
Number 2359                                                                                                                     
                                                                                                                                
WILSON  L.  CONDON,  Commissioner, Department  of  Revenue,  came                                                               
forward  to discuss  the  department's fiscal  note  for HB  410,                                                               
expressing surprise at the controversy.   He pointed out that the                                                               
initiative  - as  well  as the  bill, to  his  belief -  mentions                                                               
getting a project  up and running by 2007; he  offered that it is                                                               
too optimistic.   He said  that clearly  the objective is  to get                                                               
the project done  quickly, which will require upfront  money.  He                                                               
acknowledged that the department could  have put in a fiscal note                                                               
that simply  contemplated a  board and  support staff  that would                                                               
constitute the  gas development authority;  those could  then "go                                                               
around and talk to people and see what you might put together."                                                                 
                                                                                                                                
COMMISSIONER  CONDON told  members that  in order  to complete  a                                                               
project  by 2007,  2008, or  2009, there  is a  need to  start to                                                               
spend real money now.  He  cited the need to make arrangements to                                                               
buy the gas on  the North Slope and to engineer  the project.  In                                                               
addition, although YPC  has done lots of work to  get the permits                                                               
necessary  for  part of  the  proposed  project, it  isn't  known                                                               
whether YPC would  simply donate those permits to  the project or                                                               
if the  project would have to  pay YPC for them.   Furthermore, a                                                               
whole  set  of  contracts  would   have  to  be  negotiated  with                                                               
customers.   All  that  work would  have to  be  done by  someone                                                               
before  there was  the  ability to  go to  Wall  Street and  sell                                                               
bonds.  Therefore,  he said, the department doesn't  know at this                                                               
point how big the number is  in terms of "front-end dollars" that                                                               
have to be put into this project.                                                                                               
                                                                                                                                
COMMISSIONER   CONDON   explained   that  even   though   it   is                                                               
contemplated  that  the  work  will  be  done  by  private-sector                                                               
contractors, they will  expect to be paid;  the party responsible                                                               
for paying them is this  development corporation, which must have                                                               
upfront money.   Until it  has the contracts  in place and  has a                                                               
project  engineered, it  won't be  able to  borrow that  money on                                                               
Wall  Street, and  yet  the cost  to put  this  together will  be                                                               
substantial.   "Great  if it's  done by  the private  sector," he                                                               
added, "but nobody's  going to donate the kind  of commercial and                                                               
engineering services that  are going to be necessary  to put this                                                               
project together."                                                                                                              
                                                                                                                                
Number 2602                                                                                                                     
                                                                                                                                
COMMISSIONER CONDON said  the best indicator of  the money needed                                                               
is  the  kind  of  money  spent  by  companies  when  looking  at                                                               
engineering a  project and other  upfront work before  being able                                                               
to turn  to Wall Street for  financing.  He added,  "So, if we're                                                               
really serious about  doing this, if we want to  get underway and                                                               
see whether  or not  the business model  that's proposed  in this                                                               
legislation will  work, then  we've told you  in the  fiscal note                                                               
that we  think that  the kind  of upfront  cash that's  needed is                                                               
something on  the order, over a  two-year period of time,  of 175                                                               
to 250 million bucks."  He said  it might not turn out to be that                                                               
much, but enough  money ought to be appropriated to  get it done;                                                               
if  it costs  less, the  money can  be returned.   "And  if we're                                                               
actually  able to  put the  project  together, we'll  be able  to                                                               
convert  part  of what  we  spent  into borrowed  money,  through                                                               
bonds, on Wall Street," he added.                                                                                               
                                                                                                                                
COMMISSIONER CONDON reiterated that [the  state] won't be able to                                                               
convert all this to bonds on  Wall Street, or even borrow on Wall                                                               
Street, unless it has spent the  money upfront to put the project                                                               
together; he  said the only  way he sees  of getting money  to do                                                               
that is  to appropriate the  money "through the  corporation from                                                               
some source," which  is the basis of the fiscal  note.  He added,                                                               
"Now, the fiscal  note then goes on and puts  some big numbers on                                                               
the   table,  because   presumably  ...   the  entity,   the  gas                                                               
development  authority, ...  once it's  got everything  together,                                                               
...  will go  to Wall  Street  and borrow  the money.  ... And  a                                                               
projected stream of dollars is reflected in the fiscal note."                                                                   
                                                                                                                                
Number 2721                                                                                                                     
                                                                                                                                
COMMISSIONER  CONDON   also  cautioned   that  the   state  could                                                               
appropriate  and  spend  the  $250 million  in  the  fiscal  note                                                               
through  getting all  the arrangements  in place,  and then  Wall                                                               
Street could turn it down.   Or most of the arrangements could be                                                               
put in place, but not all of  them, and the state would be unable                                                               
to go to  Wall Street and expect  to borrow the money.   He said,                                                               
"In either of  those eventualities, we're simply going  to be out                                                               
the money,  and that's  the risk  we take if  we're going  to put                                                               
this authority  in place and  seriously contemplate  that they're                                                               
going to put this project together."                                                                                            
                                                                                                                                
COMMISSIONER  CONDON indicated  the  fiscal note  lists what  the                                                               
Department of  Revenue staff see  as the risks.   He acknowledged                                                               
that others evaluate these risks  differently, but said, "Our job                                                               
is to tell you what we think.   And your job is to decide whether                                                               
... we  have the  capability to  think better  [than], or  not as                                                               
well as,  Mr. Heyworth and  others ...  that see a  little rosier                                                               
picture  with  respect to  this  proposed  project than  we  do."                                                               
Drawing  attention to  the last  couple  of pages  of the  fiscal                                                               
note, which list  some points with respect to  the general market                                                               
around the Pacific Rim, he explained:                                                                                           
                                                                                                                                
     The way  we see it is  that there are lots  of reserves                                                                    
     at tidewater with easy access  ... to the places around                                                                    
     the  [Pacific]  Rim that  need  energy,  and that  with                                                                    
     respect to all  of those reserves, ...  we believe they                                                                    
     have about  a $1.50-per-million-Btu advantage  over gas                                                                    
     moving  from the  North  Slope  through a  liquefaction                                                                    
     plant  in  Prince  William Sound  and  via  LNG  tanker                                                                    
     either to the  West Coast of North America  or to Asia.                                                                    
     And that  relative disadvantage, we think,  holds up at                                                                    
     the   small-sized  project   that  the   Yukon  Pacific                                                                    
     [Corporation]  people propose,  as well  as the  larger                                                                    
     project that we mentioned in  our fiscal note, which is                                                                    
     a project that would be many times that size.                                                                              
                                                                                                                                
     In the  past, Alaska's  had one advantage  with respect                                                                    
     to many of the places  where LNG might be marketed, and                                                                    
     that is that, in  terms of the marine-shipping distance                                                                    
     from  south Alaska  to  Japan  and the  marine-shipping                                                                    
     distance from  south Alaska to Southern  California and                                                                    
     Northern Baja,  we're closer.  However,  that advantage                                                                    
     has shrunk  over the last  four or five years  with the                                                                    
     decline of the cost  of LNG tankers, and, consequently,                                                                    
     the one advantage  that we had ... in  the business has                                                                    
     shrunk some.                                                                                                               
                                                                                                                                
Number 2917                                                                                                                     
                                                                                                                                
COMMISSIONER CONDON continued:                                                                                                  
                                                                                                                                
     With respect to focusing just  on ... the Asian market,                                                                    
     again, lots of gas chasing  a limited market.  And most                                                                    
     of the  gas that  we're competing against  doesn't have                                                                    
     ...  what   we  characterize  here  as   the  "pipeline                                                                    
     disadvantage."   And  the market  in Asia  is changing.                                                                    
     How quickly  it will  change, we're not  sure.   But in                                                                    
     Japan the  energy market for  that country  has changed                                                                    
     with  the introduction  of  deregulation  in their  ...                                                                    
     electric power  and distribution  industry.  And  we do                                                                    
     not know  at this  point what  kind of  pressure that's                                                                    
     going to  put on prices that  you can get in  Asia, and                                                                    
     in Japan  in particular.   Historically, LNG  has moved                                                                    
     into the ... market in  Japan at parity with crude oil.                                                                    
     There has  been some  softening in  those arrangements,                                                                    
     and ...  over the longer  term, we may see  a situation                                                                    
     where the  gas price  becomes "delinked" [from  the oil                                                                    
     price].  [The bracketed portion  isn't on tape, but was                                                                    
     recorded in the committee secretary's log notes.]                                                                          
                                                                                                                                
TAPE 02-15, SIDE B                                                                                                              
Number 2961                                                                                                                     
                                                                                                                                
COMMISSIONER CONDON continued:                                                                                                  
                                                                                                                                
     When you look  at the California market,  the way we've                                                                    
     analyzed it, we believe that  it's cheaper to bring gas                                                                    
     from elsewhere around the Pacific  Rim to California by                                                                    
     LNG tanker than  it would be to bring  gas from Alaska.                                                                    
     ... The  lowest that  ... our  analysis has  yielded is                                                                    
     about  a  $4  ... per-million-Btu  cost  into  Southern                                                                    
     California; if  we're right there, obviously,  it takes                                                                    
     a $4 price.                                                                                                                
                                                                                                                                
     And,  finally, in  terms of  the  analysis we've  done,                                                                    
     we've  concluded  that  it's  cheaper to  move  gas  to                                                                    
     California  by a  pipeline  to  mid-North America,  and                                                                    
     then  a   redistribution  of   gas  resources   in  the                                                                    
     Lower 48,  rather than  a  pipeline  to Prince  William                                                                    
     Sound and an LNG tanker to Southern California.                                                                            
                                                                                                                                
     Now,  we  may  be   wrong  in  all  those  assessments.                                                                    
     Obviously, the ... possibility that  we may be right is                                                                    
     something  we  think  you should  evaluate  before  you                                                                    
     undertake ...  to set up  this business  and capitalize                                                                    
     it with the  kind of money that we think  you'd need to                                                                    
     capitalize the  business with, in  order to  put things                                                                    
     together and  go to  Wall Street and  buy bonds  and so                                                                    
     on.                                                                                                                        
                                                                                                                                
Number 2879                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS  asked whether,  if the  state wants  to get                                                               
into  the  gas  pipeline  business, an  authority  like  this  is                                                               
needed.                                                                                                                         
                                                                                                                                
COMMISSIONER  CONDON answered,  "There  probably  are other  ways                                                               
that ...  you could structure  the government's getting  into the                                                               
gas  pipeline business.   But  if we  are going  to get  into the                                                               
business, in my judgment, this would be the best way to go."                                                                    
                                                                                                                                
Number 2841                                                                                                                     
                                                                                                                                
CHAIR OGAN asked, "Where did you come up with the $16 billion?"                                                                 
                                                                                                                                
COMMISSIONER CONDON  said the  analysis was done  by one  of [the                                                               
department's] analysts.  He added:                                                                                              
                                                                                                                                
     I don't  know where  he came up  with that  number. ...                                                                    
     There are  all kinds  of different-sized  projects that                                                                    
     people  have put  on the  table.   You've got  the port                                                                    
     authority, which  has proposed  a big project,  and you                                                                    
     now have  Yukon Pacific,  which is proposing  a smaller                                                                    
     project.  And if there  is a specific-sized project and                                                                    
     a  specific-cost  project that  you  would  like us  to                                                                    
     model, we'd be glad to do  that.  We were not trying to                                                                    
     find  a project  ... that  was  ... big  that we  could                                                                    
     somehow "dis" this idea with. ...                                                                                          
                                                                                                                                
     The  point we  wanted  to  make is  that  ... if  we're                                                                    
     really serious about doing  this, whatever size project                                                                    
     it is, we've  got to be prepared to come  up with a lot                                                                    
     of cash right now to get going.                                                                                            
                                                                                                                                
Number 2758                                                                                                                     
                                                                                                                                
NELS ANDERSON  JR. testified via teleconference,  emphasizing the                                                               
need for gas.   He commended the committee for  putting HB 410 on                                                               
the table,  suggesting it is one  way to "maybe shake  up the oil                                                               
and  gas industry  that's been  stranding that  gas on  the North                                                               
Slope."  He  said energy costs in the area  [near Dillingham] are                                                               
much higher  than elsewhere than  in the state,  although cheaper                                                               
in Dillingham  than in nearby  villages.  Without  something such                                                               
as  what HB  410  proposes, he  said he  doesn't  know what  will                                                               
happen in  rural Alaska.   He  therefore urged  that the  bill be                                                               
moved  forward with  dispatch.   However,  he expressed  concerns                                                               
about the  bill as written,  suggesting that there  be amendments                                                               
to clarify  that "the State of  Alaska, with its gas,  would make                                                               
sure that there is in-state, guaranteed  use."  He said there are                                                               
in-state markets  and that  Anchorage has  been depending  on the                                                               
Cook Inlet  reserves, which are  depleting rapidly;  he mentioned                                                               
the  need there  for  long-term energy,  and  also mentioned  the                                                               
Lower 48 and the Pacific Rim.                                                                                                   
                                                                                                                                
MR. ANDERSON specified that he'd like  HB 410 to be in compliance                                                               
with  Article  VIII,  Section  2,   of  the  state  constitution.                                                               
Therefore,  he requested  the following  amendments.   First,  he                                                               
referred   to  Section   2  [page   3]   under  Sec.   41.41.010,                                                               
"Establishment of  the authority",  [paragraph] (4)  [which read,                                                               
"the  design, construction,  and  operation  of other  facilities                                                               
necessary for  delivering the gas  to market and  to Southcentral                                                               
Alaska;  and"].   He  asked  that it  be  amended  to read,  "the                                                               
design,   construction,  and   operation   of  other   facilities                                                               
necessary for  delivering the  gas to  market and  to communities                                                               
throughout Alaska, including Anchorage and the Railbelt".                                                                       
                                                                                                                                
Number 2555                                                                                                                     
                                                                                                                                
MR.  ANDERSON,  in response  to  Chair  Ogan, agreed  to  provide                                                               
suggestions in writing.  Continuing  with his amendments, he next                                                               
referred to Section  5 [page 15], "DEVELOPMENT  OF PROJECT PLAN,"                                                               
[paragraph] (6) [which read, "a  plan for delivery and pricing of                                                               
natural  gas  to communities  along  the  pipeline route  and  to                                                               
Southcentral Alaska through a spur  line;"].  He suggested adding                                                               
the  phrase "including  Anchorage and  the Railbelt"  after "spur                                                               
line".                                                                                                                          
                                                                                                                                
MR. ANDERSON  then referred to  Section 5 [paragraph]  (7) [which                                                               
read, "a plan  for delivery and pricing of  liquefied natural gas                                                               
to Yukon River  and coastal communities;"].   He suggested adding                                                               
"throughout Alaska" after "communities".                                                                                        
                                                                                                                                
MR. ANDERSON concluded  by saying, "The sooner we  get this thing                                                               
going, the  better.   I would rather  see substantially  the same                                                               
language passed  as is found in  the petition.  I'm  wondering if                                                               
42,000-plus registered  voters of  Alaska can  be wrong,  in that                                                               
they want  to use Alaska's  gas for their  use to bring  down the                                                               
cost of energy."                                                                                                                
                                                                                                                                
Number 2467                                                                                                                     
                                                                                                                                
CHAIR  OGAN   mentioned  polls  indicating  people   support  the                                                               
initiative, but  questioned how  many really  know what  they are                                                               
signing  with regard  to initiatives  - what  the costs  are, for                                                               
example, or  whether the  producers will be  willing to  sell the                                                               
gas.  He also inquired about the  incentive to sell if there is a                                                               
floor price of $1.25.                                                                                                           
                                                                                                                                
MR. ANDERSON  said this  is the  only game in  town that  has any                                                               
prospect of providing long-term, low-cost  energy for Alaska.  He                                                               
suggested  the  state  should  do  everything  possible  to  make                                                               
something like  this happen.  He  said the only time  North Slope                                                               
gas will be developed and moved  is when the State of Alaska puts                                                               
pressure on  the oil and gas  industry by taxing that  gas in the                                                               
ground and  thus giving  an incentive  to move it.   He  said the                                                               
signers  of  the  petition,  even  if they  don't  know  all  the                                                               
details, are making  a demand or call on "our  gas that's sitting                                                               
stranded in the  North Slope."  He  added, "And we need  it."  He                                                               
said he sees this as a  "hopeful, very positive move in the right                                                               
direction to  develop our gas for  our use, and also  provide for                                                               
the markets  that I think  are out there  in the Pacific  Rim and                                                               
the Lower 48."                                                                                                                  
                                                                                                                                
CHAIR OGAN responded  that he shares the desire to  see the North                                                               
Slope  commercialized; he  surmised that  most Alaskans  feel the                                                               
same.    He recalled  countless  hours  of  talking about  it  in                                                               
committee.                                                                                                                      
                                                                                                                                
Number 2234                                                                                                                     
                                                                                                                                
DAVE  DENGEL,  City  Manager,  City   of  Valdez;  and  Executive                                                               
Director, Alaska  Gasline Port Authority (AGPA),  came forward to                                                               
testify.  He told members:                                                                                                      
                                                                                                                                
     I'm here today to offer  Valdez's support to House Bill                                                                    
     410  and the  idea  of  commercializing Alaska's  North                                                                    
     Slope  gas.   As you  know, the  City of  Valdez, along                                                                    
     with  the Fairbanks  North Star  Borough and  the North                                                                    
     Slope   Borough,  formed   the   Alaska  Gasline   Port                                                                    
     Authority [AGPA] ...  in fall of 1999.   The mission of                                                                    
     that port authority is to  develop Alaska's North Slope                                                                    
     gas for the maximum benefit  of all Alaskans, which ...                                                                    
     is very  similar to what  HB 410  wants to do  and what                                                                    
     Mr. Heyworth's initiative wants to do.                                                                                     
                                                                                                                                
     Since the  fall of  1999, when  the port  authority was                                                                    
     approved by  the voters of  Valdez, Fairbanks,  and the                                                                    
     North Slope, over  $6 million has been  expended by the                                                                    
     Bechtel  Corporation, Taylor-DeJongh,  and O'Melveny  &                                                                    
     Myers in helping  the port authority to  develop a cost                                                                    
     estimate and  an economic model for  the development of                                                                    
     North Slope  gas.  The  economic model [that]  has been                                                                    
     developed  for  the  port   authority  shows  that  our                                                                    
     concept is economic.   It also shows that  it will have                                                                    
     a  return  to  the  State of  Alaska  of  between  $500                                                                    
     million and $750 million a year.                                                                                           
                                                                                                                                
     The  port   authority  economic  model  shows   that  a                                                                    
     publicly  owned project  is economic  and will  provide                                                                    
     [a]  substantial  return  to   the  state  and  to  the                                                                    
     municipalities.  [The] port  authority model shows that                                                                    
     using the  port authority concept, ...  the project can                                                                    
     be 100  percent debt-financed.   And  this is  a little                                                                    
     bit different  than what Mr. Fuhs  indicated with their                                                                    
     model, ...  75-25.  We  believe that our model  and our                                                                    
     project  can  be  100  percent   financed  ...  by  the                                                                    
     investors so  that there'd be  no ... cash  required by                                                                    
     the port authority.                                                                                                        
                                                                                                                                
     The City of  Valdez has worked with  Mr. [Heyworth] and                                                                    
     his petitions,  and we support  his efforts.   He along                                                                    
     with  members of  the legislature  have brought  to the                                                                    
     forefront  the   need  to   develop  our   natural  gas                                                                    
     resources.  Valdez  and the port authority  have a very                                                                    
     good working  relationship with  Yukon Pacific.   Yukon                                                                    
     Pacific brings  the permits  and their  economic model;                                                                    
     the port  authority brings our  economic model  and our                                                                    
     cost estimates and concept;  and the initiative effort,                                                                    
     and the  legislature, brings the  political will  to do                                                                    
     the right thing in developing our natural gas.                                                                             
                                                                                                                                
     Valdez is  supportive of a  project that  takes natural                                                                    
     gas  to tidewater,  and manufactures  LNG  and LPG  and                                                                    
     transports it to markets within  ... Alaska, within the                                                                    
     United States, and within the Pacific Rim.                                                                                 
                                                                                                                                
Number 2120                                                                                                                     
                                                                                                                                
MR. DENGEL continued:                                                                                                           
                                                                                                                                
     We support House Bill 410  and the initiative.  Because                                                                    
     of  the work  that has  been completed  to date  by the                                                                    
     port  authority, Valdez  would like  to offer  that the                                                                    
     proposed   legislation    be   amended    slightly   to                                                                    
     incorporate  the  work  that the  Alaska  Gasline  Port                                                                    
     Authority  has done,  much like  what Mr.  Heyworth had                                                                    
     indicated.   By  incorporating our  existing board  and                                                                    
     our work  into this,  we can  continue to  move forward                                                                    
     with this and not have to  wait one year, two years, or                                                                    
     three years in which to develop this project.                                                                              
                                                                                                                                
     I  want  to  applaud   you,  Mr.  Chairman,  and  other                                                                    
     legislators   -  Senator   Taylor  and   Representative                                                                    
     Whitaker -  who have ... introduced  legislation in the                                                                    
     past ... to  form a statewide authority  to develop our                                                                    
     Alaska North Slope gas.   It's our belief that by using                                                                    
     the port  authority that  is in  place now  and working                                                                    
     with the legislature to  amend the proposed legislation                                                                    
     to  include the  port  authority, ...  Alaska can  move                                                                    
     forward  with  the  development   of  our  natural  gas                                                                    
     resources  without  delay.   By  using  your  political                                                                    
     will, Yukon Pacific's permits  and economic models, and                                                                    
     the Alaska Gasline Port  Authority's concept, I believe                                                                    
     that we can  achieve the goals of  this legislation and                                                                    
     of  Mr. Heyworth's  initiative to  develop North  Slope                                                                    
     natural gas for the maximum  benefit of all Alaskans in                                                                    
     the very near future.                                                                                                      
                                                                                                                                
Number 2056                                                                                                                     
                                                                                                                                
MR. DENGEL continued:                                                                                                           
                                                                                                                                
     A couple  of things that  I've heard in the  past about                                                                    
     why we  should wait  for the private  sector ...  to do                                                                    
     this project:  I think  when you look at what's driving                                                                    
     the industry and the producers  on the North Slope, ...                                                                    
     I've been in YPC's offices  a number of times, and they                                                                    
     have a  large map of the  world on one of  their walls;                                                                    
     ...  it shows  where  all the  other  LNG projects  are                                                                    
     throughout the world,  and who owns them.   And I think                                                                    
     that  that's  what  the  North  Slope  gas  project  is                                                                    
     competing against,  ... all  these other  projects. ...                                                                    
     Some of those countries  have put requirements on those                                                                    
     producers that  they must  develop those  gas resources                                                                    
     within a  certain time.   We don't  have that  on ours,                                                                    
     and that's  what we're competing against.   And they're                                                                    
     going  to develop  those projects  before they  develop                                                                    
     our project.                                                                                                               
                                                                                                                                
     And I think  it's incumbent on us as  Alaskans, and ...                                                                    
     you  as our  legislative leaders,  that we  need to  do                                                                    
     something with  that North Slope  gas now.  We  need to                                                                    
     get that into production,  and get it commercialized so                                                                    
     that Alaskans can use it  to reduce our electric costs,                                                                    
     our  high costs  of  living, and  also  to improve  the                                                                    
     economic picture for  Alaska by providing petrochemical                                                                    
     plants  and whatever  might come  of that,  as well  as                                                                    
     providing revenue  back to the  state from the  sale of                                                                    
     that ... North Slope natural gas.                                                                                          
                                                                                                                                
MR. DENGEL concluded by offering  to provide the committee with a                                                               
presentation by the  AGPA on its economic model and  view of what                                                               
is going on.                                                                                                                    
                                                                                                                                
Number 1958                                                                                                                     
                                                                                                                                
REPRESENTATIVE CHENAULT  asked where  the petrochemical  plant is                                                               
proposed to be situated.                                                                                                        
                                                                                                                                
MR. DENGEL replied  that it hasn't been  determined yet, although                                                               
there would be  a fractionation plant in Valdez.   He offered his                                                               
understanding  that Williams  is looking  at putting  a plant  in                                                               
Fairbanks, and said  there may be other plants  located in Valdez                                                               
as  well.   He also  mentioned the  possibility of  facilities in                                                               
Southcentral Alaska if the spur line goes there.                                                                                
                                                                                                                                
REPRESENTATIVE CHENAULT  conveyed interest not only  in using the                                                               
gas in-state,  but also in  having value-added  products produced                                                               
in  Alaska, which  he  said  interests him  more  than LNG,  even                                                               
though LNG will be a big portion of this project.                                                                               
                                                                                                                                
MR. DENGEL  concurred but said  LNG drives the project  and helps                                                               
to pay  for it;  if the  value-added end can  be pushed  as well,                                                               
that will be gravy to the State  of Alaska.  In response to Chair                                                               
Ogan,  he agreed  to provide  a  copy of  his written  testimony.                                                               
[HB 410 was held over.]                                                                                                         
                                                                                                                                

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