Legislature(2013 - 2014)BARNES 124

03/26/2014 01:00 PM RESOURCES

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01:05:50 PM Start
01:06:07 PM SB138
03:10:04 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
+ Administration Consultants: Black & Veatch - TELECONFERENCED
Deepa Poduval
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                     
1:06:07 PM                                                                                                                    
CO-CHAIR FEIGE  announced that the  only order of business  is CS                                                               
FOR  SENATE  BILL  NO.  138(FIN)  am, "An  Act  relating  to  the                                                               
purposes, powers,  and duties of  the Alaska  Gasline Development                                                               
Corporation;  relating to  an in-state  natural gas  pipeline, an                                                               
Alaska  liquefied  natural  gas project,  and  associated  funds;                                                               
requiring state  agencies and other entities  to expedite reviews                                                               
and  actions  related  to natural  gas  pipelines  and  projects;                                                               
relating to  the authorities  and duties  of the  commissioner of                                                               
natural resources relating to a  North Slope natural gas project,                                                               
oil and  gas and gas only  leases, and royalty gas  and other gas                                                               
received by the  state including gas received as  payment for the                                                               
production  tax on  gas;  relating  to the  tax  on  oil and  gas                                                               
production, on  oil production, and  on gas  production; relating                                                               
to the duties of the commissioner  of revenue relating to a North                                                               
Slope natural  gas project and  gas received as payment  for tax;                                                               
relating to confidential information  and public record status of                                                               
information provided  to or in  the custody of the  Department of                                                               
Natural  Resources and  the Department  of  Revenue; relating  to                                                               
apportionment factors of the Alaska  Net Income Tax Act; amending                                                               
the definition  of gross value  at the 'point of  production' for                                                               
gas for  purposes of the  oil and gas production  tax; clarifying                                                               
that the  exploration incentive credit,  the oil or  gas producer                                                               
education credit, and  the film production tax credit  may not be                                                               
taken against  the gas  production tax paid  in gas;  relating to                                                               
the  oil  or  gas  producer   education  credit;  requesting  the                                                               
governor to  establish an  interim advisory  board to  advise the                                                               
governor on  municipal involvement in  a North Slope  natural gas                                                               
project;  relating to  the development  of a  plan by  the Alaska                                                               
Energy  Authority   for  developing  infrastructure   to  deliver                                                               
affordable  energy to  areas  of  the state  that  will not  have                                                               
direct  access  to a  North  Slope  natural  gas pipeline  and  a                                                               
recommendation  of a  funding  source  for energy  infrastructure                                                               
development;  establishing  the  Alaska affordable  energy  fund;                                                               
requiring  the commissioner  of  revenue to  develop  a plan  and                                                               
suggest  legislation for  municipalities, regional  corporations,                                                               
and residents  of the state  to acquire ownership interests  in a                                                               
North  Slope  natural  gas pipeline  project;  making  conforming                                                               
amendments; and providing for an effective date."                                                                               
CO-CHAIR  FEIGE, in  relation to  CSSB 138(FIN)  am, invited  the                                                               
administration's consultants  from Black & Veatch  Corporation to                                                               
provide their presentation  [entitled, "TransCanada Participation                                                               
in AKLNG Project"].                                                                                                             
1:06:58 PM                                                                                                                    
DEEPA PODUVAL,  Principal, Management Consulting  Division, Black                                                               
&   Veatch  Corporation;,   Consultant,  Department   of  Natural                                                               
Resources (DNR),  noted that  yesterday's presentation  was about                                                               
the  Heads  of  Agreement  (HOA),  the first  of  the  two  major                                                               
agreements  that the  state has  entered into  [in regard  to the                                                               
proposed Alaska Liquefied  Natural Gas (LNG) Project].   She said                                                               
today's presentation is about  TransCanada's participation in the                                                               
Alaska  LNG Project  and the  Memorandum  of Understanding  (MOU)                                                               
that has  been entered  into between  the state  and TransCanada.                                                               
Turning  to  slide 3,  entitled  "Memorandum  of Understanding  -                                                               
Highlights of the Deal on the  Table," she said it is anticipated                                                               
in the MOU  that TransCanada would hold the  state's equity share                                                               
in the gas treatment plant  and pipeline components of the Alaska                                                               
LNG Project.   The state would have  an option to buy  back up to                                                               
40 percent  of TransCanada's  share at  around initiation  of the                                                               
Front-End Engineering and  Design (FEED) stage.   The state would                                                               
commit  to  a  25-year  transportation  services  agreement  with                                                               
TransCanada.   The agreement commits  TransCanada, in turn,  to a                                                               
weighted average cost of capital  (WACC) of 6.75 percent and that                                                               
is  driven by  the capital  structure as  well as  the return  on                                                               
equity  and cost  of debt  that TransCanada  has committed  to as                                                               
part  of the  commercial  terms laid  out in  the  MOU.   Various                                                               
milestones and off-ramps  for the state and  TransCanada are laid                                                               
out in the MOU.                                                                                                                 
1:08:54 PM                                                                                                                    
MS. PODUVAL  moved to  slide 4,  entitled "Options  Identified by                                                               
State   for  Equity   Participation,"   to   discuss  the   three                                                               
alternatives available  to the state.   In the first  option, the                                                               
State  of Alaska  (SOA)  would  go it  alone,  taking 25  percent                                                               
equity participation  in the  project.  The  state would  hold 25                                                               
percent  in the  gas treatment  plant  (GTP), 25  percent in  the                                                               
pipeline,  and 25  percent  in  the LNG  plant.    In the  second                                                               
option,  the state  would  participate  with TransCanada  without                                                               
exercising the  state's buyback option.   TransCanada  would hold                                                               
the state's  equity portion of the  GTP as well as  the pipeline,                                                               
so  TransCanada  would  have  the  25  percent  in  the  GTP  and                                                               
pipeline, and the state would continue  to hold 25 percent in the                                                               
LNG plant.   In the  third option,  the state would  partner with                                                               
TransCanada and  would exercise the  state's buyback option.   As                                                               
part  of the  buyback, the  state can  essentially buy  back from                                                               
TransCanada up  to 40  percent of  TransCanada's interest  in the                                                               
GTP and  pipeline.  She explained  that 40 percent of  25 percent                                                               
would  give  the state  a  10  percent  holding  in the  GTP  and                                                               
pipeline and  TransCanada would  hold 15 percent  of the  GTP and                                                               
pipeline, and the  state would have 25 percent of  the LNG plant.                                                               
Common through all  alternatives is that the state  will hold its                                                               
25  percent in  the  LNG plant,  and TransCanada's  participation                                                               
essentially  impacts the  state's  ownership or  what portion  it                                                               
will hold in the GTP and pipeline components of the project.                                                                    
1:11:12 PM                                                                                                                    
REPRESENTATIVE TARR surmised from  slide 4 that everything [Black                                                               
&  Veatch] has  worked on  presupposes the  tax and  gas and  the                                                               
royalty-in-kind that keeps the State of Alaska at 25 percent.                                                                   
MS.  PODUVAL  responded  yes,  everything  in  this  presentation                                                               
assumes that the  state will take an equity  participation in the                                                               
project and that that equity would  be between 20 and 25 percent,                                                               
and there  will be a  corresponding gross tax  percent associated                                                               
with that.                                                                                                                      
1:11:45 PM                                                                                                                    
MS. PODUVAL explained slide 5,  entitled "Implications of Options                                                               
and Potential Off Ramps," shows  what the investment implications                                                               
are as well  as what the potential off-ramps  are associated with                                                               
these  three different  investment  alternatives  that the  state                                                               
has.   She reminded members  that yesterday she talked  about the                                                               
different   project  of   allotment  stages   and  the   timeline                                                               
associated with  that, while today  is just before what  is hoped                                                               
will be the Pre-Front-End  Engineering and Development (Pre-FEED)                                                               
stage that  will get initiated  in the second  half of 2014.   If                                                               
the state  chooses to go  it alone,  the investment that  will be                                                               
required  of the  state  is  expected to  be  about $100  million                                                               
through Pre-FEED, going up to  about $450 million getting through                                                               
FEED, and  a little  over $13 billion  once the  final investment                                                               
decision (FID) has been made  and construction gets kicked off on                                                               
the  project.   The second  alternative available  to the  state,                                                               
where TransCanada participates in the  project but the state does                                                               
not exercise its buyback option, is  the path where the state has                                                               
the least investment  of the three alternatives  available to it.                                                               
That  is because  in this  option  TransCanada will  hold the  25                                                               
percent  in the  GTP  and pipeline  and the  state  will hold  25                                                               
percent in  the LNG  plant alone.   The state's  investment under                                                               
this alternative  would be about  $40 million or so  through Pre-                                                               
FEED, $180 million  going through FEED, and  $6.7 billion through                                                               
the construction phase.   All of these costs would  be related to                                                               
the state's  investment in  the LNG  plant alone.   In  the third                                                               
alternative  where the  state exercises  its  40 percent  buyback                                                               
option from  TransCanada and takes on  10 percent of the  GTP and                                                               
pipeline, the  state's investment  through Pre-FEED would  be $43                                                               
million.   That  is  because  the state  would  not exercise  its                                                               
buyback  until the  Pre-FEED is  done.   Going  through FEED  the                                                               
state's investment  is expected to  be $360 million,  and through                                                               
construction the  state's investment  would be  a little  over $9                                                               
billion.  So, from an  investment perspective, the most expensive                                                               
alternative  for the  state is  the going-it-alone  option.   The                                                               
least expensive would  be for TransCanada to hold  the 25 percent                                                               
through the  GTP and pipeline and  the state not buying  it back.                                                               
The option in which the state buys  back a portion of the GTP and                                                               
pipeline falls in between the other two levels of investment.                                                                   
1:14:54 PM                                                                                                                    
MS. PODUVAL noted the red boxes  depicted on slide 5 indicate the                                                               
points in  time along the  project's development where  the state                                                               
can  exercise   an  off-ramp  and   end  its   relationship  with                                                               
TransCanada.   The first point where  this happens is at  the end                                                               
of  the Pre-FEED  stage.    If the  state  exercises an  off-ramp                                                               
option  at the  end  of Pre-FEED,  the state  would  pay back  to                                                               
TransCanada  the cost  it  has  spent on  the  project, which  is                                                               
expected  to be  about  $70  million.   That  would  be with  and                                                               
without  the buyback  because TransCanada  would  have spent  the                                                               
equivalent of 25 percent of the  costs related to the GTP and the                                                               
pipeline through  the end of  Pre-FEED.  At  the end of  the FEED                                                               
stage, the state would pay  back development costs to TransCanada                                                               
in  the range  of between  $230 million  and about  $400 million.                                                               
Ms. Poduval  put into  context the off-ramps  and the  payment of                                                               
development costs to TransCanada by  pointing out that the amount                                                               
is essentially  what the state  would have been investing  in the                                                               
go-it-alone option.   It is  almost like TransCanada  is carrying                                                               
that cost  up to  the point  where the  state exercises  its off-                                                               
ramp, ending that relationship, and  then the state goes back and                                                               
pays the  development cost  that it  would have  paid anyway.   A                                                               
nuance around that is the $5  million in allowance for funds used                                                               
during construction (AFUDC).  That  can be thought of as interest                                                               
cost or  carrying cost of  money for TransCanada.   That interest                                                               
rate is about  7 percent, so the approximately  $5-$50 million of                                                               
AFUDC is the incremental cost  that the state is bearing relative                                                               
to an alternative  without TransCanada.  Not all of  that will be                                                               
a completely  incremental cost  because the  state will  have its                                                               
own carrying  cost of money.   To the extent it  is not investing                                                               
that money  in this  project, the state  could be  investing that                                                               
money elsewhere  and earning interest on  it, so there is  a lost                                                               
opportunity cost  associated with  that.  Another  aspect covered                                                               
by that  cost is that the  state is paying for  the technical and                                                               
commercial expertise that a partner  brings to the table that the                                                               
state would  otherwise have to  contract for, assuming  the state                                                               
can find  somebody qualified  to watch over  this project  on the                                                               
state's  behalf in  a  going-it-alone option.    The decision  in                                                               
front of the committee today  with these off-ramps available, the                                                               
dollar  amount  being  contemplated,  is the  $5-$50  million  in                                                               
carrying  cost  as well  as  what  it  would  cost the  state  to                                                               
replicate  the expertise  that TransCanada  brings to  watch over                                                               
the project on the state's behalf.                                                                                              
1:19:06 PM                                                                                                                    
CO-CHAIR  SADDLER  inquired  whether  there  is  a  direct  nexus                                                               
between  the AFUDC  and construction  or whether  it is  simply a                                                               
carrying cost for financing and expertise costs.                                                                                
MS. PODUVAL  replied it  is carrying  cost.   Responding further,                                                               
she  explained it  is a  weighted, averaged  cost of  capital for                                                               
TransCanada.  It  assumes a debt/equity structure of  70/30, a 12                                                               
percent return on equity, and a  5 percent cost of debt, which is                                                               
what boils  it down to  a 7 percent  weighted cost of  capital or                                                               
carrying cost for TransCanada.                                                                                                  
CO-CHAIR SADDLER  asked what amount  that is calculated  on since                                                               
it is not a construction cost.                                                                                                  
MS.  PODUVAL  answered  it  is  calculated  on  the  amount  that                                                               
TransCanada  is investing  in the  project.   Responding further,                                                               
she confirmed it is a  development cost, not a construction cost,                                                               
and that AFUDC is simply a regulatory term.                                                                                     
CO-CHAIR  SADDLER related  that  when  he takes  his  car to  the                                                               
mechanic he  is charged for  the repair services, the  parts, and                                                               
for shop towels.   Having an extra cost for  expertise seems like                                                               
paying for shop towels, he said.   He asked whether the expertise                                                               
is a standard over cost rather than a part of the package.                                                                      
MS. PODUVAL responded that in  thinking about the package, of the                                                               
$70 million in the first off  ramp, $65 million is what the state                                                               
would  have paid  anyway to  contractors for  doing the  Pre-FEED                                                               
study for the state.  The  remaining $5 million, which includes a                                                               
12 percent return on equity  for the $65 million that TransCanada                                                               
has  spent,  is  what  the  state  is  paying  for  TransCanada's                                                               
expertise and efforts in the process.                                                                                           
1:21:39 PM                                                                                                                    
REPRESENTATIVE  TARR noted  that in  this scenario  the state  is                                                               
responsible for  paying TransCanada if  the state chooses  not to                                                               
move  forward  with  the  project, but  there  is  no  reciprocal                                                               
relationship should  TransCanada decide not  to go forward.   She                                                               
inquired how members  can assess whether that is a  good deal for                                                               
the state, given  it seems there should be some  equality in that                                                               
relationship.     She  further  asked   why  it  would   be  more                                                               
advantageous to  pay a 7  percent [weighted cost]  to TransCanada                                                               
when the state could borrow that  money at a lower interest rate,                                                               
excluding that the state has other capital considerations.                                                                      
MS. PODUVAL,  regarding the  first question,  replied TransCanada                                                               
is  investing in  the  project  by taking  on  a  portion of  the                                                               
state's equity  share.  The state  is not investing on  behalf of                                                               
TransCanada; in other words, the  state is not spending any money                                                               
for TransCanada  for them to pay  the state back.   Regarding the                                                               
second  question,  she   said  it  goes  back  to   the  role  of                                                               
TransCanada in this arrangement.  One  aspect of that role is the                                                               
financial  side, which  is that  TransCanada  shares the  upfront                                                               
cost  associated with  this project.   The  other aspect  of that                                                               
role is the expertise and  the experience that TransCanada brings                                                               
into this project.  Part of what  the state is paying for is what                                                               
the state  would pay if  it was trying to  get a technical  and a                                                               
commercial expert to watch over  the state's interest in a go-it-                                                               
alone option.  Strictly speaking,  the state can probably finance                                                               
it  for  less,  but  the  state is  also  paying  for  having  an                                                               
experienced  partner  at  the  table   that  shares  the  state's                                                               
interests and will watch out for those.                                                                                         
1:24:14 PM                                                                                                                    
REPRESENTATIVE TARR, regarding  the answer that the  state is not                                                               
really spending on TransCanada's  behalf, remarked that the state                                                               
is  moving  forward  as  if  that  partnership  will  exist;  for                                                               
example, in  this first  year there is  a commitment  of $80-$100                                                               
million to  move forward, so  the state is spending  something to                                                               
get to the next step in the process.   In that sense, it seems to                                                               
be  somewhat  unbalanced  in  that   the  state  must  hope  that                                                               
TransCanada   wants  to   move   forward;   for  example,   other                                                               
opportunities  could come  up elsewhere  in the  world that  seem                                                               
better to TransCanada  and the State of Alaska would  have no way                                                               
to push TransCanada in its favor.                                                                                               
MS. PODUVAL allowed  that is probably right, as  there is nothing                                                               
that  would necessarily  hold  TransCanada to  this  deal; it  is                                                               
something TransCanada  has to want  to do.   She said  she thinks                                                               
TransCanada has demonstrated it wants  to be here with everything                                                               
it has  done in getting  to this stage.   This is a  fairly risky                                                               
project for  TransCanada as well  as it is  a project that  is 10                                                               
years out in  the future.  Through the  Alaska Gasline Inducement                                                               
Act (AGIA), TransCanada  has already spent about  $100 million in                                                               
a  project   that  is  now   recognized  as   likely  uneconomic.                                                               
TransCanada  is  going  to  participate in  this  project  if  it                                                               
continues to  make sense to the  company and has agreed  on terms                                                               
with  the state  that  will get  codified  in the  transportation                                                               
service agreement (TSA)  coming forward.  As  with the producers,                                                               
as  with the  state,  so it  is  with TransCanada.    All of  the                                                               
parties  have to  continue to  believe that  this is  an economic                                                               
project that will make them money.   As each development stage is                                                               
gone through, every party will have  the option to stop and think                                                               
about whether it wants to continue.                                                                                             
1:26:45 PM                                                                                                                    
MS. PODUVAL,  returning to her presentation,  said four questions                                                               
surfaced  when  the  value  of  TransCanada's  participation  was                                                               
looked at (slide  6, entitled "Key Questions in  Looking at Value                                                               
of TransCanada's  Participation").   The first question  looks at                                                               
the  financial  bottom line  and  whether  there is  an  economic                                                               
impact to  the state from  having TransCanada participate  in the                                                               
project.   The second  question is  whether the  state can  go it                                                               
alone and  what the associated  implications are with this.   The                                                               
third question,  assuming the state  wants to take a  partner, is                                                               
whether  TransCanada  is  a  good  partner  and  what  attributes                                                               
TransCanada  brings to  the table  and  how TransCanada  compares                                                               
with  the  alternatives  available  to the  state.    The  fourth                                                               
question  looks at  things from  TransCanada's point  of view  by                                                               
asking what financial  risks TransCanada would be  exposed to, if                                                               
any, in this agreement.                                                                                                         
1:27:58 PM                                                                                                                    
MS.  PODUVAL moved  to slide  7, entitled  "What is  the Economic                                                               
Impact to State From TransCanada's  Participation?"  She examined                                                               
the first question  of what the financial bottom line  is for the                                                               
state or what  the economic impact is to the  state from entering                                                               
into  this  agreement  with TransCanada  and  having  TransCanada                                                               
participate in  the project.   She  explained that  everything to                                                               
the left of the vertical orange  line on slide 7 is the project's                                                               
development and construction and to  the right of the orange line                                                               
is  when the  project is  in operation.   The  basic deal  on the                                                               
table  says that  during  project  development and  construction,                                                               
TransCanada, instead of the state,  will invest 60-100 percent of                                                               
the upfront capital cost that is  associated with the GTP and the                                                               
pipeline.  Once the project is  in operation, in return the state                                                               
will pay  TransCanada a  negotiated tariff  for that  same 60-100                                                               
percent of  the GTP and  pipeline capacity  that will be  used to                                                               
move the  state's gas.   The economic  analysis will  examine the                                                               
net impact of  putting those together -- the  advantage of having                                                               
TransCanada bear  the upfront cost  and the  cost of a  tariff to                                                               
the  state  over the  25  years  of this  transportation  service                                                               
agreement  with TransCanada.   It  will examine  whether this  is                                                               
better or worse for the state than going it alone.                                                                              
1:29:45 PM                                                                                                                    
MS. PODUVAL  said slide 8, entitled  "TransCanada's Participation                                                               
Impacts SOA Up Front Cash  Calls and Revenues From Project," puts                                                               
numbers  to  the  state's  three  different  alternatives.    The                                                               
project is  anticipated to be in  service in 2024, so  all of the                                                               
cash flows shown on the graph  for before 2024 are the investment                                                               
that  the state  is making  in the  project.   The positive  cash                                                               
flows  seen on  the graph  after  2024 are  the state's  revenues                                                               
associated with  the Alaska LNG  Project.  The blue  line depicts                                                               
the state's  cash flows under  the go-it-alone alternative.   The                                                               
blue  line is  the  lowest line  on the  investment  side of  the                                                               
timeline,  reflecting that  it is  the alternative  in which  the                                                               
state  would be  investing the  most  money.   Once the  revenues                                                               
start to flow, the blue line  is the highest, reflecting that the                                                               
state is not paying TransCanada a  tariff or a return.  The green                                                               
line is the alternative where  the state involves TransCanada and                                                               
does not buy  back a portion of  the GTP or the pipeline.   It is                                                               
the  alternative where  the  state has  the  least investment  up                                                               
front and is also the alternative  where the state has the lowest                                                               
cash flows  or revenues once  the project is  operational because                                                               
the state is paying a tariff  to TransCanada on all 25 percent of                                                               
the GTP and the pipeline.   The grey line is the alternative with                                                               
TransCanada  where the  state exercises  its  buyback clause  and                                                               
this   line  falls   between  the   other  two.     TransCanada's                                                               
participation reduces  the state's upfront cash  calls by between                                                               
$1.5 and  a little over  $2 billion,  assuming that the  state is                                                               
able to  finance its investment using  up to 70 percent  of debt.                                                               
Once    the    project   becomes    operational,    TransCanada's                                                               
participation reduces the state's revenues  by between $200 and a                                                               
little over $350 million per year.                                                                                              
1:32:03 PM                                                                                                                    
REPRESENTATIVE HAWKER,  regarding slide 8 and  the alternative of                                                               
TransCanada  with  no buyback,  inquired  whether  the cash  flow                                                               
prior to  2024 is almost  exclusively the LNG facility  given the                                                               
state would not be investing in the pipe system.                                                                                
MS.  PODUVAL  confirmed that  in  the  green line  [the  state's]                                                               
investment is  associated only with  the LNG plant.   TransCanada                                                               
would be making all of the  investment associated with the GTP as                                                               
well as the pipeline.                                                                                                           
1:33:02 PM                                                                                                                    
MS.  PODUVAL  explained  that  slide 9,  entitled  "What  is  the                                                               
Economic  Impact  to  State From  TransCanada's  Participation?",                                                               
boils down the  cash flows from slide 8 into  one number, the net                                                               
impact.  Slide  9 looks at it  in two different ways.   The green                                                               
bar graph  on the left  totals up all  of the state's  cash flows                                                               
[for  each of  the  three alternatives]  with  the investment  up                                                               
front, which would  be negative, and then the  revenues that come                                                               
subsequently over the first 25  years of the project's operation.                                                               
This  graph shows  that TransCanada's  participation,  on a  cash                                                               
flow basis, comes at a cost  to the state, although in context it                                                               
is not a very large cost:  the  state's total cash flow in the 40                                                               
percent buyback  option is  $110 billion as  compared to  $114 in                                                               
the go-it-alone option, a reduction of  $4 billion.  The blue bar                                                               
graph on  the right takes the  time value of money  and shows the                                                               
net  present value  (NPV)  to the  state for  each  of the  three                                                               
alternatives.    This  graph  shows  there  is  really  not  much                                                               
difference  between the  three alternatives  from  a net  present                                                               
value perspective  for the  state.  That  is because  the upfront                                                               
money  that  TransCanada  would be  investing,  rather  than  the                                                               
state, carries a lot of weight  -- much more than cash flows that                                                               
the state  would have  over 25 years  of the  project's operation                                                               
into 2040.                                                                                                                      
1:34:45 PM                                                                                                                    
CO-CHAIR SADDLER  inquired whether  the state's total  cash flows                                                               
depicted by the green bars are net cash flows.                                                                                  
MS. PODUVAL nodded yes.                                                                                                         
CO-CHAIR SADDLER concluded  it all mixes down to  the net present                                                               
value anyway.                                                                                                                   
MS. PODUVAL replied correct.                                                                                                    
CO-CHAIR SADDLER asked whether total cash flow is total profit.                                                                 
MS. PODUVAL answered it is the net total cash flow.                                                                             
1:35:12 PM                                                                                                                    
REPRESENTATIVE  HAWKER observed  that  the graph  for total  cash                                                               
flows is  in nominal  dollars.   He recalled  it being  said that                                                               
this modeling  is based  on a  25-year timeframe,  and calculated                                                               
that when  the difference of  $4 billion between  the go-it-alone                                                               
option and the 40-percent-buyback option  is taken over 25 years,                                                               
the result  is a reduction of  $160 million a year.   However, he                                                               
observed,  slide   8  states  that   TransCanada's  participation                                                               
reduces the state's  revenues by $200-$360 million per  year.  He                                                               
requested a reconciliation of the numbers from these two slides.                                                                
MS. PODUVAL responded  that the $114 billion and  $110 billion on                                                               
slide 9 are the total net.   They take the negative cash flows up                                                               
front, so  it is not  just starting  at project operation,  it is                                                               
looking at  the whole  deal.   Everything on  slide 8  is totaled                                                               
together to get to the numbers on slide 9.                                                                                      
1:37:12 PM                                                                                                                    
MS. PODUVAL returned to discussion  of slide 9, pointing out that                                                               
TransCanada's NPV  is expected to  be $150-200 million  [over the                                                               
initial 25  year period], while  the state will make  $13 billion                                                               
out of the project.                                                                                                             
1:37:54 PM                                                                                                                    
MS. PODUVAL  moved to  slide 10,  entitled "Can  the State  Go It                                                               
Alone?".   She noted there are  two different aspects of  this to                                                               
explore,  the  first  being  the   capital  cost  and  investment                                                               
implications of going it alone.   TransCanada reduces the state's                                                               
upfront  capital   costs.    The   second  aspect  is   the  debt                                                               
implications of  going it alone.   This helps with  the questions                                                               
that have  been asked  about whether the  state can  finance this                                                               
cheaper and has  a stronger balance sheet.  Turning  to slide 11,                                                               
entitled "SOA  Upfront Capital Cost  Exposure is  Reduced Through                                                               
TransCanada Participation,"  she explained that the  capital cost                                                               
risk is  highest to the  state before the project  is operational                                                               
because  there are  no  revenues  to support  any  cash calls  or                                                               
expenses that  the state would  be obligated for in  the project.                                                               
There is  potentially some  value in  TransCanada's participation                                                               
because  it  reduces  exposure  for  the  state.    TransCanada's                                                               
participation allows  the state  to retain  20-25 percent  of the                                                               
gas  while  only  being  responsible for  13-18  percent  of  the                                                               
upfront costs.   That is important even assuming  a baseline cost                                                               
project, but  if cost overruns  start to  creep in and  there are                                                               
unanticipated cash  calls on the  state, then having  somebody to                                                               
share this with can be important and valuable.                                                                                  
1:40:07 PM                                                                                                                    
CO-CHAIR FEIGE understood exposure to  cost overruns is shared by                                                               
all the owners proportionately.   TransCanada having a minimum of                                                               
14 percent  of the overall  project will share the  exposure even                                                               
more from  the state  and hence  will be  motivated to  keep cost                                                               
overruns from occurring.                                                                                                        
MS. PODUVAL concurred, saying all of  the parties are going to be                                                               
extremely  motivated to  manage the  costs of  this project  very                                                               
aggressively.   The cost is high  enough to start with  and it is                                                               
not wanted to have the cost get much higher.                                                                                    
1:40:53 PM                                                                                                                    
MS. PODUVAL  drew attention  to slide  12, entitled  "SOA Upfront                                                               
Capital  Cost  Exposure  is Reduced  Through  TC  Participation,"                                                               
which  depicts  two project  scenarios  in  which the  state  has                                                               
exercised its  buyback option [at  30-40 percent].   One scenario                                                               
assumes  a  project  completed  at  $45  billion  and  the  other                                                               
scenario  assumes  a  20  percent  cost  overrun  for  a  project                                                               
completed  at  $54  billion.    In a  project  completed  at  $45                                                               
billion,   TransCanada's   participation  reduces   the   state's                                                               
investment  by about  $3  billion.   For a  project  with a  cost                                                               
overrun, TransCanada's participation  reduces the state's upfront                                                               
investment by about  $4 billion.  If the state  does not exercise                                                               
its buyback  option, its investment  will fall even  further with                                                               
TransCanada's participation.                                                                                                    
MS.  PODUVAL turned  to  the  graph on  slide  13, entitled  "SOA                                                               
Investment for a 25% Ownership with  TC is Expected to be $1.3-$B                                                               
Lower Than  for a 20% Ownership  Going Alone."  She  compared the                                                               
upfront  investment that  would  be required  from  the state  by                                                               
going it  alone and affording a  20 percent stake in  the project                                                               
with  the  upfront  investment  of   going  with  a  partner  and                                                               
affording  a  25  percent  stake  in  the  project.    The  total                                                               
investment  for the  state  going  it alone  and  affording a  20                                                               
percent stake  in the project  (blue dotted line) would  be about                                                               
$11  billion.     By  partnering  with  someone,   in  this  case                                                               
TransCanada, the state is able to  take a 25 percent stake in the                                                               
project and  the state's upfront  investment would be  reduced by                                                               
between $1.3  billion and  $4 billion,  depending on  whether the                                                               
state exercises the buyback.                                                                                                    
MS. PODUVAL brought attention to  the graph on slide 14, entitled                                                               
"SOA Revenues  for a  25% Ownership  with TC  are Expected  to be                                                               
$0.4-$0.5B  Per  Year  Higher  than for  a  20%  Ownership  Going                                                               
Alone."  She  compared the revenues the state  would receive from                                                               
the aforementioned  alternatives.   Revenues from going  it alone                                                               
with a  20 percent  equity share  in the  project would  be lower                                                               
than  they would  be from  going with  a partner  and 25  percent                                                               
equity share.   Putting the facts together from slides  13 and 14                                                               
tell a  story that  the state  can invest less  and earn  more by                                                               
taking a  greater share  in the  project with  a partner  than by                                                               
affording a  lower share in the  project and trying to  go alone.                                                               
Boiling that down to a net  present value in today's dollars, she                                                               
related that  going it alone  with a  lower share in  the project                                                               
has a  value of $2 billion  less than the alternatives  where the                                                               
state has a partner and a  higher stake in the project (slide 15,                                                               
entitled "25% Ownership with TC  Increases State of Alaska NPV by                                                               
$2B Compared to a 20% Ownership Going Alone").                                                                                  
1:44:39 PM                                                                                                                    
MS. PODUVAL  moved to  slide 16,  entitled "Can  the State  Go It                                                               
Alone? - State's Debt Capacity."   To address the concept of what                                                               
the state's debt  capacity is and how the  state's obligations to                                                               
the Alaska LNG Project would relate  to that, she looked at three                                                               
borrowing scenarios.  She noted   that two related factors become                                                               
important  when borrowing  to pay  for this  project.   First, at                                                               
what cost of debt can the  state borrow this money?  Second, what                                                               
portion  of the  state's revenues,  or general  fund unrestricted                                                               
revenues  (GFUR), would  be needed  to service  the debt  that is                                                               
associated with  only this  project?  Scenario  1 is  the highest                                                               
quality debt,  meaning it  will be the  cheapest debt,  or lowest                                                               
interest  rate, that  the state  can get.   The  cost of  debt in                                                               
Scenario  1  is approximated  to  be  4.6  percent and  the  debt                                                               
service is limited to  3 percent of the GFUR.   Scenario 3 is the                                                               
lowest  quality  debt, meaning  the  state  would be  paying  the                                                               
highest  interest rate.    In  Scenario 3,  the  interest is  5.6                                                               
percent and  the debt service  is limited  to 6 percent  of GFUR.                                                               
She  explained the  relationship between  these two  scenarios as                                                               
follows:   A lender loaning money  to Alaska would have  the most                                                               
comfort that its loan is going to  get paid back if it only takes                                                               
a small portion  of Alaska's revenues to pay back  the loan.  The                                                               
lower the portion of state revenues  that is required to pay back                                                               
the  debt, the  greater  comfort  the lender  has  in lending  to                                                               
Alaska and  the lower the interest  rate will be that  is offered                                                               
for  that loan.    On the  flip  side, if  a  greater portion  of                                                               
Alaska's revenues  are needed to  pay back the lender,  then that                                                               
becomes a  more risky  loan for  the lender  and the  lender will                                                               
charge  a higher  interest  rate  to make  that  loan.   So,  the                                                               
highest  quality  is  the  one that  only  obligates  the  lowest                                                               
portion  of  the  state's  GFUR  to pay  it  back  and  the  most                                                               
expensive debt is  the one where a larger portion  of the state's                                                               
revenues will be required to pay it back.                                                                                       
1:48:26 PM                                                                                                                    
REPRESENTATIVE HAWKER  understood Ms. Poduval's point,  but noted                                                               
that in  a project like this  the state might be  bonding for its                                                               
participatory interest in the pipe  project.  He inquired whether                                                               
that would be more project-specific  revenue bonding, rather than                                                               
bonding that is dependent upon the general fund for repayment.                                                                  
MS. PODUVAL  agreed it is quite  possible that the debt  would be                                                               
in the form  of a revenue bond,  but said it is  almost too early                                                               
in  the project's  development  to know  what  kind of  financing                                                               
arrangements would be available for this project.                                                                               
REPRESENTATIVE HAWKER  asked whether  the interest  spreads shown                                                               
on slide 16 are presuming  that these are full general obligation                                                               
bonds  of the  State of  Alaska.   He further  asked whether  Ms.                                                               
Poduval has a  sense of what the cost of  capital would be should                                                               
the financing be through a project-specific revenue bond.                                                                       
MS. PODUVAL  confirmed slide 16 assumes  general obligation funds                                                               
rather than  revenue bonds.   She said she  does not have  a good                                                               
sense for what the cost of capital would be for revenue bonds.                                                                  
1:50:22 PM                                                                                                                    
CO-CHAIR  SADDLER inquired  whether  the interest  rate and  debt                                                               
service limit in a scenario  are independent variables or whether                                                               
the interest rate is conditioned  on the proportion of state GFUR                                                               
to the amount financed.                                                                                                         
MS. PODUVAL replied those two are  related.  The lower the amount                                                               
of the  state's revenues  that will  be needed  to pay  back that                                                               
loan, the lower the interest  rate will be, and that relationship                                                               
will be seen when the three scenarios are looked at.                                                                            
1:51:04 PM                                                                                                                    
REPRESENTATIVE  TARR  inquired  about  the extent  to  which  the                                                               
state's  substantial   savings  would  influence   its  borrowing                                                               
ability, rather  than the state's unrestricted  revenue which has                                                               
a more limited opportunity.                                                                                                     
MS. PODUVAL responded  that the way she looks at  it, the state's                                                               
substantial  permanent  fund  savings,   as  well  as  its  other                                                               
resources,  support  its credit  rating  and  influence what  the                                                               
state can borrow for.   She imagined there are other alternatives                                                               
to leverage  those resources for  financing this project  and she                                                               
imagined that  the various departments  will be looking  at those                                                               
alternatives as  they proceed in  this process and  more concrete                                                               
information on  what this project  is becomes available  to share                                                               
with the financial market.                                                                                                      
1:52:39 PM                                                                                                                    
MS. PODUVAL  returned to her  presentation, explaining  slide 17,                                                               
entitled "The Amount  of Cheap Debt Available to  the State Could                                                               
be Limited," shows how much debt  the state can borrow in each of                                                               
the  three aforementioned  alternatives.   In general,  the state                                                               
can borrow  more at the  higher cost of debt  than it can  at the                                                               
lower cost  of debt.  This  is because more lenders  are going to                                                               
step up  if the state is  willing to pay a  higher interest rate.                                                               
Each  set of  three bars  on the  chart represents  one level  of                                                               
investment that  is required from the  state.  The height  of the                                                               
bars in  the go-it-alone  option is the  highest because  that is                                                               
where the state  has the highest level  of investment obligation.                                                               
The bar height in the  TransCanada-without-buyback option are the                                                               
lowest overall  because that  is where the  state would  have the                                                               
lowest level of investment required.                                                                                            
1:54:04 PM                                                                                                                    
CO-CHAIR FEIGE observed on slide 17  that the label for the three                                                               
middle bars  states 30  percent buyback.   He asked  whether that                                                               
should be 40 percent.                                                                                                           
MS.  PODUVAL replied  25 percent  state equity  participation has                                                               
notionally been picked throughout  in the presentation, unless it                                                               
is  called  out  otherwise.    That  is  because  greater  equity                                                               
participation brings greater value to  the state and that is what                                                               
the state  should be hoping to  get from this project.   For this                                                               
analysis specifically, a  20 percent equity stake  in the project                                                               
was  used.   The reason  for doing  this is  to first  answer the                                                               
question of  whether the state  can afford  to borrow to  take 20                                                               
percent equity  in the  project.   If the answer  is no,  then it                                                               
stops the  analysis there  and automatically  gives an  answer to                                                               
whether the  state can borrow to  take a 25 percent  stake in the                                                               
project.  If this analysis shows  that, yes, the state can take a                                                               
20 percent  stake in the project,  then the analysis moves  on to                                                               
look at  a 25 percent stake.   The 30 percent  buyback comes from                                                               
TransCanada's  need  for  a  minimum  14  percent  stake  in  the                                                               
project.   So, when looking  at a 20  percent total stake  in the                                                               
project, assuming  TransCanada keeps 14 percent,  that leaves the                                                               
remaining  6 percent  for the  state, which  is equivalent  to 30                                                               
percent of the total 20 percent.                                                                                                
1:55:55 PM                                                                                                                    
REPRESENTATIVE HAWKER  offered his appreciation for  the analyses                                                               
being illustrative to show the  issue rather than specifics as to                                                               
the  project itself.   He  recalled  the dialogue  on a  previous                                                               
slide about  the illustrative debt being  general obligation debt                                                               
rather  than   project-specific  revenue  bond  financing.     He                                                               
inquired  whether this  chart is  relevant  in this  conversation                                                               
because it is  talking about the treasury carrying  the weight of                                                               
the project rather than the project carrying its own weight.                                                                    
MS. PODUVAL  thanked Representative Hawker for  understanding the                                                               
perspective  that  is  being offered  in  highlighting  an  issue                                                               
rather than the specifics.   From that same specific, she related                                                               
that most  helpful to her during  the analysis was being  able to                                                               
put the obligations that would  be associated with the Alaska LNG                                                               
Project in  the context  of the  state's financial  resources and                                                               
the state's debt servicing capacity.   She acknowledged there are                                                               
revenue bonds, the  permanent fund savings, and  other tools that                                                               
will be  examined and agreed  that this is  by no means  the only                                                               
way to be looking at the debt associated with this project.                                                                     
REPRESENTATIVE HAWKER, given  that Black & Veatch  is working for                                                               
the  administration, asked  whether Black  & Veatch  is preparing                                                               
legislators  for a  serious consideration  of general  obligation                                                               
debt to fund this project.                                                                                                      
MS. PODUVAL answered no, she would not say that.                                                                                
1:58:27 PM                                                                                                                    
REPRESENTATIVE P. WILSON  requested further elaboration regarding                                                               
TransCanada's 14 percent,  the state's 6 percent,  and 40 percent                                                               
[as related to slide 17].                                                                                                       
MS. PODUVAL responded the 30 and  40 percent she was referring to                                                               
goes to  the buyback option  that the  state would have  where it                                                               
purchases back  from TransCanada  a portion  of the  ownership in                                                               
the GTP and  pipeline.  When the state holds  a 25 percent equity                                                               
stake in the entire project, then  the state has the right to buy                                                               
back 40 percent of that 25  percent share from TransCanada.  That                                                               
would leave  TransCanada with  15 percent and  the state  with 10                                                               
percent.  When  the state takes a 20 percent  equity share in the                                                               
project, assuming  TransCanada keeps  14 percent, then  the state                                                               
buys back 30 percent or 6 percent of the 20 percent.                                                                            
1:59:46 PM                                                                                                                    
MS. PODUVAL resumed  her review of slide 17,  explaining it shows                                                               
that, assuming the  state is trying to finance  this with general                                                               
obligation  debt,  only  in  the  TransCanada  alternative,  even                                                               
without  the buyback,  can  sufficient debt  be  borrowed by  the                                                               
state for this project  to get to a 70 or  75 percent debt level.                                                               
In general,  large LNG  projects aim for  a capital  structure of                                                               
about 70 percent debt/30 percent equity.   They want to borrow as                                                               
much as they can because debt  is generally cheaper than is their                                                               
own equity, but the financial  market will also place some checks                                                               
and  balances on  that and  insist the  companies or  the project                                                               
developers put  in some of their  own money, too, and  where that                                                               
balance is generally  struck is in that 70/30 mix.   If the state                                                               
would like  to achieve  that level  of debt  in this  project, at                                                               
least with  general obligation debt,  the total  investment level                                                               
that can  be supported is  the one  that corresponds to  having a                                                               
partner in the project and not exercising buyback.                                                                              
MS. PODUVAL  pointed out that  DOR uses a watermark  to prudently                                                               
manage  the  state's debt  capacity.    The department  tries  to                                                               
manage the state's total debt  service obligation to fall under 8                                                               
percent  of the  total general  fund unrestricted  revenue.   The                                                               
three different scenarios presented  here would require between 3                                                               
and 6  percent of  general fund  unrestricted revenue  to support                                                               
just the Alaska  LNG Project.  If  this is the path  of debt that                                                               
is considered,  that would leave  as little  as 2 percent  of the                                                               
state's  general  fund  unrestricted  revenue  as  the  remaining                                                               
borrowing  capacity   for  the  state  to   finance  schools  and                                                               
everything else that the state does as a sovereign.                                                                             
2:02:35 PM                                                                                                                    
MS. PODUVAL turned  to slide 18, entitled "Is  TransCanada a Good                                                               
Partner for  the State of Alaska  in the AKLNG Project?"   Should                                                               
the state decide that having a partner  is a good idea to help it                                                               
afford  a higher  stake in  the project,  the first  attribute of                                                               
TransCanada is  that it brings extensive  experience in building,                                                               
owning,  and  operating  northern   pipelines.    TransCanada  is                                                               
extremely well skilled,  is a good project manager,  and has more                                                               
activity  with northern  pipelines than  any of  the other  major                                                               
pipeline  companies.    Second,  TransCanada  has  shown  a  long                                                               
history  of  interest  in  the  Alaska  pipeline,  most  recently                                                               
through  its participation  in the  AGIA process.   TransCanada's                                                               
participation helps  to retain momentum  in the project  and that                                                               
is  driven  by   several  factors.    Most  obvious   is  all  of                                                               
TransCanada's work under  AGIA in studying this  pipeline and its                                                               
route and being  able to transfer that work product  to give this                                                               
project a  kick start.  The  second aspect is that  relations are                                                               
involved  here.   People  from TransCanada,  the  state, and  the                                                               
producers have  sat around tables and  negotiated various aspects                                                               
of this to  get to this point.   Those things take time  and if a                                                               
new  party  is  introduced  there will  be  inefficiencies  until                                                               
everyone  falls  in   sync  again.    A  third   aspect  is  that                                                               
TransCanada,  or  any  third  party, comes  into  this  with  the                                                               
perspective  of  not  being  a   producer.    TransCanada  is  an                                                               
infrastructure company and,  as such, its earnings  are linked to                                                               
having more  throughput -  more customers -  that it  can provide                                                               
these  services  to.    From  that  perspective,  TransCanada  is                                                               
aligned  to  the  state's interest  of  facilitating  access  and                                                               
expansion on the project, which  is different from the producers'                                                               
perspective  whose primary  interest  is always  going  to be  to                                                               
maximize their own  revenues by moving their gas to  market.  The                                                               
producers, arguably, have a disincentive,  not with any nefarious                                                               
intent,   but  just   out  of   fiduciary  duty   to  their   own                                                               
stockholders, not  to make  it very  easy for  other oil  and gas                                                               
producers to  explore on  the North Slope  and compete  with them                                                               
and use this project to monetize  that gas.  Having a third party                                                               
that  is  aligned with  the  state's  interest  as a  partner  is                                                               
definitely valuable.                                                                                                            
2:06:35 PM                                                                                                                    
PETER ABT,  Management Director, Management  Consulting Division,                                                               
Black &  Veatch Corporation;,  Consultant, Department  of Natural                                                               
Resources (DNR), expanded  upon why TransCanada [would  be a good                                                               
partner]  as opposed  to  soliciting  other prospective  pipeline                                                               
companies for  whether they have  interest in filling  that role.                                                               
TransCanada  has a  long history  in Alaska  and has  developed a                                                               
great deal  of institutional knowledge  of the  unique challenges                                                               
that  are  faced  in   developing,  constructing,  and  operating                                                               
pipelines in  arctic environments.  TransCanada  arguably has the                                                               
most experience  with this of  any company in the  world, perhaps                                                               
shared  only by  a Russian  pipeline  company.   While there  are                                                               
several other  very good pipeline  companies that operate  in the                                                               
Lower 48, none  of them have a portfolio as  extensive as that of                                                               
TransCanada in  operating in the  climate that is had  in Alaska.                                                               
Additionally,  the  process  of soliciting  interest  from  other                                                               
pipeline  companies would  only  delay the  whole development  of                                                               
this project because it would  probably take a significant amount                                                               
of time to  solicit these proposals, review  them, evaluate them,                                                               
select a winner, and then  begin the negotiations of an agreement                                                               
such as  the one  being contemplated here  that has  already been                                                               
arrived  at  with  TransCanada.     Another  factor  is  how  the                                                               
producers would feel  about that.  Would they be  as welcoming of                                                               
a new  party that would  have a  steep learning curve  that would                                                               
only  add additional  time and  money to  the development  of the                                                               
project?   Those are extremely  important considerations  to take                                                               
into  account when  trying to  decide whether  TransCanada is  an                                                               
appropriate partner in this context.                                                                                            
2:08:54 PM                                                                                                                    
MS. PODUVAL  moved to slide  19, entitled "Retaining  Momentum on                                                               
Project Could  be More Valuable  than Securing  Better Commercial                                                               
Terms."  She addressed the question  of what the state would hope                                                               
to  achieve by  bringing in  another  partner, saying  this is  a                                                               
reasonable question  to ask since  this has  not been bid  out to                                                               
know whether  the state has the  best commercial terms.   Black &                                                               
Veatch ran  analysis to understand  what the impact to  the state                                                               
would be  of improved commercial  terms.  The two  key commercial                                                               
terms  to  focus on  are  the  capital  structure that  has  been                                                               
offered in the project and  the return on equity that TransCanada                                                               
is  earning in  this project  from  the state.   TransCanada  has                                                               
offered a  capital structure  of 75 percent  debt and  25 percent                                                               
equity, and a 12 percent return  on equity.  In general, the cost                                                               
of debt  is 5  percent and given  the way  transportation service                                                               
contracts are generally structured, that  is a pass through.  So,                                                               
what really is being negotiated  is the capital structure and the                                                               
return on  equity.  In  regard to  trying to improve  the capital                                                               
structure, she  said 75 percent  debt is an  excellent commercial                                                               
term for capital structure.   In looking at pipeline companies in                                                               
the  Lower  48 and  a  number  of  recent projects,  the  capital                                                               
structure is  much more equity heavy  than the 25 percent  in the                                                               
negotiated deal with  TransCanada.  But, assuming  that the 75/25                                                               
can be  improved upon, the direction  the state would want  to go                                                               
is more  debt and less equity.   The left-most panel  of slide 19                                                               
shows that  every 5 percent  increase in equity, and  increase in                                                               
the debt of that capital structure,  creates a value to the state                                                               
of about  $200 million.   Holding that  number and moving  to the                                                               
middle  panel,  and  assuming  the state  can  find  a  different                                                               
partner  that will  accept a  lower  return on  equity, slide  19                                                               
shows that for  every 1 percent decrease in the  return on equity                                                               
that the  state is paying  creates an additional $100  million in                                                               
value to the state.  So,  between those two commercial terms, the                                                               
debt/equity mix  is more impactful  and improves the  state's net                                                               
present value  by about $200  million.   The return on  equity is                                                               
less  impactful  but  every  percentage  improvement  can  create                                                               
another $100 million in value to  the state.  The far right panel                                                               
of  slide  19  looks at  the  cost  to  the  state if  finding  a                                                               
different partner  results in delay  of the project.   This panel                                                               
shows that for each year's delay  in the project, the state loses                                                               
the  equivalent of  $800 million  in  value.   Thus, assuming  an                                                               
equally  qualified and  interested  partner could  be found,  and                                                               
assuming  that partner  will offer  more  competitive terms  than                                                               
those given by  TransCanada, it can be seen  that any improvement                                                               
in commercial terms would be dwarfed  by the value that the state                                                               
would lose by losing time on the project.                                                                                       
2:13:35 PM                                                                                                                    
REPRESENTATIVE TARR  related that in  a report prepared  by Roger                                                               
Marks, consultant to the Legislative  Budget and Audit Committee,                                                               
it  is  suggested that  the  state  will  not  miss a  window  of                                                               
opportunity for the Asian markets  and that a better project that                                                               
begins  in 2026  may  be  preferable to  a  sub-optimal one  that                                                               
starts  in  2024.    Saying  she is  trying  to  reconcile  these                                                               
comments  by  Mr.  Marks with  today's  presentation,  she  asked                                                               
whether Ms.  Poduval agrees that  a two-year window would  not be                                                               
very meaningful in terms of progress on the project.                                                                            
MS. PODUVAL responded she thinks  Mr. Marks is accurate in saying                                                               
there  is not  necessarily a  window  in global  energy that  the                                                               
state is trying  to squeeze through.  Regarding  the premise that                                                               
a 2024  project would be  sub-optimal somehow, she said  she does                                                               
not understand  the rationale behind that.   It is very  early in                                                               
this  project's development  stage, she  continued, the  state is                                                               
not committing  to spend  $13 billion  today.   The state  is not                                                               
representing,  nor  should  it  represent,  that  this  has  been                                                               
studied and  everything negotiated  that needs to  be negotiated.                                                               
All of  that will  happen next.   All that is  trying to  be done                                                               
here is kick  start the project, get  it out of the  gate, get it                                                               
through its first  phase of Pre-FEED, and then FEED,  where a lot                                                               
more  information is  gathered.   All  of  the negotiations  with                                                               
TransCanada,  the  producers,  and  AGDC   will  take  a  lot  of                                                               
deliberation and  a lot of  study and  will happen over  the next                                                               
four to  six years before  construction starts.  She  offered her                                                               
belief that  the project is not  being rushed by any  means; work                                                               
is starting on the  project as it should be.   Trying to time the                                                               
market would be foolhardy and  is impossible to do, especially in                                                               
a large  LNG project that  has such a long  lead time.   There is                                                               
simply not  the luxury of  being able  to respond instantly  to a                                                               
market need.  The process must  be kicked off years in advance so                                                               
the  project will  be ready  for the  market 10  years from  now.                                                               
Delaying the project through any  factors that the state controls                                                               
does  not sound  prudent.   Money today  is definitely,  and will                                                               
always be,  worth more than  that same amount of  money tomorrow.                                                               
In yesterday's  presentation the state's revenue  profile without                                                               
this project was  looked at and that in itself  gives her a sense                                                               
of  urgency  to  do  this  while the  state  has  more  resources                                                               
2:16:54 PM                                                                                                                    
CO-CHAIR SADDLER  noted attention is  being paid to the  State of                                                               
Alaska's debt capacity  as far as rules of thumb  and ratios.  He                                                               
inquired about TransCanada's ability  to finance this project and                                                               
further asked whether  there are other pipeline  companies in the                                                               
world  that could  meet the  capital financing  requirements that                                                               
this project envisions.                                                                                                         
MR.  ABT  replied  there  are probably  six  companies  in  North                                                               
America that  are equivalent  or larger  in size  to TransCanada.                                                               
Broadening  that  to  other  companies in  the  world,  there  is                                                               
probably  one, the  Russian pipeline  company Gazprom.   In  that                                                               
peer group,  he would  say there are  maybe eight  companies that                                                               
would have the  financial capacity similar to  TransCanada's.  In                                                               
further  response, Mr.  Abt  confirmed it  is  not necessarily  a                                                               
company's size, but its financial  strength.  Of that group, only                                                               
three   immediately  come   to  mind   that  operate   in  arctic                                                               
conditions:   TransCanada,  Gazprom,  and  Enbridge.   Enbridge's                                                               
experience  is  primarily  in  liquids  and  oil  pipelines,  not                                                               
necessarily gas pipelines.                                                                                                      
MS. PODUVAL  added that when  making these commercial  terms with                                                               
the state, TransCanada  is taking on the risk  that its financial                                                               
strength  may not  be  the same  in  the future  when  it has  to                                                               
finance this project as it is today.   She said she will later be                                                               
addressing how TransCanada takes on this risk.                                                                                  
2:19:11 PM                                                                                                                    
REPRESENTATIVE  SEATON,  regarding that  each  year  of delay  is                                                               
about $800  million as  shown on slide  19, inquired  whether the                                                               
delay is  from extending construction a  year so it is  six years                                                               
instead of  five years,  or is  from moving  the project  out one                                                               
year further.                                                                                                                   
MS. PODUVAL answered  it was looked at both ways  and the numbers                                                               
do not change very much  because it is really during construction                                                               
where all of  the dollars are being spent.   This particular one,                                                               
she said, may be looking at  where the construction is spread out                                                               
an extra year.                                                                                                                  
CO-CHAIR SADDLER  understood Ms.  Poduval to  be saying  there is                                                               
not much  difference between  stretching out  construction versus                                                               
shifting it.                                                                                                                    
MS. PODUVAL responded correct and added  that it is driven by two                                                               
factors.  First,  to the extent that the  construction is getting                                                               
pushed  back  or  stretched,  the  capital  associated  with  the                                                               
project is  going to increase because  escalation starts building                                                               
into that  cost.  Second,  the revenue is  delayed by a  year, so                                                               
all  of the  cash flows  that would  have been  received are  now                                                               
going to be received a year later.                                                                                              
2:20:46 PM                                                                                                                    
MS.  PODUVAL  resumed  her presentation,  turning  to  slide  20,                                                               
entitled "Does TransCanada Bear Any  Financial Risk?", to look at                                                               
the  project from  TransCanada's point  of view.   Given  the MOU                                                               
that  TransCanada  has  committed  to  with  the  state  and  the                                                               
anticipated transportation service  agreement (TSA), the question                                                               
is  whether TransCanada  is taking  on risk  by participating  in                                                               
this  project  with  the  State   of  Alaska.    TransCanada  has                                                               
committed  to  commercial terms  with  a  capital structure  that                                                               
reflects it can  borrow up to 75  percent of what it  is going to                                                               
invest in this project in the  financial market as debt.  That is                                                               
a fairly  aggressive assumption,  especially because today  it is                                                               
too early to  know what financing arrangements  will be available                                                               
for this project  at the time that TransCanada  will actually try                                                               
to procure  this debt.   She reminded  members that 70/30  is the                                                               
mix that  seems to shake  out in  the financial market  for large                                                               
LNG projects where the companies  feel like they have enough debt                                                               
to keep their  costs low but the lenders feel  like the companies                                                               
have enough  of their own equity  in the project to  have skin in                                                               
the game.   Thus, 75/25 would  be more aggressive than  70/30 and                                                               
is a big assumption that TransCanada has made.                                                                                  
2:22:12 PM                                                                                                                    
MS.  PODUVAL  continued,  saying  a  second  assumption  made  by                                                               
TransCanada is its  cost of debt; that it will  be able to borrow                                                               
at  5 percent.   Given  the  scale of  this project  and all  the                                                               
uncertainties  associated with  it,  financing  is a  significant                                                               
risk.    So,  these  two   commitments  represent  some  risk  to                                                               
TransCanada.   One caveat  related to  the cost  of debt  and the                                                               
return on equity committed to  by TransCanada is that TransCanada                                                               
has offset part  of that risk to  the state.  The  part offset to                                                               
the  state works  through what  is  captured as  a rate  tracker,                                                               
which shifts  to the state  any risk associated with  the general                                                               
financial  market changing  between the  point in  time that  the                                                               
transportation service  agreement is  entered into and  the point                                                               
in time  when the  final investment decision  (FID) is  taken and                                                               
TransCanada locks in  its financing.  That is  a recognition that                                                               
money is cheap  today relative to what it  has been historically.                                                               
There  is a  general  expectation that  as  the economy  recovers                                                               
these  rates will  start increasing.   Through  the rate  tracker                                                               
mechanism, TransCanada has protected  itself against that general                                                               
market  movement.    The  12  percent  and  the  5  percent  that                                                               
TransCanada has  committed to  here will  be added  on to  by the                                                               
movement   in  interest   rate   between  the   point  when   the                                                               
transportation service  agreement is  entered into and  the point                                                               
where the  final investment decision is  taken.  The part  of the                                                               
risk  that TransCanada  has not  offset  to the  state, and  that                                                               
TransCanada bears, is if its  own borrowing capacity or financial                                                               
strength  changes  from the  assumption  being  made today.    In                                                               
today's market, TransCanada believes it  can borrow 75 percent of                                                               
what the project is going to need  and that it can be borrowed at                                                               
a  5 percent  cost  of interest.   When  looking  at the  state's                                                               
general fund obligation  to borrow for this project,  it was seen                                                               
that as the amount needing to  be borrowed increased, the cost of                                                               
that debt started going up to 5  and 6 percent.  Without being in                                                               
the  financial market  and knowing  what it  can borrow  for this                                                               
project, TransCanada's  assumption that  it can  borrow up  to 75                                                               
percent at 5 percent based on  its financial strength is a fairly                                                               
big leap  for the  company.   If TransCanada  is unable  to match                                                               
that, then  it starts bearing  that risk alone because  the state                                                               
will be paying  TransCanada based on a formula  that assumes that                                                               
75 percent  of what TransCanada  has invested  is in the  form of                                                               
debt,  and  the state  will  be  paying  TransCanada based  on  a                                                               
formula  that assumes  the  cost of  that debt  is  5 percent  in                                                               
today's money.                                                                                                                  
2:25:36 PM                                                                                                                    
REPRESENTATIVE HAWKER  said he is  unsure he agrees with  how Ms.                                                               
Poduval  has  characterized  things.    He  maintained  that  the                                                               
debt/equity  split of  75/25, which  was stated  as TransCanada's                                                               
ability to  go to the market  and achieve that, is  really just a                                                               
stipulated number for rate making  purposes and is not indicative                                                               
of what TransCanada can get  in the marketplace, unless somewhere                                                               
inside  the company  that  is a  metric.   He  asked whether  his                                                               
understanding is correct.                                                                                                       
MS. PODUVAL confirmed Representative  Hawker is correct and added                                                               
that this  is what TransCanada  has committed to  recovering from                                                               
the state in the formula that  will determine what the state pays                                                               
TransCanada.    It   may  have  nothing  to  do   with  how  much                                                               
TransCanada borrows  in the real  market, but to the  extent that                                                               
TransCanada borrows less than 75  percent and puts more equity in                                                               
the project, then  TransCanada is going to earn less  than the 12                                                               
percent return on equity that the formula would give.                                                                           
REPRESENTATIVE  HAWKER said  TransCanada's relationship  with the                                                               
state is not a market-driven factor, it is stipulated here.                                                                     
MS. PODUVAL replied correct.                                                                                                    
REPRESENTATIVE  HAWKER added  it is  also stipulated  that during                                                               
development  and  construction, as  he  reads  the MOU,  "we  are                                                               
stipulated to a 70/30 debt/equity  structure."  If the state buys                                                               
in  and shares  the  debt/equity structure,  the  state is  tying                                                               
itself into a debt/equity level  and that TransCanada can achieve                                                               
that  70/30 debt/equity  or TransCanada  does take  the financial                                                               
risk of its inefficiency and ability to secure the debt.                                                                        
MS.  PODUVAL answered  the 70/30  that is  the capital  structure                                                               
during the  development and construction  part of the  project is                                                               
essentially what interest or carrying  cost TransCanada will have                                                               
for  that period  of  time  until the  project  is in  operation.                                                               
TransCanada is  going to earn a  return on its equity  during the                                                               
entire 25 years to  come off of that.  It  is correct that during                                                               
that  period   of  time,  before  the   project  is  operational,                                                               
TransCanada  is  earning on  30  percent  equity rather  than  25                                                               
percent equity.                                                                                                                 
REPRESENTATIVE  HAWKER  reiterated  that  that  is  a  stipulated                                                               
number to the  state for that calculation of  what TransCanada is                                                               
allowed  to  return and  it  is  a  different number  during  the                                                               
construction period and that it  actually commences on the second                                                               
anniversary of the in-service date.                                                                                             
MS. PODUVAL concurred.                                                                                                          
2:29:14 PM                                                                                                                    
REPRESENTATIVE HAWKER noted the  rate tracker differential allows                                                               
an  adjustment for  market within  certain periods.   But,  also,                                                               
that cost  of debt for  the whole  initial financial system  is a                                                               
stipulated number of  5 percent and that is fixed  at the date of                                                               
final  investment decision.    If  there is  a  huge market  move                                                               
between now and  the final investment decision, there  is still a                                                               
commitment  of 5  percent  for debt  to be  used  in the  initial                                                               
system, plus or  minus that rate tracker  differential that might                                                               
occur in the marketplace.                                                                                                       
MS. PODUVAL agreed.                                                                                                             
REPRESENTATIVE HAWKER acknowledged that  a skyrocketing of market                                                               
rates would likely upset the whole  project.  The only thing that                                                               
would roll through  in the calculations relevant to  the State of                                                               
Alaska  would be  the  spread differential  on  the 30-year  U.S.                                                               
MS. PODUVAL agreed.                                                                                                             
REPRESENTATIVE HAWKER  understood the return on  equity number of                                                               
12 percent is a fixed after-tax number.                                                                                         
MS. PODUVAL concurred.                                                                                                          
REPRESENTATIVE HAWKER noted that  because taxes are a substantial                                                               
item, the  pre-tax return must  be relatively higher than  the 12                                                               
percent after-tax return.   He inquired whether that  is a normal                                                               
number  in this  sort of  situation --  that it  is an  after-tax                                                               
number  rather   than  a  12  percent   return  on  TransCanada's                                                               
investment in this pre-tax.                                                                                                     
MS. PODUVAL  confirmed this is  a fairly standard way  of setting                                                               
that return to  be an after-tax number; that is  how the Lower 48                                                               
pipelines  will set  their returns  on equity  as well.   The  12                                                               
percent after-tax number as it is  set here is similar to formula                                                               
that would be used elsewhere.                                                                                                   
2:31:57 PM                                                                                                                    
REPRESENTATIVE HAWKER asked whether  the MOU would be interpreted                                                               
to  be the  after-tax return  on all  of TransCanada's  worldwide                                                               
investments  or  the  12  percent   after-tax  strictly  on  this                                                               
operation, which  is set up  as a limited liability  partner that                                                               
does not have taxes that go through a parent organization.                                                                      
MS.  PODUVAL  answered  it  is  for  this  specific  project  and                                                               
TransCanada's investment in this specific project.                                                                              
REPRESENTATIVE  HAWKER inquired  whether  that would  be the  tax                                                               
provision  or  the tax  as  paid  -- the  tax  that  shows up  on                                                               
TransCanada's financial  statements or the tax  as actually paid.                                                               
He  asked  how the  temporal  differences  are being  dealt  with                                                               
between taxes paid and taxes accrued and recognized.                                                                            
MS. PODUVAL responded she will get back with an answer.                                                                         
2:33:31 PM                                                                                                                    
CO-CHAIR  SADDLER recalled  Ms. Poduval  stating that  a risk  to                                                               
TransCanada  is  that its  borrowing  capacity  might not  be  as                                                               
robust at the  final investment decision as it is  right now when                                                               
it  is  offering  the  state  these  terms.    He  inquired  what                                                               
mechanism is used  by TransCanada to manage that  risk aside from                                                               
walking away from the deal.                                                                                                     
MS. PODUVAL  replied that, as  the MOU  is written now,  there is                                                               
not   any  mechanism   beyond  the   rate  tracker   that  offers                                                               
TransCanada any protection from that perspective.                                                                               
CO-CHAIR SADDLER understood it is a risk TransCanada accepts.                                                                   
2:34:25 PM                                                                                                                    
REPRESENTATIVE KAWASAKI  understood that if TransCanada  does not                                                               
get the expected  commercial terms it has an off-ramp.   He asked                                                               
whether that off-ramp is a liability borne by the state.                                                                        
MS. PODUVAL confirmed TransCanada has  the option to walk away at                                                               
any point in time that it  does not make commercial sense for the                                                               
company.  If the actual terms  that TransCanada is able to get in                                                               
the  financial  market are  vastly  different  from what  it  has                                                               
agreed to use in this  stipulated formula, TransCanada definitely                                                               
can exercise this option.                                                                                                       
REPRESENTATIVE KAWASAKI inquired what  the potential exposure and                                                               
risk are to the State of Alaska in terms of dollars.                                                                            
MS. PODUVAL  responded that from  a dollar perspective  the state                                                               
would essentially  be paying TransCanada  the cost of  funds used                                                               
during construction, which would be  somewhere between $5 and $50                                                               
million depending on  when it is exercised and  whether the state                                                               
has exercised  its buyback.  It  is the incremental cost  and the                                                               
ceiling of the incremental cost for  the state; it could be a lot                                                               
lower if one thinks about what  the state might have spent anyway                                                               
and the carrying cost associated with the state's own money.                                                                    
2:36:21 PM                                                                                                                    
REPRESENTATIVE TARR,  regarding the rate tracker,  asked how much                                                               
of a  concern it is that  responsibility will shift to  the state                                                               
for any  market change between  signing of  the TSA and  the FID.                                                               
She surmised  the two  signings would  be happening  fairly close                                                               
together and  therefore substantial  changes in the  market would                                                               
not be expected.                                                                                                                
MS. PODUVAL  replied TransCanada  is trying  to manage  that risk                                                               
with the  rate tracker.   The  development and  construction time                                                               
period is 10 years, which  is atypical for pipeline projects that                                                               
TransCanada would  otherwise undertake.  TransCanada  is entering                                                               
into a transportation  service agreement with the  state years in                                                               
advance of when  the final investment decision  and the financing                                                               
arrangements  would be  finalized,  so TransCanada  is trying  to                                                               
offset that  risk.  More commonly,  she pointed out, the  cost of                                                               
debt  is a  pass  through to  the shipper  rather  than it  being                                                               
nailed down to  a particular number like here.   When the cost of                                                               
debt is a  pass through to the customer, it  is really the return                                                               
on equity that  gets negotiated because that is  what the company                                                               
gets to  keep, but  there is  still motivation  to find  the best                                                               
cost of  debt.  Because  a specific 5 percent  cost of debt  is a                                                               
little unusual,  she surmised TransCanada  has the tracker  to at                                                               
least help it adjust for the  market if not for its own financial                                                               
REPRESENTATIVE   TARR  understood   the  transportation   service                                                               
agreements must  be signed before  TransCanada can  get financing                                                               
and that  the FID  is estimated  to be in  2018-2019.   She asked                                                               
whether  she  is  correct in  thinking  that  the  transportation                                                               
service agreements are signed fairly closely before the FID.                                                                    
MS. PODUVAL  believed the TSA  will be signed either  during Pre-                                                               
FEED or  early in  FEED and  not as  close to  FID as  thought by                                                               
Representative Tarr.                                                                                                            
2:39:38 PM                                                                                                                    
REPRESENTATIVE  SEATON  understood   the  transportation  service                                                               
tariffs  for   the  different  parties  may   all  be  stipulated                                                               
differently.   He further understood  that this is  a stipulation                                                               
only for  transportation of the  state's gas  and that it  may or                                                               
may not be offered to the other parties.                                                                                        
MS. PODUVAL  answered correct, adding  that what is  being talked                                                               
about here  relates only specifically  to the  state transporting                                                               
its share  of the  gas through  the portion  of the  project that                                                               
TransCanada will hold through the GTP and pipeline.                                                                             
REPRESENTATIVE P. WILSON  requested further elaboration regarding                                                               
how [the cost of debt] is usually or not usually done.                                                                          
MS.  PODUVAL  responded  that  the   tariffs  are  set  when  the                                                               
transportation service  agreements are entered into.   Generally,                                                               
the cost of debt is a pass  through that is borne by the shipper.                                                               
It  is a  little unusual  to  commit to  a certain  cost of  debt                                                               
without knowing whether that will be  the actual cost at the time                                                               
of going to the market.                                                                                                         
REPRESENTATIVE  HAWKER commented  that that  puts TransCanada  in                                                               
the position  of not  only having  a financial  risk but  also of                                                               
having a  potential financial  benefit if it  can execute  a more                                                               
efficient transaction in the marketplace.                                                                                       
MS. PODUVAL agreed.                                                                                                             
CO-CHAIR SADDLER  inquired what the  drive is behind  having this                                                               
provision in the [MOU].                                                                                                         
MS. PODUVAL deferred to TransCanada for an answer.                                                                              
2:42:24 PM                                                                                                                    
MS. PODUVAL  returned to her  presentation, addressing  slide 21,                                                               
entitled "Does  TransCanada Bear Any  Financial Risk?"   She said                                                               
this  slide   puts  numbers  to  TransCanada's   potential  risks                                                               
associated  with  the stipulated  formula.    She cautioned  that                                                               
there needs  to be a  separation of  the general movement  of the                                                               
market versus a weakening of  TransCanada's financial strength or                                                               
miscalculation of what  TransCanada can get this debt  for and it                                                               
ends up  costing TransCanada more.   An  increase in the  cost of                                                               
debt  from 5  percent  to  6 or  7  percent erodes  TransCanada's                                                               
effective  return  on  equity,  given that  the  tariff  and  the                                                               
earnings  that TransCanada  is going  to get  from the  state are                                                               
stipulated  by  a  formula  that  uses 5  percent.    The  actual                                                               
financial  arrangements  could  also result  in  TransCanada  not                                                               
being able  to borrow as  much as anticipated, such  that instead                                                               
of 75 percent debt it is 70 or  65 percent.  The blue line at the                                                               
top of the graph represents  the formula TransCanada is hoping to                                                               
get:   75  percent debt,  25 percent  equity, 5  percent cost  of                                                               
debt, and in which TransCanada would  earn a 12 percent return on                                                               
its equity.   However, if TransCanada's cost of debt  climbs to 6                                                               
percent, its  effective return on  equity would be reduced  to 10                                                               
percent [green line],  and a 7 percent cost of  debt would reduce                                                               
its effective return  on equity to 8.5 percent [grey  line].  The                                                               
three lines on  the graph also show  that TransCanada's effective                                                               
return on  equity gets diluted  if its capital  structure changes                                                               
as  well,  since the  state  would  be  paying TransCanada  a  12                                                               
percent return on  25 percent of its investment.   If TransCanada                                                               
is  actually contributing  30 or  35  percent equity,  it is  not                                                               
earning  that 12  percent  return on  equity  on that  additional                                                               
contribution, which  brings down the effective  return on equity.                                                               
Addressing  slide  22,  entitled  "Does  TC  Bear  Any  Financial                                                               
Risk?",  Ms.  Poduval  said the  graph  shows  how  TransCanada's                                                               
anticipated net  present value  of about  $200 million  under the                                                               
formula is  eroded by either  a slippage in the  anticipated cost                                                               
of debt or a change in the anticipated capital structure                                                                        
2:46:10 PM                                                                                                                    
REPRESENTATIVE  HAWKER  said  he  is struggling  with  trying  to                                                               
figure out how slide 22 was  put together.  He understood what is                                                               
trying to  be shown --  that if  TransCanada's cost of  debt goes                                                               
up, its  effective return on  equity goes  down.  He  offered his                                                               
understanding that in the MOU  the State of Alaska has guaranteed                                                               
TransCanada a return on equity of  12 percent after tax, plus the                                                               
rate  tracker  differential,   regardless  of  how  TransCanada's                                                               
effective return on equity goes down.                                                                                           
MS. PODUVAL replied that, with  the rate tracker issue set aside,                                                               
the  state had  guaranteed  that  it will  pay  TransCanada a  12                                                               
percent return on equity for 25  percent of its investment in the                                                               
project.  A  5 percent cost of  debt will be paid  for 75 percent                                                               
of its project investment.                                                                                                      
REPRESENTATIVE  P. WILSON  requested  Ms. Poduval  to repeat  her                                                               
MS. PODUVAL explained  that the State of Alaska  is committing to                                                               
pay TransCanada  a return on equity  of 12 percent on  25 percent                                                               
of the investment in the project, as  well as a cost of debt of 5                                                               
percent on  75 percent of  its investment  in the project.   That                                                               
would  be paid  regardless of  any  change to  the variables  for                                                               
TransCanada.     Three  of  the   four  variables   could  change                                                               
independently:   the cost  of debt, the  amount of  investment as                                                               
debt, and the amount of investment  as equity.  Even should these                                                               
three change,  the State of Alaska  will still pay to  its agreed                                                               
amount.  The variable that would  be impacted would be the return                                                               
on  equity.   As long  as  the state  did not  change its  agreed                                                               
payment to  TransCanada, a change  to any of the  other variables                                                               
would bring a change to the return on equity.                                                                                   
2:49:20 PM                                                                                                                    
REPRESENTATIVE SEATON  directed attention  to slide 22  and asked                                                               
for clarification that  should the cost of debt increase  to 6 or                                                               
7  percent, or  the  debt-equity structure  actually change,  the                                                               
result could be a  negative $150 - $200 million.   At the time of                                                               
investment, either  change could affect the  TransCanada decision                                                               
to proceed, as TransCanada would be losing money.                                                                               
MS.  PODUVAL   confirmed  this  is  definitely   an  option  that                                                               
TransCanada would consider.                                                                                                     
REPRESENTATIVE   SEATON  stated   that   this   is  even   before                                                               
construction costs or delays are  considered, as these could also                                                               
affect the long term net present value (NPV).                                                                                   
MS.  PODUVAL concurred,  stating that  once the  final investment                                                               
decision (FID)  is taken  the off-ramps go  away and  everyone is                                                               
committed.  At  that point "you're married and  you're gonna live                                                               
together whether you like it or  not."  She pointed out that each                                                               
party would  review its financing  and its sales  agreements, and                                                               
determine  whether   to  commit   to  the  billions   of  dollars                                                               
2:51:20 PM                                                                                                                    
REPRESENTATIVE TARR pointed  out that the State of  Alaska has no                                                               
control over  other TransCanada  investments and  projects, which                                                               
will  ultimately  be reviewed  by  the  banks when  financing  is                                                               
requested.  She  asked how the state should  evaluate the project                                                               
for these  parameters which were  out of the state's  control but                                                               
have  the  potential  for  an  impact  to  the  project  and  its                                                               
financial obligations.                                                                                                          
MS.  PODUVAL   replied  that  each  of   the  different  parties,                                                               
including  TransCanada, have  to want  to do  this project.   She                                                               
noted that  TransCanada will also  be reviewing  other investment                                                               
alternatives  and  can exercise  an  off  ramp if  its  financial                                                               
strength is stretched  thin by other projects.  She  said that it                                                               
would be  prudent for the state  to be cognizant that  these off-                                                               
ramps exist, and  to plan accordingly.  She pointed  out that the                                                               
state can  maintain its involvement,  especially if  it exercises                                                               
its buyback.                                                                                                                    
2:53:06 PM                                                                                                                    
REPRESENTATIVE  SEATON surmised  that, should  Alaska get  to the                                                               
stage  where it  exercises the  buyback option  from TransCanada,                                                               
there  will no  longer  be  a pipeline  builder.   He  questioned                                                               
whether  it  is  necessary  that  the  full  project  state  that                                                               
TransCanada is the builder.                                                                                                     
MR. ABT  explained that, although  TransCanada will  not actually                                                               
be  the  constructor of  the  project,  it  will be  the  project                                                               
manager.   There  will be  an  additional decision  for who  will                                                               
operate  the pipeline  once service  commences.   He offered  his                                                               
understanding   that  the   process   will   solicit  bids   from                                                               
engineering,  procurement,   and  construction  (EPC)   firms  to                                                               
construct the pipeline and the gas  treatment plant (GTP).  It is                                                               
unclear as  to which partner  is responsible for each  segment of                                                               
the   project,  including   the  pipeline,   the  GTP,   and  the                                                               
liquefaction  project.   There  is  recognition that  TransCanada                                                               
would  be the  best  manager  of the  project  segment, and  this                                                               
expertise would be lost should  TransCanada withdraw.  He pointed                                                               
out that  the constructor  firm would  still be  in place,  but a                                                               
project partner would need to become the project manager.                                                                       
REPRESENTATIVE SEATON noted TransCanada is also the operator.                                                                   
MS. PODUVAL replied that this  will only impact the state portion                                                               
of the project for movement of  its gas.  The producers will have                                                               
their own commercial  terms for gas shipment, as they  each own a                                                               
percentage of  the project equivalent  to the amount of  gas they                                                               
need  to liquefy  and ship.   She  suggested the  producers could                                                               
create  a  midstream  that would  establish  upstream  commercial                                                               
terms,  or  they could  treat  this  as a  completely  integrated                                                               
project with no commercial terms.                                                                                               
2:56:44 PM                                                                                                                    
REPRESENTATIVE HAWKER drew attention  to the 12 percent after-tax                                                               
return on  equity provision in  the MOU,  Exhibit C, page  2, Key                                                               
Item 6.6.  He requested a definition of Initial System.                                                                         
MS. PODUVAL  deferred to the  Department of Law, but  offered her                                                               
opinion that  this distinguishes between the  initial project and                                                               
any subsequent expansions.                                                                                                      
REPRESENTATIVE  HAWKER requested  the  committee receive  further                                                               
clarification in this regard.                                                                                                   
2:58:14 PM                                                                                                                    
MS. PODUVAL  moved on  to slide  23, entitled  "Summary on  4 Key                                                               
Questions,"   to    summarize   the   discussion    relating   to                                                               
TransCanada's participation in the  project.  Regarding the first                                                               
question  of whether  there is  an economic  impact to  the state                                                               
from participation by  TransCanada, she said there will  be a net                                                               
cost to the state, especially with  regard to total cash flow and                                                               
whether  the state  exercises its  buyback  option.   From a  net                                                               
present value  perspective, there is marginal  impact from having                                                               
TransCanada  participate in  the project.   Regarding  the second                                                               
question of  whether the  state can  go it  alone, she  said that                                                               
from  an upfront  capital  investment perspective,  TransCanada's                                                               
participation  and partnership  in  the project  will reduce  the                                                               
state's  investment between  $4 and  $7 billion,  and would  keep                                                               
state  money available  for  other  purposes.   A  review of  the                                                               
state's ability  to finance the project  using general obligation                                                               
debt  shows  that, because  the  project  is  so large,  it  will                                                               
"really suck  up a lot"  of the  state's borrowing capacity.   By                                                               
having  a partner  the state  will spend  less and  make more  by                                                               
being able to afford a larger  stake in the project than it would                                                               
by going  alone and taking  a smaller stake  in the project.   In                                                               
regard to whether  TransCanada would be the  right partner, there                                                               
is  good  reason  why  TransCanada   would  be  a  good  partner.                                                               
TransCanada comes into  this project as a third  party that would                                                               
be aligned with  the state to create access  and enable expansion                                                               
on  the project  and allow  other non-North  Slope explorers  and                                                               
developers to  enter the project.   This is important  because it                                                               
is not a perspective that the producers will have.                                                                              
MS. PODUVAL,  continuing her summary  of slide 23,  addressed the                                                               
question of  whether TransCanada  is assuming financial  risks by                                                               
being in partnership  with the State of Alaska.   TransCanada has                                                               
made commitments to  the state on the commercial  terms that will                                                               
be used to  stipulate a formula to determine what  the state will                                                               
pay TransCanada.   A  change in  the financing  arrangements that                                                               
TransCanada actually  gets, relative  to what  it has  assumed it                                                               
will be able  to get, could erode TransCanada's  return from this                                                               
project and create risk for the company.                                                                                        
3:02:01 PM                                                                                                                    
REPRESENTATIVE  HAWKER offered  his belief  that, although  these                                                               
are benchmarked and established for  purposes of rate making with                                                               
the state, TransCanada could do  anything it wants internally and                                                               
could achieve a material improvement  in its financial situation.                                                               
Focusing on the negative for TransCanada is only half the story.                                                                
MS. PODUVAL agreed and said it  only determines what the state is                                                               
going to pay TransCanada, and  to the extent that TransCanada can                                                               
improve on that,  it could earn more.  She  added that 75 percent                                                               
debt  is a  fairly  aggressive assumption,  saying  it is  fairly                                                               
unlikely  TransCanada  could  improve  on  that  term.    Whether                                                               
TransCanada can  improve on  the 5  percent cost  of debt  it has                                                               
committed  to  is  dependent  on  the  market  and  TransCanada's                                                               
financial strength at the time.                                                                                                 
3:03:05 PM                                                                                                                    
MS. PODUVAL,  in response to  Representative Tarr,  disagreed the                                                               
state  is  taking  on  the  most risk  in  the  partnership  with                                                               
TransCanada; TransCanada  bears some  risk.   Under the  HOA, the                                                               
producers are  investing $3-$4  for every  dollar that  the state                                                               
invests.   Everyone has  skin in  this game  which was  almost by                                                               
design with the creation of alignment.                                                                                          
3:04:00 PM                                                                                                                    
REPRESENTATIVE KAWASAKI,  noting that  Black &  Veatch represents                                                               
the administration  in support of TransCanada's  participation in                                                               
the  project, asked  how legitimate  the off-ramp  is should  the                                                               
state decide not to maintain  the partnership.  Responding to Ms.                                                               
Poduval's request  for clarification,  he agreed there  is always                                                               
an element  of assumable risk. He  asked for assurance as  to the                                                               
legitimacy  of this  off-ramp as  presented, given  the state  is                                                               
already committed for an investment of at least $1 billion.                                                                     
MS.  PODUVAL responded  there are  two different  perspectives --                                                               
legally and commercially.  She  said she hopes the agreements are                                                               
well  enough written  to assure  that legally  the state  has the                                                               
availability of  those off-ramps.  Commercially,  the question is                                                               
whether the state  can exercise that off-ramp and  still be okay.                                                               
This is something  the state must be  vigilant about, recognizing                                                               
that TransCanada  can exercise  these off-ramps  as well  and not                                                               
participate in the project.  The  state must be able to react and                                                               
respond to continue its own participation in the project.                                                                       
REPRESENTATIVE KAWASAKI  understood the MOU requires  that if the                                                               
state goes  with a  new partner the  terms must  be substantially                                                               
similar to those with TransCanada.                                                                                              
MS.  PODUVAL deferred  to the  Department of  Law to  provide the                                                               
nuance behind those terms.                                                                                                      
3:07:03 PM                                                                                                                    
REPRESENTATIVE SEATON  posed a scenario  in which at the  time of                                                               
final investment decision the state  decides to have someone else                                                               
buy its 25 percent share of the  gas, as well as the upstream and                                                               
the liquefaction portions.  He  understood this is where the off-                                                               
ramp option would  be available to the state and  the state would                                                               
owe  TransCanada  its  cost  plus   the  interest.    He  further                                                               
understood that  TransCanada could also  leave should it  find it                                                               
will be underwater because the terms have changed.                                                                              
MS. PODUVAL believed  there is a fairly good  likelihood that the                                                               
state will  want to bring  in more  partners, and that  there are                                                               
many   prospective   parties   that  would   be   interested   in                                                               
participating  in  the  project  in addition  to  purchasing  the                                                               
state's  share of  the  LNG.   Of  late, it  is  a fairly  common                                                               
structure for  these LNG sales  agreements to have the  end user,                                                               
the buyer,  purchase the gas  as well as  an equity share  in the                                                               
project.   She said she does  not think there is  anything in the                                                               
MOU that  would preclude the  state from entering into  that type                                                               
of arrangement, and it is generally at the LNG plant.                                                                           
3:08:58 PM                                                                                                                    
CO-CHAIR FEIGE noted the committee  has not yet discussed how the                                                               
overall operational costs  are addressed by the state  as well as                                                               
by the other  partners.  He said he would  like for the committee                                                               
to get an  idea of the general types of  agreements and the level                                                               
of  complexity of  the major  agreements that  the state  will be                                                               
signing at the  end of Pre-FEED.  He further  noted the committee                                                               
has not yet discussed the  initial contract term of 25-years that                                                               
will happen  once the pipeline  is built  and operated.   The MOU                                                               
contains provisions  pertaining specifically  to what  happens at                                                               
the  end of  that  initial contract  term and  he  would like  an                                                               
update from the administration in this regard.                                                                                  
[CSSB 138(FIN) am was held over.]                                                                                               

Document Name Date/Time Subjects
HRES 3.26.14 Black & Veatch Presentation - TC.pdf HRES 3/26/2014 1:00:00 PM
SB 138