Legislature(2007 - 2008)TERRY MILLER GYM

06/09/2008 10:00 AM House RULES


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10:06:55 AM Start
10:09:57 AM HB3001|| SB3001
04:47:23 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB3001 APPROVING AGIA LICENSE TELECONFERENCED
Heard & Held
House Special Subcommittee on AGIA
Joint w/Sen Special Committee on Energy
Administration/TransCanada Presentations
                                                                                                                                
HB 3001-APPROVING AGIA LICENSE                                                                                                
SB 3001-APPROVING AGIA LICENSE                                                                                                
                                                                                                                                
CHAIR  HUGGINS  brought  SB  3001   and  HB 3001  before  the                                                                   
committees.                                                                                                                     
                                                                                                                                
       QUESTIONS AND REFERENCES TO PREVIOUS TESTIMONY                                                                         
    BY SPENCER HOSIE, ATTORNEY FOR HOSIE, MACARTHUR, LLP                                                                      
                                                                                                                                
PAT GALVIN, COMMISSIONER, DEPARTMENT  OF REVENUE, provided an                                                                   
overview  of the  proposed schedule  and  the Alaska  Gasline                                                                   
Inducement  Act  (AGIA)  requirements  through  the  existing                                                                   
authority  of   the  Federal  Energy  Regulatory   Commission                                                                   
(FERC).   He added that the  afternoon would be  dedicated to                                                                   
addressing issues  regarding the liquefied natural  gas (LNG)                                                                   
economics and success.                                                                                                          
                                                                                                                                
REPRESENTATIVE   ANNA   FAIRCLOUGH  referenced   a   previous                                                                   
statement  made by  Mr. Hosie  regarding the  Cook Inlet  gas                                                                   
profits,  which she  thought  had been  inaccurate.   He  had                                                                   
stated  that Alaska  could sell  the LNG  at whatever  profit                                                                   
rate they choose.                                                                                                               
                                                                                                                                
10:09:57 AM                                                                                                                   
                                                                                                                                
SPENCER   HOSIE,   ATTORNEY  FOR   HOSIE,   MACARTHUR.   LLP,                                                                   
acknowledged that he had misspoken.   He misunderstood that a                                                                   
federal judge  concluded such  authorization.  He  apologized                                                                   
that he had  misspoken; the correct answer is  that the State                                                                   
would have to sell at a Royalty-in-Value  (RIV) market level.                                                                   
They will  not be able to sell  at above or below  the market                                                                   
price.    He did  not  know  what  rights  the State  has  if                                                                   
producers  refused   to  sell  or   refused  to  sell   at  a                                                                   
competitive market price.                                                                                                       
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH  noted  that  the  general  public                                                                   
voiced the concern and that she  wanted them to know that the                                                                   
Legislature   works  within   a  "perimeter   of  the   law",                                                                   
especially  when dealing  with resources  in order that  they                                                                   
are equitably available to all Alaskans.                                                                                        
                                                                                                                                
She   referenced   previous  comments   regarding   producers                                                                   
bringing to market their gas on  reasonable commercial terms.                                                                   
She referenced  a letter  generated by  Exxon.  She  inquired                                                                   
about  the definition  of the  reasonable  terms, asking  who                                                                   
would decide what reasonable is  in order to avoid litigation                                                                   
with the Federal  Energy Regulatory Commission  (FERC) or the                                                                   
Court system.                                                                                                                   
                                                                                                                                
MR.  HOSIE  stated  that  in  the  event  that  a  negotiated                                                                   
resolution  is not  possible, although  the optimal  outcome,                                                                   
the  Superior Court  will address  that  concern.   Regarding                                                                   
what is reasonable,  the commercial aspect question  could be                                                                   
debated in great  length.  Case law suggests  that there must                                                                   
be some reasonable  amount of profitability.   The State does                                                                   
not have to guarantee  a rate of return of  35% (percent); he                                                                   
estimated the State could expect  a rate of return between 8%                                                                   
to 12%.                                                                                                                         
                                                                                                                                
10:14:17 AM                                                                                                                   
                                                                                                                                
SENATOR  BILL   WIELECHOWSKI  requested  further   discussion                                                                   
regarding the "duty to produce".                                                                                                
                                                                                                                                
MR.  HOSIE  explained it  would  be  a  duty to  produce  and                                                                   
market, turning  the resource  into cash-money.   Cycling the                                                                   
gas  through   the  reservoir   provides  no  cash   for  the                                                                   
resurfaced gas.   It would neither  be the production  of the                                                                   
resource nor  a royalty bearing  event.  The duty  to produce                                                                   
focuses on how the hydrocarbons yield dollars.                                                                                  
                                                                                                                                
SENATOR  WIELECHOWSKI directed  his  comments to  recommended                                                                   
remedies.  He  asked if the State should determine  a failure                                                                   
of duty to produce, would damages  then be limited to taking-                                                                   
back the leases and/or loss of revenue to the State.                                                                            
                                                                                                                                
MR. HOSIE  responded that both  remedies would  be available,                                                                   
yet he hoped to avoid such an  outcome.  The proposed process                                                                   
allows  the State to  receive answers  sooner, requiring  the                                                                   
producers more quickly take a position.                                                                                         
                                                                                                                                
SENATOR  WIELECHOWSKI  interjected  that  it is  a  dangerous                                                                   
position to be placed into, to  be put at risk for litigation                                                                   
that could last for years and  result in lost revenue for the                                                                   
State.                                                                                                                          
                                                                                                                                
MR. HOSIE acknowledged that it  is a high stakes risk for all                                                                   
parties.   Of course, the producers  want to own  and control                                                                   
the gas line on their terms.   He referenced the situation at                                                                   
Point Thompson.                                                                                                                 
                                                                                                                                
10:17:25 AM                                                                                                                   
                                                                                                                                
SENATOR THOMAS  WAGONER referred  to the previous  discussion                                                                   
regarding  royalties.    He  pointed  out  that  the  current                                                                   
regulations  were negotiated  over  30-years  ago, which  now                                                                   
amount to  a 12.5%  royalty.  He  questioned how  that number                                                                   
compares to current negotiated royalties.                                                                                       
                                                                                                                                
MR. HOSIE  explained that  the 12.5%  royalty was created  in                                                                   
1959 and  that under  current standards 12.5%  is a  very low                                                                   
rate.  Current  leasing percentages are at  least double that                                                                   
and around 25%.                                                                                                                 
                                                                                                                                
SENATOR WAGONER  encouraged that negotiations with  the major                                                                   
producers  begin,   given  the  "robust  potential"   of  the                                                                   
project.    Those  considerations  should  be  used  in  that                                                                   
determination.                                                                                                                  
                                                                                                                                
MR. HOSIE agreed, adding that  the State made a deal with the                                                                   
producers  in  the 1960's  and  that  the State  has  honored                                                                   
living with  a 12.5%  royalty even when  North Slope  oil has                                                                   
been  very prolific  and profitable  for the  producers.   He                                                                   
added, the producers have an obligation  to produce & market.                                                                   
                                                                                                                                
10:20:23 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  LES GARA  referenced  a  letter member's  had                                                                   
received from Exxon.   He emphasized that the  producers have                                                                   
a  duty  to produce  gas  and  that  they  can not  block  an                                                                   
independent gas pipeline  by not placing gas  into that line.                                                                   
He  acknowledged that  the producers  would  bring forward  a                                                                   
more formal  proposal  for the  gas line.   He questioned  if                                                                   
that information would undercut  the argument that the gas is                                                                   
not economic to produce.                                                                                                        
                                                                                                                                
MR. HOSIE  affirmed that if  the producers take  the position                                                                   
that a gas  line would be economic without  substantial State                                                                   
concessions,  then they  would have  the duty  to go  forward                                                                   
with the  project.  The  issue is whether  the State  will be                                                                   
expected to  "sweeten" the pot through  economic concessions.                                                                   
He acknowledged  that  the Exxon response  letter "moves  the                                                                   
ball  forward",  which he  believed  recognizes  the duty  to                                                                   
produce.  If the gas is profitable,  it cannot be ware-housed                                                                   
forever.                                                                                                                        
                                                                                                                                
10:24:14 AM                                                                                                                   
                                                                                                                                
SENATOR  HOLLIS FRENCH  acknowledged that  litigation is  not                                                                   
the preferred  course  of action, however,  he realized  that                                                                   
the other possibility of a failed  open-season in the face of                                                                   
high  natural  gas prices  and  no  bids,  could occur.    He                                                                   
inquired what would  be different in terms of  litigation, on                                                                   
a produced claim versus the Exxon-Valdez case.                                                                                  
                                                                                                                                
MR.  HOSIE  acknowledged  that  there could  be  a  resulting                                                                   
lawsuit,  causing a  "black-hole"  for Alaska;  however,  the                                                                   
manner in  which AGIA was written  does provide the  means to                                                                   
avoid such a lawsuit.   If a third party is  willing to build                                                                   
the  pipe line  and  the producer's  contest  that, it  would                                                                   
create a different  and a more simple remedy  and the subject                                                                   
to  that  production   of  the  gas,  should   be  reasonably                                                                   
economic.  The lawsuit would be  restricted to economics.  He                                                                   
reiterated that  AGIA allows the  State to bring a  short and                                                                   
simple  case and  that the  issue  then becomes  not be  "if"                                                                   
there  will be  a pipeline,  but  rather "when"  and on  what                                                                   
economic terms.                                                                                                                 
                                                                                                                                
10:27:42 AM                                                                                                                   
                                                                                                                                
SENATOR CON BUNDE predicted that  the moment TransCanada hits                                                                   
the Alberta line, court suits will result.                                                                                      
                                                                                                                                
MR.  HOSIE responded  that he  had  not studied  pre-existing                                                                   
liabilities and the prospect for litigation on that front.                                                                      
                                                                                                                                
10:28:36 AM                                                                                                                   
                                                                                                                                
SENATOR KIM  ELTON recalled that  Mr. Hosie had  indicated in                                                                   
previous  testimony   that  the  Alaska  North   Slope  (ANS)                                                                   
producers  want  to  own  and  control  the  gas  line.    He                                                                   
mentioned  the anti-trust  issues that  will result.  He more                                                                   
quickly  questioned what  will  happen if  the ANS  producers                                                                   
want an equity stake in the TransCanada-Alaska project.                                                                         
                                                                                                                                
MR.  HOSIE  explained  the risk  of  down-streaming  revenue,                                                                   
including a  production tax and  royalty load.   If producers                                                                   
can move the dollar  and take it down-stream as  a dollar for                                                                   
pipeline  profit, then  the profit  does not  pay royalty  or                                                                   
severance  tax.   The  shifting  occurs  when the  profit  is                                                                   
recognized between  the production business to  the pipeline,                                                                   
then the same line of revenue  becomes more valuable when the                                                                   
producers have taken it down-stream.   Down-streaming revenue                                                                   
has been the  subject of 20-years worth of  litigation in the                                                                   
lower 48-states.   He emphasized  that a producer  controlled                                                                   
pipeline could be  a "real" risk.  If the pipeline  is third-                                                                   
party controlled, the incentives are different.                                                                                 
                                                                                                                                
10:32:01 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE CARL  GATTO presented a scenario  in which the                                                                   
pipeline is built and in 10 years  time when the gas actually                                                                   
hits  the  grid,  the  price  of gas  is  $12  dollars.    He                                                                   
questioned how that could affect  the price in North America.                                                                   
                                                                                                                                
MR. HOSIE could not predict the effect to the cost of gas.                                                                      
                                                                                                                                
REPRESENTATIVE GATTO recognized  that the world will know the                                                                   
value  of the  new gas  when it  arrives.   He questioned  if                                                                   
there exists an  advantage to those that own the  gas to hold                                                                   
it back.                                                                                                                        
                                                                                                                                
MR.  HOSIE explained  it is  a  different question  regarding                                                                   
whether  Exxon  needs  the  gas  now, in  light  of  what  is                                                                   
happening with the worldwide production.   He reiterated that                                                                   
Alaska is a safe place to "warehouse" gas.                                                                                      
                                                                                                                                
10:36:20 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  RALPH  SAMUELS  referenced the  Amerada  Hess                                                                   
case that  lasted for  17 years.   He observed that  lawsuits                                                                   
take  a long  time and  that long  litigation  does not  help                                                                   
anyone.   He stated  that the  TransCanada proposal  does not                                                                   
offer shippers, the necessary  protection from cost overruns.                                                                   
The reality  is that  the more  the gas  costs, the  more the                                                                   
company makes.  Cost considerations must be addressed.                                                                          
                                                                                                                                
MR.  HOSIE acknowledged  that there  will be  a cost  overrun                                                                   
risk;  however,  he  understood  that  with  the  TransCanada                                                                   
proposal, the risk runs with the  shippers.  The end question                                                                   
remains  whether given  the  costs, does  it  continue to  be                                                                   
economic  to  ship it.    He  reiterated  the need  to  avoid                                                                   
litigation  adding that  royalty  agreements have  eliminated                                                                   
ongoing festering litigation with  oil companies as result of                                                                   
previous litigation.                                                                                                            
                                                                                                                                
10:40:26 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SAMUELS reiterated  that time  is not  on the                                                                   
State's side.  Governor Palin  believes that AGIA is the best                                                                   
process, but  many legislators  believe that  time is  of the                                                                   
greatest  concern.   He  commented that  both  the State  and                                                                   
TransCanada have put their "skin  in the game".  He asked how                                                                   
confident Mr. Hosie was that the  process would take only two                                                                   
to three  years.   He indicated  that the  State of  Alaska's                                                                   
economy can not "tolerate a ten year delay".                                                                                    
                                                                                                                                
MR. HOSIE emphasized that no lawyer  can guarantee how long a                                                                   
case will  take and that  the true test  of that would  be to                                                                   
ask if the lawyer  would be willing to take the  case on as a                                                                   
contingency-fee  basis.  The goal  is to encourage  producers                                                                   
to answer the questions regarding the economics.                                                                                
                                                                                                                                
10:44:05 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JAY RAMRAS  asked about  the loss of  liquids                                                                   
from failure to reinject on the North Slope.                                                                                    
                                                                                                                                
MR.  HOSIE  explained  from  a   duty-to-produce  and  market                                                                   
perspective,  the evidence  is  that the  gas has  to be  re-                                                                   
injected  to maintain  reservoir  pressure; it  would not  be                                                                   
economic to produce that gas now.   If it is not economic, no                                                                   
duty-to-produce exists.   The issue was not  addressed in the                                                                   
Stranded  Gas Act  negotiations  regarding  whether there  is                                                                   
sufficient gas and how the economic  value is determined.  He                                                                   
added that if  reservoir performance is a "red  light issue",                                                                   
why then does the Denali plan  exists.  He reiterated that if                                                                   
for  fact the  gas  can  not be  off-taken  and  must be  re-                                                                   
injected  to  maintain  reservoir   pressure  to  insure  oil                                                                   
condensate  production,  the gas  could  not be  economically                                                                   
produced.  Then there is no duty to produce it.                                                                                 
                                                                                                                                
10:48:21 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  RAMRAS understood this  is the situation  the                                                                   
State currently is  in at Pt. Thompson and that  is a failure                                                                   
in the duty of the producers.                                                                                                   
                                                                                                                                
MR. HOSIE  clarified that the  producers know  the reservoirs                                                                   
and have  internal documents  that capture those  conclusions                                                                   
on these  issues.   Under their  willingness to move  forward                                                                   
under  the  Stranded  Gas Development  Act  (SGDA)  and  with                                                                   
appropriate  concessions, indicates  that  the producers  own                                                                   
internal  analysis, suggests  that gas  reinjection and  high                                                                   
pressure  maintenance  is  not   a  gas  line  problem.    He                                                                   
encouraged    "trust,   but    to   verify"   all    business                                                                   
considerations.                                                                                                                 
                                                                                                                                
10:50:24 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   PAUL   SEATON    referenced   legal   duties                                                                   
stipulated in the AGIA proposal.                                                                                                
                                                                                                                                
MR. HOSIE encouraged that query be redirected.                                                                                  
                                                                                                                                
10:51:42 AM                                                                                                                   
                                                                                                                                
  AGIA-LEGISLATIVE SPECIAL SESSION, INCENTIVES & MANDATES                                                                     
           FOR PIPELINE EXPANSIONS, JUNE 9, 2008.                                                                             
                       (Copy on File)                                                                                           
                                                                                                                                
GREG  HOPPER,   BLACK  &  VEATCH,  addressed   the  expansion                                                                   
principle of the  pipeline, explaining that the  prospects of                                                                   
expansion bring  the State of  Alaska a great deal  of value.                                                                   
He  provided an  overview  of the  handout:  AGIA-Legislative                                                                   
Special   Session,  Incentives   &   Mandates  for   Pipeline                                                                   
Expansions, June 9, 2008.  [Copy on File].                                                                                      
                                                                                                                                
He pointed  out the  most important  provisions within  AGIA,                                                                   
address the expansion:                                                                                                          
                                                                                                                                
   ·    The bi-annual open season offerings, which allows                                                                       
       the shippers to plan and reduce risk premiums;                                                                           
   ·    Capital structure certainty, which helps to lower                                                                       
        the rates for the shippers; and                                                                                         
   ·    The rolled-in rates, which share the benefits of                                                                        
       scale economics and levels the playing field.                                                                            
                                                                                                                                
SENATOR HUGGINS  inquired if Mr.  Hopper intended  to address                                                                   
in detail, the capital structure certainty.                                                                                     
                                                                                                                                
MR. HOPPER advised that capital  structure is regarded as the                                                                   
combination  of  debt and  equity  within  the project.    As                                                                   
required  by AGIA,  the capital  structure  for the  original                                                                   
bill was  70% debt and 30%  equity.  For the  projects moving                                                                   
forward,  TransCanada (TC)  has proposed  that the  expansion                                                                   
would be  compromised of  a 60%  debt, 40% equity  component.                                                                   
He maintained that if there were  a third party shipper, they                                                                   
would want to know the potential  rate of the project and the                                                                   
capital structure.                                                                                                              
                                                                                                                                
SENATOR HUGGINS  questioned which percentage  structure would                                                                   
prevail.                                                                                                                        
                                                                                                                                
MR.  HOPPER  responded  that TransCanada  had  submitted  the                                                                   
60%/40%.  He could not comment further.                                                                                         
                                                                                                                                
MR. HOPPER  noted the benefit  to the shippers,  which allows                                                                   
them  to  plan  the  drilling   and  exploration  for  future                                                                   
production activities.   He defined the difference  between a                                                                   
producer on  the pipeline and  involvement by a  third party.                                                                   
The producer is the one that is  substantially controlled by,                                                                   
operated  or owned  by a  producer,  as compared  to a  joint                                                                   
venture or independently owned project.                                                                                         
                                                                                                                                
MR. HOPPER continued:                                                                                                           
                                                                                                                                
Development includes:                                                                                                         
                                                                                                                                
     Cost controls                                                                                                              
     Operating control, including a seat at the table                                                                           
     Capacity certainty                                                                                                         
     Expansion timing                                                                                                           
     Strategic involvement                                                                                                      
                                                                                                                                
Expansion includes:                                                                                                           
                                                                                                                                
     Outlet for increased equity production                                                                                     
                                                                                                                                
MR. HOPPER discussed  the concept of investing for  a rate of                                                                   
return;  that  information  had  not  been  included  in  the                                                                   
handout.  Inter-state  pipeline companies as  a general rule,                                                                   
make less  money than  the producers do.   The producers  and                                                                   
shareholders  expect higher  rates of  returns.  Research  in                                                                   
inter-state  owned  pipelines  indicates little  evidence  of                                                                   
producer owned  expansions.  He acknowledged  that there have                                                                   
been questions  raised regarding  the relative comparison  of                                                                   
producer-owned  pipelines  to the  entirety  of pipelines  in                                                                   
North America.                                                                                                                  
                                                                                                                                
11:02:06 AM                                                                                                                   
                                                                                                                                
MR.  HOPPER  pointed  out  seven  producer  owned  pipelines,                                                                   
measuring  a capacity  between  3.5 -  8  billion cubic  feet                                                                   
(bcf)  per day.    Each of  those  seven had  some  producer-                                                                   
ownership  interest  or was  developed  by producers.    When                                                                   
comparing  that  number  to  the  total  deliverability,  the                                                                   
inter-state pipeline  grid becomes approximately  149 bcf per                                                                   
day.   By and large, producers  do not invest  in inter-state                                                                   
pipelines  and  of the  pipelines  where producers  hold  the                                                                   
majority interest, no expansions  were found as proposed.  He                                                                   
continued  of  the  149  bcf   per  day  delivering  pipeline                                                                   
capacity,  serves   about  50-70   bcf  per  day   of  actual                                                                   
consumption in the United States  (U.S.), which implies there                                                                   
is more pipeline  capacity needed either up-stream  or at the                                                                   
city delivery points.                                                                                                           
                                                                                                                                
11:04:29 AM                                                                                                                   
                                                                                                                                
SENATOR HOLLIS  FRENCH requested  a memorandum including  the                                                                   
aforementioned  figures.   He pointed  out that  there is  no                                                                   
example   of   a  producer-built   pipeline,   expanding   to                                                                   
accommodate for  a third-party shipper, which  is a "sobering                                                                   
consideration" for Alaska.                                                                                                      
                                                                                                                                
11:05:42 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE MIKE  KELLY commented on cost  controls if one                                                                   
of the stipulations  for producers was requesting  an initial                                                                   
equity ownership; he asked the statistics.                                                                                      
                                                                                                                                
MR. HOPPER provided two examples:                                                                                               
                                                                                                                                
   ·    The Alliance Pipeline project, internationally                                                                          
        proposed and developed largely by the producers; and                                                                    
   ·    The Destined Pipeline built for off-shore projects                                                                      
        in Mexico, tying into the inter-state pipeline and                                                                      
        essentially backed by producers in the eastern Gulf                                                                     
        of Mexico.                                                                                                              
                                                                                                                                
REPRESENTATIVE  KELLY  inquired  if such  an  argument  could                                                                   
provide an  equity position to  the producers for a  "seat at                                                                   
the table".                                                                                                                     
                                                                                                                                
MR. HOPPER agreed that could happen.                                                                                            
                                                                                                                                
11:09:00 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   BERTA   GARDNER    requested   clarification                                                                   
regarding a  previous statement addressing two  expansion and                                                                   
access proposals associated with the Denali project.                                                                            
                                                                                                                                
MR.  HOPPER  responded  that   AGIA  provides  certainty  for                                                                   
expansion, which does not pertain to the Denali project.                                                                        
                                                                                                                                
SENATOR HUGGINS  inquired if the  Denali provisions  had been                                                                   
carried over.                                                                                                                   
                                                                                                                                
11:11:40 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SAMUELS   questioned  if  any   producer  had                                                                   
turned-down opportunities  for expansion  of third  party gas                                                                   
or if the market place had led to those decisions.                                                                              
                                                                                                                                
MR. HOPPER was  not aware of any expansions,  negotiations or                                                                   
projects,  which  lead  to expansion.    The  Federal  Energy                                                                   
Regulatory   Commission   (FERC)   website   only   indicates                                                                   
expansions currently planned.                                                                                                   
                                                                                                                                
REPRESENTATIVE  SAMUELS  observed  that the  Alaska  pipeline                                                                   
would  be  a "monopoly".    There  are  federally  guaranteed                                                                   
protections now in  place.  He asked if that  was an accurate                                                                   
characterization.                                                                                                               
                                                                                                                                
11:13:34 AM                                                                                                                   
                                                                                                                                
DON  SHEPLER, CONSULTANT,  GREENBERG TRAURIG,  noted that  he                                                                   
would later address the expansion  provisions as contained in                                                                   
the 2004  Statute.   He agreed  with the  assessment made  by                                                                   
Representative Samuels.  There  is a network happening within                                                                   
the lower  48 pipelines and  with the existing  provisions in                                                                   
federal  law,  it  provides  FERC  the  authority  to  compel                                                                   
expansion.   An expansion  right does  not necessarily  offer                                                                   
comfort to a potential shipper.                                                                                                 
                                                                                                                                
MR.  HOPPER  interjected that  he  had  not spoken  with  the                                                                   
Denali producers  and did not know if the  Administration had                                                                   
already had that conversation.                                                                                                  
                                                                                                                                
MARTY RUTHERFORD, DEPUTY COMMISSIONER,  DEPARTMENT OF NATURAL                                                                   
RESOURCES,  noted  that  she   had  spoken  with  the  Denali                                                                   
producers.   She  indicated  that ConocoPhillips  has  stated                                                                   
that they  would not  be available  for third party  enhanced                                                                 
open-access provisions of AGIA.   She offered to follow up on                                                                   
that conversation with the Denali group.                                                                                        
                                                                                                                                
11:16:13 AM                                                                                                                   
                                                                                                                                
SENATOR WAGONER  recommended a description of  the advertised                                                                   
differences for the public's information.                                                                                       
                                                                                                                                
MR.  HOPPER  focused  on  the   inter-state  pipeline  arena,                                                                   
regulated by  the FERC and  inter-state commerce.   There are                                                                   
also "intra-state" pipelines that  are not regulated by FERC.                                                                   
Producers  now do  operate and  flow  on those  systems.   He                                                                   
noted his comments relate only  to returns on equity and only                                                                   
on the inter-state pipelines.                                                                                                 
                                                                                                                                
11:18:29 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE MIKE HAWKER observed  that the issues have not                                                                   
changed  over the  past six  years with  regard to  ownership                                                                   
expansion and restrictions on  that expansion.  He questioned                                                                   
if  there exists  stranded  gas from  refusal  of a  producer                                                                   
pipeline to seek expansion.                                                                                                     
                                                                                                                                
MR. HOPPER did not know.                                                                                                        
                                                                                                                                
11:20:11 AM                                                                                                                   
                                                                                                                                
SENATOR  HUGGINS  referenced cost  controls.    He asked  for                                                                   
information on those controls  that apply to TransCanada with                                                                   
regard to other producers.                                                                                                      
                                                                                                                                
MR. HOPPER indicated that the  primary point is that if there                                                                   
is a "seat  at the table";  hopefully, it provides  a greater                                                                   
measure of  certainty that the  cost of the project  would be                                                                   
driven  by design  and  construction  and then  provide  some                                                                   
certainty of the best price.                                                                                                    
                                                                                                                                
11:22:06 AM                                                                                                                   
                                                                                                                                
MR.  HOPPER  reviewed Slide  3:  Pipeline  V &  the  Producer                                                                   
Returns on Equity.   He observed that gas  pipeline regulated                                                                   
rates of "return  on equity" (ROE) generally  recognize lower                                                                   
levels of operating risks than  other industries.  The slated                                                                   
proposals   on  inter-state   pipelines   before  the   FERC,                                                                   
generally ranged  around 14%  or less on  ROE's.   After that                                                                   
experience, FERC  lowered the ROE's based on  subsequent rate                                                                   
cases.   In a  contract, exploration  and production  company                                                                   
shareholders require relatively  higher (15% - 20%+) ROE's to                                                                   
compensate for higher perceived risks.                                                                                          
                                                                                                                                
11:23:59 AM                                                                                                                   
                                                                                                                                
MR. HOPPER  discussed Slide  5:   What a producer  pipeline's                                                                   
incentive is to expand pipeline capacity for non-owners.                                                                        
                                                                                                                                
   ·    ROE's typically will not meet a producer's required                                                                     
        rates of return on capital;                                                                                             
   ·    Potential for increased competition in lease                                                                            
        acquisitioned reserves development;                                                                                     
  ·    Call on capital that is needed for other purposes;                                                                       
   ·    It is not what they want to do; (core competence)                                                                       
        and                                                                                                                     
   ·    Regulatory complications.                                                                                               
                                                                                                                                
11:25:53 AM                                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  questioned any producer's  incentive to                                                                   
build a pipeline.                                                                                                               
                                                                                                                                
MR. HOPPER  referenced Slide 4.   He indicated that  once the                                                                   
project is  complete, the dynamic  changes.  The  dynamic for                                                                   
expansion  does  not  carry  the  same  stipulations  as  the                                                                   
initial build makes.                                                                                                            
                                                                                                                                
11:27:07 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GARA referenced  basin control, pointing  out                                                                   
two competing projects:                                                                                                         
                                                                                                                                
   ·    TransCanada line, and                                                                                                   
   ·    One proposed by the producers.                                                                                          
                                                                                                                                
He asked  if it was  fair to assume  that the pipeline  would                                                                   
provide  a  lower  rate  of return  than  the  producers  are                                                                   
accustomed to.   If they did  decide to build a  pipeline, it                                                                   
would be so that they could control the basin.                                                                                  
                                                                                                                                
MR. HOPPER  acknowledged that could  be one of  the strategic                                                                 
reasons.                                                                                                                        
                                                                                                                                
11:28:18 AM                                                                                                                   
                                                                                                                                
SENATOR HUGGINS questioned if  producers commit to a two-year                                                                   
time frame, could that change the presentation.                                                                                 
                                                                                                                                
MR.  HOPPER  stated  if the  producers  committed,  it  would                                                                   
improve  the certainty  of other investors  operating  on the                                                                   
slope, leaving  unanswered the questions regarding  the terms                                                                   
of the expansion.                                                                                                               
                                                                                                                                
11:30:01 AM                                                                                                                   
                                                                                                                                
PAT GALVIN,  COMMISSIONER, DEPARTMENT  OF REVENUE,  clarified                                                                   
that  the million  barrels per  day (mbpd)  analysis and  the                                                                   
discussion on  the presentation would be addressed  during an                                                                   
upcoming scheduled meeting.                                                                                                     
                                                                                                                                
11:30:44 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER  summarized  that the  argument  comes                                                                   
down  to  what  the alternative  and  regulatory  process  is                                                                   
needed to protect Alaska's interest.   There are two sides to                                                                   
that question:                                                                                                                  
                                                                                                                                
   ·    One clarifies that the federal regulatory process is                                                                    
        sufficient to look out for all parties, and                                                                             
   ·    The other indicates that they are not able to                                                                           
        protect the State's interest.                                                                                           
                                                                                                                                
11:32:34 AM                                                                                                                   
                                                                                                                                
SENATOR LYDA GREEN inquired if  there would be a time-certain                                                                   
when a mandatory open-season was inappropriate.                                                                                 
                                                                                                                                
MR.  HOPPER  acknowledged  there  would be  times  when  that                                                                   
system wouldn't work.  He added  that he was not aware of any                                                                   
mandatory open-seasons existing in the lower 48 states.                                                                         
                                                                                                                                
SENATOR GREEN  asked if  there was a  way-out of  a mandatory                                                                   
open-season every two years.                                                                                                    
                                                                                                                                
MR.   SHEPLER  explained   that   the  Alaska   Natural   Gas                                                                   
Transportation  Act  (ANGTA)   enacted  in  2004,  refers  to                                                                   
mandatory   open-seasons   proceeding  forward   under   that                                                                   
authority, accompanied  with responsibilities.   There  are a                                                                   
number of conditions that FERC  needs to satisfy and a number                                                                   
of  legal  risks  for  anyone  attempting  to  rely  on  that                                                                   
statutory authority to obtain an expansion of the pipeline.                                                                     
                                                                                                                                
He  added  that the  provision  contained  in AGIA  that  the                                                                   
licensee will conduct an open-season  every two years is that                                                                   
it  would be  a voluntary  and  not mandated  by the  federal                                                                   
statutes.  Except for the federal  statutes, which allows for                                                                   
FERC to compel  expansion of the Alaskan pipeline,  the rules                                                                   
do not authorize  a pipeline company to accept  any contracts                                                                   
requiring  them to  expand once  the contract  is in  affect.                                                                   
Once  the pipeline  is  built  and is  in service,  the  only                                                                   
vehicle  would be  for them to  wait for  those contracts  to                                                                   
expire.  For an  oil pipeline, expansion is not  a big issue.                                                                   
He observed that the difference  rests in the interpretation.                                                                   
                                                                                                                                
SENATOR  GREEN  stated  that response  did  not  clarify  her                                                                   
inquiry.  She  recommended providing members  a "glossary" to                                                                   
spell out the differences.                                                                                                      
                                                                                                                                
11:38:53 AM                                                                                                                   
                                                                                                                                
SENATOR GREEN  inquired if Ms. Rutherford had  been referring                                                                   
to the AGIA open-season.                                                                                                        
                                                                                                                                
DEPUTY  COMMISSIONER RUTHERFORD  explained that  she had  not                                                                   
directed her  comments specifically to an  "open-season"; the                                                                   
AGIA  open-season   provisions  are  a  requirement   of  the                                                                   
licensee soliciting new gas.   If quick gas exists, the State                                                                   
would  respond  by  quick  expansion.    Previous  discussion                                                                   
revolved around  the commercial  terms regarding  open-access                                                                   
provisions  such as 30%  equity position  and expansion  with                                                                   
rolled-in  rates.     Expansion  was  not  addressed   as  an                                                                   
individual element.                                                                                                             
                                                                                                                                
11:42:53 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   KELLY  referred   to   access  issues   with                                                                   
relationship   to  the  major   producer's  intent   on  such                                                                   
developments.                                                                                                                   
                                                                                                                                
SENATOR  HUGGINS   acknowledged  that  all   legislators  are                                                                   
supportive  of  exploration  and  oil  being  placed  into  a                                                                   
delivery system as soon as possible.                                                                                            
                                                                                                                                
11:45:06 AM                                                                                                                   
                                                                                                                                
  AGIA - PRODUCER INCENTIVES TO EXPAND PIPELINE FOR THIRD-                                                                    
                       PARTY SHIPPERS                                                                                         
                       (Copy on File)                                                                                           
                                                                                                                                
DON  SHEPLER,   ATTORNEY,  GREENBURG  TRAURIG,   related  his                                                                   
background and  experience representing  the industry.   With                                                                   
regard  to  expansion,   he  noted  that  the   interests  of                                                                   
producers  are  not  necessarily  inline with  those  of  the                                                                   
State.   He acknowledged  the other motives.   He  provided a                                                                   
handout:  "AGIA - Producer Incentives  to Expand Pipeline for                                                                   
Third-Party Shippers"                                                                                                           
                                                                                                                                
MR.  SHEPLER referenced  Slide  2, a  quote  by the  Attorney                                                                   
General  to  U.S.   Congress  pursuant  to  the   Alaska  Gas                                                                   
Transportation Act.                                                                                                             
                                                                                                                                
MR.   SHEPLER  identified   Slide   3,   the  "Stranded   Gas                                                                   
Development Act (SDGA) History."                                                                                                
                                                                                                                                
   ·    Draft SGDA contract included the 10 Alaska Natural                                                                      
        Gas Pipeline Act (ANGPA) requirements for expansion                                                                     
        and added 20 more conditions;                                                                                           
   ·    Explorers objected that they were better off with no                                                                    
        contract expansion terms; and                                                                                           
   ·    Draft limited liability company (LLC) agreement                                                                         
        provided that pipeline board representatives owed                                                                       
        fiduciary duties not to the pipeline but to                                                                             
        producers that appointed them.                                                                                          
                                                                                                                                
11:49:40 AM                                                                                                                   
                                                                                                                                
SENATOR HUGGINS requested that  Mr. Shepler provide a list of                                                                   
the explorers referred to in Slide 2.                                                                                           
                                                                                                                                
11:49:54 AM                                                                                                                   
                                                                                                                                
MR. SHEPLER  referred  to Slide  4, the "AGIA  History".   He                                                                   
noted that  ConocoPhillips alternative proposal  provided for                                                                   
expansion  at higher  costs  to the  new  shippers than  AGIA                                                                   
basically  requires.     The  Denali  proposal   provides  no                                                                   
expansion  commitments.     He  maintained  that   there  are                                                                   
incentives  and  motivations and  that  in a  producer  owned                                                                   
pipeline,  they would  not be  as motivated  to expand  their                                                                   
capacity to make room for up-stream  competitive explorers of                                                                   
other pipelines.                                                                                                                
                                                                                                                                
11:52:08 AM                                                                                                                   
                                                                                                                                
SENATOR BERT  STEDMAN asked if  there was enough  information                                                                   
available  on  the  Denali  project  to be  able  to  make  a                                                                   
reasonable comparison.                                                                                                          
                                                                                                                                
MR.  SHEPLER  explained  that   at  this  point,  the  Denali                                                                   
proposal consists  only of a twelve point  power presentation                                                                   
outline.  That is all that is presently available.                                                                              
                                                                                                                                
DEPUTY  COMMISSIONER   RUTHERFORD   commented  that   in  her                                                                   
conversation  with Denali, she  was not  aware that  they had                                                                   
accepted the AGIA  enhanced access provisions.   However, she                                                                   
did have a  conversation regarding additional  information to                                                                   
the State for the proposal and  the commercial structure; the                                                                   
information was not available.                                                                                                  
                                                                                                                                
SENATOR  STEDMAN asked  if it  was fair to  assume that  they                                                                   
would be  able to  come forward with  a reasonable  amount of                                                                   
information to  make the comparison.   He referenced  Page 5,                                                                   
Paragraph 4, addressing that.                                                                                                   
                                                                                                                                
MR.  HOPPER questioned  the  type  of comparisons  the  State                                                                   
would like to make.   One of the comparisons is  in regard to                                                                   
whether  or  not  the  applications  made  and  submitted  by                                                                   
TransCanada  were complete.   He asked  for more  specificity                                                                   
regarding those comparisons.                                                                                                    
                                                                                                                                
SENATOR STEDMAN  commented that "reasonable"  comparisons are                                                                   
the operative  word  and that  the report is  over 300  pages                                                                   
long.                                                                                                                           
                                                                                                                                
11:56:14 AM                                                                                                                   
                                                                                                                                
SENATOR  KIM  ELTON  questioned  how  binding  the  two  year                                                                   
requirement for an open-season could become.                                                                                    
                                                                                                                                
MR. SHEPLER responded  the requirements of AGIA  require that                                                                   
they conduct  the solicitations of interest  and additionally                                                                   
require  that the  pipeline expand  in reasonable  increments                                                                   
and commercially safe terms.                                                                                                    
                                                                                                                                
SENATOR ELTON  stated that given that information,  there are                                                                   
various  scenarios  in  which  the State  can  be  reasonably                                                                   
confident  that there  could be an  open-season occurring  at                                                                   
least  every  two years.    He  asked  if the  definition  of                                                                   
"reasonable" resides only with the pipeline companies.                                                                          
                                                                                                                                
MR. SHEPLER  replied yes,  pointing out  that an  independent                                                                   
pipeline  company  could  have every  economic  incentive  to                                                                   
expand.                                                                                                                         
                                                                                                                                
SENATOR ELTON anticipated a scenario  of a partnership equity                                                                   
owner in the pipeline.                                                                                                          
                                                                                                                                
MR. SHEPLER  confirmed that  possible scenario; however,  the                                                                   
AGIA license  requirements would  continue regardless  of the                                                                   
ultimate ownership of the TransCanada-Alaska line.                                                                              
                                                                                                                                
SENATOR   ELTON  believed   it   comes  back   to  the   term                                                                   
"reasonable".                                                                                                                   
                                                                                                                                
12:00:53 PM                                                                                                                   
                                                                                                                                
SENATOR  WIELECHOWSKI  referred  to the  concerns  previously                                                                   
voiced  by the Attorney  General regarding  a producer  owned                                                                   
pipeline.                                                                                                                       
                                                                                                                                
MR. SHEPLER agreed it could be  an issue, which impacts their                                                                   
ability to get the necessary licensing.                                                                                         
                                                                                                                                
12:02:03 PM                                                                                                                   
                                                                                                                                
SENATOR  WIELECHOWSKI  wondered  if the  licensing  would  be                                                                   
denied as  the producers attempt  to move forward  to qualify                                                                   
for the FERC certification.                                                                                                     
                                                                                                                                
MR. SHEPLER  did not think  so; however, a  producer-pipeline                                                                   
that goes to the  FERC for a certificate, will  be subject to                                                                   
a different  set of  competitive issues.   That could  prompt                                                                   
the FERC  to attach  separate conditions  on any  certificate                                                                   
for that project.                                                                                                               
                                                                                                                                
12:03:20 PM                                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  asked what would be FERC's  role in the                                                                   
process if  TransCanada received  the license, moved  forward                                                                   
towards  certification  and then  attempted  to get  majority                                                                   
ownership by the producer.                                                                                                      
                                                                                                                                
MR. SHEPLER  did not  expect that  FERC would  do that.   The                                                                   
AGIA license  could survive  a change in  ownership.   If the                                                                   
company becomes  a producer-owned  project, the ownership  at                                                                   
that time could prompt other conditions.                                                                                        
                                                                                                                                
12:04:50 PM                                                                                                                   
                                                                                                                                
SENATOR HUGGINS  asked Mr. Shepler  to provide a copy  of the                                                                   
above referenced letter.  He mentioned  the qualifications on                                                                   
the FERC certificate.                                                                                                           
                                                                                                                                
MR. SHEPLER  stated that  he would not  be surprised  if FERC                                                                   
placed conditions on a certificate.                                                                                             
                                                                                                                                
RECESSED:      12:05:37 PM                                                                                                    
RECONVENED:    1:41:06 PM                                                                                                     
                                                                                                                                
                                                                                                                                
               ADMINISTRATION AND TRANSCANADA                                                                                 
                                                                                                                                
[TECHNICAL DIFFICULTIES]                                                                                                        
                                                                                                                                
COMMISSIONER  GALVIN  explained  that the  afternoon  session                                                                   
would consist of presentations  submitted by Ms. Buretta, Mr.                                                                   
Johns and Ms. Otte.  He introduced the speakers.                                                                                
                                                                                                                                
SHERI  BURETTA, PRESIDENT,  ALASKA  NATIVE CLAIMS  SETTLEMENT                                                                   
ACT  (ANCSA)  REGIONAL  ASSOCIATION   AND  CHAIRMAN,  CHUGACH                                                                   
ALASKA  CORPORATION,  PRINCE  WILLIAM  SOUND,  expressed  her                                                                   
gratitude  to be representing  the ANCSA.   Last year,  ANCSA                                                                   
passed legislation  supporting  the expedited development  of                                                                   
natural gas.                                                                                                                    
                                                                                                                                
She  pointed out  the  national need  for  oil, which  create                                                                   
pressure  for her  people.   She  noted  that Prince  William                                                                   
Sound has  stepped up, aware  of their possible  contribution                                                                   
to that  need.  She emphasized  that Native corporations  are                                                                   
"coming into their own" and have  the ability to take control                                                                   
of the  resources  and develop  them for all  Alaskans.   She                                                                   
indicated that the Native Corporations  are supportive of the                                                                   
Legislature  and want  to  be a  part of  the  process.   She                                                                   
interjected that high prices are an issue for rural areas.                                                                      
                                                                                                                                
1:48:43 PM                                                                                                                    
                                                                                                                                
KEN JOHNS,  PRESIDENT AND  CEO, AHTNA  INC., stated  that the                                                                   
pipeline  moves through  four villages  in his  area.   Ahtna                                                                   
Inc.  is  an  experienced  company and  has  a  history  with                                                                   
pipelines.  He thanked the Legislature  and was encouraged by                                                                   
the work  done during  recent  years.  He  realized there  is                                                                   
statewide   opportunity,   however,  noted   the   unanswered                                                                   
questions remaining  on the table.   He understood  that some                                                                   
of the questions could not be  answered until the project was                                                                   
under  way.    He  encouraged  members  to  look  closely  at                                                                   
TransCanada.                                                                                                                    
                                                                                                                                
1:52:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   NANCY  DAHLSTROM   addressed  First   Nation                                                                   
issues,  asking  if Mr.  Johns  was  confident to  work  with                                                                   
TransCanada.                                                                                                                    
                                                                                                                                
MR.  JOHNS  replied  that  his  area  has  worked  well  with                                                                   
pipeline producers  over all these years,  acknowledging that                                                                   
they could  have done better,  now, there has been  more time                                                                   
and experience addressing the issues.                                                                                           
                                                                                                                                
1:54:04 PM                                                                                                                    
                                                                                                                                
MS. BURETTA  commented that part  of the land  settlement act                                                                   
provides private  land to the  Alaska Natives.   She believed                                                                   
that   the  process   provides  more   opportunity  in   land                                                                   
development.     The  First  Nation  groups   in  Canada  are                                                                   
different from those  living in Alaska.  She  emphasized that                                                                   
Alaska  Natives   have  taken   advantage  of   opportunities                                                                   
provided by the federal government.                                                                                             
                                                                                                                                
1:55:47 PM                                                                                                                    
                                                                                                                                
SENATOR JOE THOMAS asked if their  associations had discussed                                                                   
issues such as  the propane off-take in areas  like the Yukon                                                                   
River.                                                                                                                          
                                                                                                                                
MS. BURETTA affirmed  that they had and that  the accesses to                                                                   
the  spurs were  of  greatest interest.    Those regions  are                                                                   
"excited" about the opportunities.                                                                                              
                                                                                                                                
1:57:13 PM                                                                                                                    
                                                                                                                                
SENATOR THOMAS  questioned if  the Village areas  intended to                                                                   
bid on the work associated with the contracts.                                                                                  
                                                                                                                                
MS. BURETTA  explained that each  of the Native  corporations                                                                   
are   competitors,  yet   they   work  collectively.      The                                                                   
opportunities  and training for  rural Alaskans  are enormous                                                                   
in terms of contracts and jobs  and that each organization is                                                                   
discussing participation.                                                                                                       
                                                                                                                                
1:58:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BETH KERTTULA questioned  if equity  had been                                                                   
discussed.                                                                                                                      
                                                                                                                                
MR. JOHNS  responded that  those are internal  Administration                                                                   
talks; those  considerations had been addressed  during talks                                                                   
with past members of the Murkowski Administration.                                                                              
                                                                                                                                
2:03:09 PM                                                                                                                    
                                                                                                                                
SENATOR WAGONER  inquired the  type of certification  granted                                                                   
through FERC.                                                                                                                   
                                                                                                                                
MR. SHEPLER  indicated that  it is not  uncommon for  FERC to                                                                   
issue a conditional  certificate, providing  authorization to                                                                   
do the project, fulfilling the  other conditions set forth in                                                                   
the certificate.  He anticipated  that a project with Alberta                                                                   
would need to have  arrangements in place, to get  the gas to                                                                   
the border and would be included as a condition.                                                                                
                                                                                                                                
SENATOR  WAGONER understood  that when  a company receives  a                                                                   
certificate from FERC for the  pipeline, they could then book                                                                   
the reserves.   He inquired if a company would  be allowed to                                                                   
do that if having only a "conditional" certificate.                                                                             
                                                                                                                                
MR. SHEPLER did not know.                                                                                                       
                                                                                                                                
2:06:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SAMUELS  indicated   his  frustration   with                                                                   
testimony  provided  by  Mr.  Shepler.    He  referred  to  a                                                                   
technical  session held  in Anchorage  regarding FERC's  2005                                                                   
public rulings.   He maintained that FERC has  more influence                                                                   
over the expansion and building  of the pipeline and Alaska's                                                                   
future.   During that technical  session, the items  that the                                                                   
Legislature  requested   were  included  -  each   point  was                                                                   
included.                                                                                                                       
                                                                                                                                
He maintained  that the  fundamental issue  is that  the FERC                                                                   
has  tremendous  influence and  that  the State  did  receive                                                                   
everything asked for.   The protections were put  in place in                                                                   
2005; to hear  that now, nothing has changed  on those issues                                                                   
but that those points are not now good enough.                                                                                  
                                                                                                                                
MR.  SHEPLER pointed  out  that  in the  Lower  48, the  more                                                                   
sophisticated  pipeline  customers  are  moving  more  toward                                                                   
negotiated  rates.   He stated  that the State  has a  unique                                                                   
opportunity  to ensure  that the FERC  regulatory process  is                                                                   
made available  for the project.   In some aspects,  however,                                                                   
FERC  cannot be  relied  upon.   He cited  capital  structure                                                                   
issues as an example.                                                                                                           
                                                                                                                                
REPRESENTATIVE  SAMUELS reiterated  that Alaska had  received                                                                   
every point that had been requested in 2005 with FERC.                                                                          
                                                                                                                                
2:12:50 PM                                                                                                                    
                                                                                                                                
SENATOR HUGGINS  inquired if Mr.  Shepler had been a  part of                                                                   
the process referenced by Representative Samuels.                                                                               
                                                                                                                                
MR. SHEPLER  replied he had not;  he had been an  advisor for                                                                   
the  Legislative Budget  and Audit  (LBA)  Committee at  that                                                                   
time.                                                                                                                           
                                                                                                                                
2:14:18 PM                                                                                                                    
                                                                                                                                
SENATOR  HUGGINS asked  if he  had had any  influence in  the                                                                   
decisions at that time.                                                                                                         
                                                                                                                                
MR. SHEPLER explained  that he had been the  attorney for LBA                                                                   
and that  they filed  a few  comments with  a focus  on rule-                                                                   
making for the open-season.  He  recalled they had focused on                                                                   
the rule-making issues  at the time and that  the regulations                                                                   
had  not been  helpful.    He had  argued  to get  the  final                                                                   
regulations changed.                                                                                                            
                                                                                                                                
2:15:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KERTTULA  recalled that  the  work done  with                                                                   
FERC, three  years prior,  has provided  the current  capital                                                                   
structure.                                                                                                                      
                                                                                                                                
MR. SHEPLER agreed.                                                                                                             
                                                                                                                                
2:16:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MARK  NEUMAN expressed concern  regarding what                                                                   
TransCanada-Alaska is requesting  from the State.  He pointed                                                                   
out that  they have  requested Alaska to  work with  the U.S.                                                                   
government  to   be  a  "bridge-shipper"  and   to  reach  an                                                                   
agreement with the ANS producers.   He worried about lawsuits                                                                   
associated  with that last  request and  how long they  could                                                                   
take to litigate.  He hoped to see gas on-line by 2018.                                                                         
                                                                                                                                
MR.   SHEPLER   referenced   previous    comments   made   by                                                                   
Commissioners   Galvin  &   Irwin   and  representatives   of                                                                   
TransCanada.   He pointed  out that  TransCanada has  not met                                                                   
the  conditions of  their  application on  any  of the  areas                                                                   
mentioned; instead,  they have clarified that  the benefit of                                                                   
the  State's  actions.    That   is  not  a  condition.    He                                                                   
maintained  that  the  previous   presentation  touched  upon                                                                   
litigation concerns.                                                                                                            
                                                                                                                                
2:19:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN understood  that TransCanada  expected                                                                   
the   State  to   evaluate  the   financial  and   commercial                                                                   
feasibility of dedicating significant State resources.                                                                          
                                                                                                                                
MR.  SHEPLER responded  that  was an  "expectation"  question                                                                   
rather than a "condition" on the application question.                                                                          
                                                                                                                                
REPRESENTATIVE  NEUMAN emphasized  that these are  conditions                                                                   
that TransCanada has requested  from the State of Alaska.  He                                                                   
believed that  under contract, TransCanada retains  the right                                                                   
to back out of the license.                                                                                                     
                                                                                                                                
MR.   SHEPLER   stated   that   Representative   Neuman   had                                                                   
mischaracterized the  material; he advised that  the language                                                                   
in  the application  does  not  establish conditions  in  the                                                                   
legal sense that the State must fulfill.                                                                                        
                                                                                                                                
REPRESENTATIVE NEUMAN commented  that TransCanada retains the                                                                   
right to back out of the contract.                                                                                              
                                                                                                                                
MR. SHEPLER emphasized "no", they do not.                                                                                       
                                                                                                                                
COMMISSIONER GALVIN  interjected that the  Administration has                                                                   
clarified this  concern many times  and that legal  advisors,                                                                   
the  Administration and  TransCanada have  all indicated  the                                                                   
exact  same thing  that  there are  no  conditions placed  on                                                                   
TransCanada's commitment in the  application.  The statements                                                                   
read by the representative were  in regard to expectations of                                                                 
the State to consider looking  at using the State's influence                                                                   
over the producers - those are  only expectations and are not                                                                   
conditions that would have the  Board of TransCanada to back-                                                                   
out of the deal without breeching  the violation requirements                                                                   
of AGIA.  He stressed that the record is clear.                                                                                 
                                                                                                                                
2:23:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN noted his confusion.                                                                                      
                                                                                                                                
COMMISSIONER GALVIN interjected  that the confusion expressed                                                                   
by Representative  Neuman is a  separate issue.   Under AGIA,                                                                   
there is no  obligation for TransCanada-Alaska  Company, LLC,                                                                   
to build  the pipeline.   They are required  to get  the FERC                                                                   
certification  & if  they have  the  financial backing,  they                                                                   
would  then  sanction  those   commitments.    The  statement                                                                   
previously   read  is   only  a  restatement   of  the   AGIA                                                                   
requirements.                                                                                                                   
                                                                                                                                
2:25:35 PM                                                                                                                    
                                                                                                                                
SENATOR  LYDA  GREEN referred  to  an earlier  discussion  in                                                                   
relation  to  the  power  of  FERC  as  the  regulatory  body                                                                   
overseeing  the project.   She  questioned if  Alaska was  an                                                                   
exception  to  how  projects  are handled  in  the  lower  48                                                                   
states, because  of the federal  law passed, clarifying  what                                                                   
happens  when gas  is processed  across  states into  another                                                                   
state.                                                                                                                          
                                                                                                                                
MR. SHEPLER  agreed that the  federal statute of  2004 allows                                                                   
the FERC  to compel  the owners  of a  project to extend  new                                                                   
capital   and   expand   the   pipeline   under   restrictive                                                                   
conditions.  Alaska's  pipeline is unique.   The authority is                                                                   
unprecedented and  has not been  tested in any court.   There                                                                   
exist five to six conditions to  discourage exploration.  The                                                                   
problem  is  that   through  AGIA,  the  pipeline   has  made                                                                   
commitments  that   it  will   do  the  type   of  expansion-                                                                   
solicitation  that will  encourage  producers  to make  their                                                                   
drilling decisions.                                                                                                             
                                                                                                                                
2:30:39 PM                                                                                                                    
                                                                                                                                
SENATOR  GENE THERRIAULT  referred  to the  FERC 2005  order,                                                                   
addressing rolled-in  rates.  When FERC made  the ruling, the                                                                   
State had requested  an absolute ruling for  rolled-in rates,                                                                   
instead, the State received rebuttal presumption.                                                                               
                                                                                                                                
MR. SHEPLER agreed.                                                                                                             
                                                                                                                                
SENATOR THERRIAULT  added that the State had asked  for a lot                                                                   
that  they  had  not  received.    The  rebuttal  presumption                                                                   
basically means  that it can be  argued again at  yet another                                                                   
date.                                                                                                                           
                                                                                                                                
MR. SHEPLER agreed.                                                                                                             
                                                                                                                                
SENATOR  THERRIAULT continued,  through  AGIA  and the  State                                                                   
partnering with  a pipeline company, the State  is requesting                                                                   
that partner to side with Alaska in any future arguments.                                                                       
                                                                                                                                
MR. SHEPLER agreed.                                                                                                             
                                                                                                                                
SENATOR THERRIAULT  referred to the "back-filling"  occurring                                                                   
with the AGIA proposal.                                                                                                         
                                                                                                                                
MR. SHEPLER  acknowledged that  was correct.   The  State can                                                                   
anticipate the  position of the incumbent shippers  will take                                                                   
on the  rolled-in  pricing.  He  agreed with  how Mr.  Palmer                                                                   
characterized  it that  given the position  of the  pipeline,                                                                   
making  it a filing  at the  FERC, could  become the  tipping                                                                   
point.   It  is  a presumption,  not  a rule.    There is  no                                                                 
guarantee of any outcome.                                                                                                       
                                                                                                                                
2:32:50 PM                                                                                                                    
                                                                                                                                
SENATOR  THERRIAULT  pointed  out that  the  FERC  regulation                                                                   
package was challenged by the  producers.  Most of the issues                                                                   
were  dropped, however,  the  challenge  remained to  mandate                                                                   
capacity & design  changes to the initial line.   He stressed                                                                   
that information is important.   He mentioned the diameter of                                                                   
the pipe proposed for use.                                                                                                      
                                                                                                                                
MR. SHEPLER agreed.                                                                                                             
                                                                                                                                
SENATOR THERRIAULT questioned  where any litigation regarding                                                                   
pipe could end up.                                                                                                              
                                                                                                                                
MR. SHEPLER  responded that is  a "murky" [area]  resolution,                                                                   
as it has not been challenged  on that basis and then applied                                                                   
in a  particular factual situation.   The regulation  remains                                                                   
in place.                                                                                                                       
                                                                                                                                
SENATOR THERRIAULT  revisited the  4.5 bcf line  that expands                                                                   
up to 7.2 and  the exploration that could start  with such an                                                                   
expansion;  however,  pointed  out  that  the  State  is  not                                                                   
assured of  that.  With an  AGIA partner, the State  would be                                                                   
assured because the proposed pipe  size is in a 48" line.  He                                                                   
assumed  that FERC  was  attempting to  accommodate  low-cost                                                                   
expansions.                                                                                                                     
                                                                                                                                
MR. SHEPLER agreed that it is  not available through FERC but                                                                   
would be through AGIA.                                                                                                          
                                                                                                                                
2:36:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS asserted  that there are no assurances                                                                   
for an explorer.   The bottom line is that the  project is up                                                                   
to the  FERC to  decide.   The assumption  is that the  State                                                                   
"won" by getting the rolled-in tariff.                                                                                          
                                                                                                                                
COMMISSIONER GALVIN  commented that  it is easy  to speculate                                                                   
what an  explorer would  be more  comfortable with,  however,                                                                   
relaying  on only  FERC rather  than  the AGIA  requirements,                                                                   
does  provide  greater  confidence  in  getting  the  desired                                                                   
access.   Secondly, regarding  the "major victory"  from FERC                                                                   
should  actually  be  sobering   in  terms  of  the  historic                                                                   
expectation of the  actual type of positions taken.   The bar                                                                   
was set modestly.  He pointed  out that 90% of the discussion                                                                   
at the meeting  had been with regard to what  was passed last                                                                   
year; it does not add anything  new with the TransCanada (TC)                                                                   
application.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS  concluded  that the  explorers  will                                                                   
appreciate the terms of AGIA until  it drives their tariff up                                                                   
by one  cent and  then they  will come  forward fighting  the                                                                   
FERC.                                                                                                                           
                                                                                                                                
2:39:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARA directed  comments to  AGIA.  He  stated                                                                   
that Alaska  is sovereign and  is not willing to  accept just                                                                   
what the federal government delivers.   The State passed AGIA                                                                   
with  that in  mind, which  he questioned  was legal.   As  a                                                                   
sovereign, Alaska  has an interest in rolled-in  rates and by                                                                   
statute,  FERC can  only  go so  far.   He  pointed out  that                                                                   
Alaska has  pushed further.   Alaska wants in-state  delivery                                                                   
of gas;  FERC does  not recognize  that, hence, the  standard                                                                   
was established  in AGIA.   Alaska wants  to keep  the tariff                                                                   
rate and toll rate down to encourage  production with a 70/30                                                                   
debt equity  ratio.   AGIA includes  Alaska  hire and is  not                                                                   
governed  by  the  FERC.    He   predicted  that  there  were                                                                   
complications  from adopting greater  protections under  AGIA                                                                   
than the FERC will allow.                                                                                                       
                                                                                                                                
MR.  SHEPLER explained  that he  was  advocating that  point.                                                                   
The  State  is  "best  served"  by taking  care  of  its  own                                                                   
interests.                                                                                                                      
                                                                                                                                
                                                                                                                                
AT EASE:       2:41:39 PM                                                                                                     
RECONVENED:    2:43:23 PM                                                                                                     
                                                                                                                                
                                                                                                                                
      THE CHALLENGES IN BUILDING AN ALASKAN LNG CHAIN                                                                         
                      (Copy on File).                                                                                           
                                                                                                                                
COMMISSIONER  GALVIN  explained  the structure  of  the  next                                                                   
presentation:  "The Challenges  in  Building  an Alaskan  LNG                                                                   
Chain" with Robert Fenton.                                                                                                      
                                                                                                                                
2:45:55 PM                                                                                                                    
                                                                                                                                
ROBERT  FENTON,   MANAGING  GAS   &  STRATEGIES   CONSULTANT,                                                                   
outlined  his  experience  over   the  past  four  years,  in                                                                   
management, business development  and strategy formulation in                                                                   
the gas  models, particularly with  LNG.  He distributed  the                                                                   
handout to members.  [Copy on File].                                                                                            
                                                                                                                                
MR. FENTON  referenced Slide  3, LNG as  an alternative  to a                                                                   
pipeline:                                                                                                                       
                                                                                                                                
   ·    Not just a choice between LNG and a pipeline but                                                                        
        between:                                                                                                                
   ·    LNG to the illiquid, long-term contracted and in                                                                        
        China's case developing, gas markets of Asia, and                                                                       
   ·    Pipeline to the deep, liquid, short term-contracted                                                                     
        market of USA.                                                                                                          
                                                                                                                                
MR. FENTON referenced  Slide 4, which defines  placing an LNG                                                                   
chain  together  as  complex;  it varies  by  market  and  is                                                                   
challenging in Asia.  He noted  that gas in not oil; the U.S.                                                                   
gas market is  different from others and that  the LNG market                                                                   
is challenging-especially into the Asian Pacific markets.                                                                       
                                                                                                                              
MR. FENTON  pointed out Slide  5 highlighting  the commercial                                                                   
contracts critical  for viability of the LNG  chain to ensure                                                                   
financing and construction.                                                                                                     
                                                                                                                                
   ·    All elements of the chain need to be connected with                                                                     
        legal agreements to ensure that the LNG produced                                                                        
        will be sold over the life of the project,                                                                              
        supporting investment risk.                                                                                             
   ·    It makes LNG development complex and liable to                                                                          
        delays and occasional failures.                                                                                         
                                                                                                                                
Slide 6 demonstrates  the producer's view of  risk & rewards.                                                                   
He  pointed out  that the  pipeline  (to USA)  is simpler  by                                                                   
comparison:                                                                                                                     
                                                                                                                                
   ·    Single commitment to pipeline capacity of LNG                                                                           
        requires   pipeline,    liquefaction,   ships,    and                                                                   
        degasification;                                                                                                         
   ·    LNG requires higher level of reserves assurance;                                                                        
   ·    Assured market off-take;                                                                                                
   ·    Transparent pricing;                                                                                                    
   ·    Single gas quality and blending; and                                                                                    
   ·    Producers can  act independently  and integrate  with                                                                   
        the rest of their North American gas sales.                                                                             
                                                                                                                                
MR. FENTON addressed Slide 7,  discussing today's prices as a                                                                   
basis for commitment to LNG for the long-term:                                                                                  
                                                                                                                                
   ·    Oil today is around $135/bbl;                                                                                           
   ·    New long-term  LNG contracts  into Asia priced  close                                                                   
        to oil parity;                                                                                                          
   ·    Implies a significant   premium of $9/MMBtu  over USA                                                                   
        prices;                                                                                                                 
   ·    The premium will more than compensate  for the higher                                                                   
        cost of an LNG scheme; and                                                                                              
   ·    The divergence of Pac-Rim  LNG and USA gas  prices is                                                                   
        unlikely to sustain in the long-term fundamental                                                                        
        price projections and Pac-Rim LNG price drivers.                                                                        
                                                                                                                                
2:51:37 PM                                                                                                                    
                                                                                                                                
MR. FENTON highlighted  the chart on Slide 8  indicating that                                                                   
the Asian contract prices normally  sit above Henry Hub (HH);                                                                   
however, in some periods they  don't.  The slide provides the                                                                   
history of the  Japanese LNG costs.  The projects  tend to be                                                                   
large &  costly with many  companies involved.   All elements                                                                   
of the  chain need to be  connected with legal  agreements to                                                                   
insure that  the LNG  produced &  sold over  the life  of the                                                                   
project are a justified investment.                                                                                             
                                                                                                                                
The Asian  market has  gas quality  higher heat content  than                                                                   
that  found in  the  U.S. market.    The difference  of  that                                                                   
places  a  constraint  on the  ability  to  supply  different                                                                   
markets of the  LNG and is associated with  additional costs.                                                                   
He  addressed   the  alignment  of  the  producers   and  the                                                                   
complexity of selling the Alaskan gas in the Asian market.                                                                      
                                                                                                                                
MR. FENTON  addressed  Slide 9, indicating  the rapid  market                                                                   
changes leading to a scattering  of prices and renegotiation.                                                                   
                                                                                                                                
2001-2004:                                                                                                                    
                                                                                                                                
   ·    Over  ten  suppliers  and  potential  producers  were                                                                   
        offering supply;                                                                                                        
   ·    Buyers achieved  lower prices  & a  reduction in  the                                                                   
        oil price linkage;                                                                                                      
   ·    Price ceilings at  around $25/Bbl oil prices  in some                                                                   
        contracts; and                                                                                                          
   ·    The result was  a much lower  LNG price and  high oil                                                                   
        prices in the new contracts.                                                                                            
                                                                                                                                
2005:                                                                                                                         
                                                                                                                                
   ·    Return to "sellers market" has  strengthened position                                                                   
        of producers;                                                                                                           
   ·    Qatar has pushed  the LNG price  to crude  oil parity                                                                   
        at $100/Bbl oil in its most recent deals;                                                                               
   ·    Wide-scatter of prices  opened up by the  sudden rise                                                                   
        in oil price; and that                                                                                                  
   ·    Virtually   all    legacy    contracts   are    being                                                                   
        renegotiated.                                                                                                           
                                                                                                                              
MR.  FENTON pointed  out that  Slide 10  indicates the  Asian                                                                   
premium is limited by a growing flexible supply:                                                                                
                                                                                                                                
   ·    In 2007,the U.S. supplied 16 mtpa;                                                                                      
   ·    50 mtpa of new supply for US, United  Kingdom (UK) is                                                                   
        under construction;                                                                                                     
   ·    Which could potentially be diverted to Asia; and                                                                        
   ·    Some Asian  premiums will remain  driven by  security                                                                   
        concerns.                                                                                                               
                                                                                                                                
MR. FENTON summarized the key messages of Slide 11:                                                                             
                                                                                                                                
   ·    LNG project carries  significantly greater  costs and                                                                   
        risks of delay or  failure than the  pipeline project                                                                   
        including  sale negotiations  complex,  quantity  and                                                                   
        quality    constraints;    additionally,     producer                                                                   
        alignment is difficult to retain;                                                                                       
   ·    The current level of Asian price  premium is unlikely                                                                   
        to sustain;                                                                                                             
   ·    Producer's have  substantial  competing LNG  interest                                                                   
        in the Pacific Region; and                                                                                              
   ·    Producer's perception of the risk  is likely to drive                                                                   
        the preference for the pipeline.                                                                                        
                                                                                                                                
3:09:00 PM                                                                                                                    
                                                                                                                                
SENATOR BERT STEDMAN  directed his comments to  the statement                                                                   
regarding  risk  exposure  and  how  that  would  affect  the                                                                   
State's credit.   AGIA  requires an  applicant to go  through                                                                   
the process.   He questioned if that process  would also work                                                                   
under an LNG contract.                                                                                                          
                                                                                                                                
MR. FENTON responded  that all major producers  have lead LNG                                                                   
contracts and  are experienced in  taking gas and  placing it                                                                   
in inter-state pipelines; however,  those producers are aware                                                                   
that putting an  LNG project together is more  complex.  They                                                                   
would  want to  participate in  the plans.   No  liquefaction                                                                   
plant has  been built by a  third party.  He  reiterated that                                                                   
the companies would  want to participate and  be assured that                                                                   
the  plant would  be  theirs  to use  over  the  life of  the                                                                   
contract.   He directed discussion  regarding how  to operate                                                                   
an open-access  in a  liquefaction plant  and who would  have                                                                   
jurisdiction  over  that.    The   producers  would  need  to                                                                   
participate  in and  controlling  the liquefaction  plant  in                                                                   
order to have the assurance that  an experienced operator was                                                                   
building it & running it.                                                                                                       
                                                                                                                                
COMMISSIONER  GALVIN emphasized  the point  that no  one will                                                                   
build without having financial  backing, parallel to the AGIA                                                                   
track.   It  would provide  getting the  gas commitments,  to                                                                   
lead the completion of the project.                                                                                             
                                                                                                                                
SENATOR   STEDMAN  inquired   if  the   State  had   "created                                                                   
something" that would place LNG at a disadvantage.                                                                              
                                                                                                                                
COMMISSIONER GALVIN  replied no, but instead,  has created an                                                                   
equal opportunity.                                                                                                              
                                                                                                                                
3:13:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS referenced Slide  7, asking  if there                                                                   
was a difference  in the Asian market between  the individual                                                                   
countries of Korea, Japan and then the others.                                                                                  
                                                                                                                                
MR.  FENTON  responded  that they  analyzed  the  demand  and                                                                   
pricing in the largest markets:   Japan, Korea, Taiwan, China                                                                   
and India.                                                                                                                      
                                                                                                                                
REPRESENTATIVE    SAMUELS   asked    if   each   had    acted                                                                   
independently.                                                                                                                  
                                                                                                                                
MR.  FENTON   explained  that  they  do   act  independently,                                                                   
however, they take their lead  and pricing mostly from Japan.                                                                   
                                                                                                                                
REPRESENTATIVE  SAMUELS  referenced   a  $9  dollar  premium,                                                                   
questioning if it  is assumed that if the price  declines, it                                                                   
would be because  of the price of oil dropped.   He wanted to                                                                   
know  at  what  point  it  is   projected  that  the  premium                                                                   
disappears.                                                                                                                     
                                                                                                                                
MR.  FENTON  responded   that  he  could  not   predict  what                                                                   
depresses   the  price   of  Asian   LNG   by  altering   the                                                                   
relationship of the LNG price  to oil.  It would need to be a                                                                   
change to the  construction of the formula that  would likely                                                                   
drive down the price of LNG.  [Slide 9].                                                                                        
                                                                                                                                
3:17:18 PM                                                                                                                    
                                                                                                                                
SENATOR  THERRIAULT understood  that the  LNG market  in Asia                                                                   
requires certain British Thermal Unit (BTU) contents.                                                                           
                                                                                                                                
MR. FENTON  noted that  all that  gas is  a high BTU  content                                                                   
LNG.                                                                                                                            
                                                                                                                                
SENATOR THERRIAULT  recalled that  there are markets  in Asia                                                                   
that use  a lower  BTU content for  industrial use  and power                                                                   
generation.   He inquired  the capacity  in the Asian  market                                                                   
for the use of a lower BTU.                                                                                                     
                                                                                                                                
MR.  FENTON  elaborated  that  at  present  time,  all  Asian                                                                   
markets are  using the  high BTU  gas.  If  they buy  low BTU                                                                   
gas, they add  propane to increase the heat,  making a higher                                                                   
BTU.   One of the biggest  questions now, is  in relationship                                                                   
to what  will happen  in China, which  is potentially  a very                                                                   
large market.   It is not  clear how China  will standardize.                                                                   
He added that if the State begins  to produce LNG, they would                                                                   
be locked into one subset of the market.                                                                                        
                                                                                                                                
3:20:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PAUL  SEATON referenced Slide 7  and asked the                                                                   
comparison  between  the  $9  million  British  thermal  unit                                                                   
(mmBtu) to the gas pipeline natural gas liquids.                                                                                
                                                                                                                                
MR.  FENTON responded  that those  numbers  address only  the                                                                   
volume  of gas sold.   For  LNG purposes,  the value  retains                                                                   
most of the  natural gas liquids  in.   For the  pipeline gas                                                                   
sold into  the U.S.,  those would  be stripped  out and  sold                                                                   
separately.   In an economic  comparison between the  LNG and                                                                   
the pipeline, two separate revenue streams are created.                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON  wanted to  determine  if the  premium                                                                   
price value  could capture the  total value in  either Canada                                                                   
or  the U.S.    He asked  what  the $9/mmBtu  would  actually                                                                   
include.                                                                                                                        
                                                                                                                                
MR. FENTON  stated that  the natural  gas liquid (NGL)  value                                                                   
would have  to be  added back into  the pipeline  gas option.                                                                   
He was certain  that at the  $9 dollar value, there  would be                                                                   
economics favoring the LNG project.                                                                                             
                                                                                                                                
3:23:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS  asked   if  the  U.S.  was  currently                                                                   
importing 6 billion  cubic feet (BCF) per day  of natural gas                                                                   
and if it was  anticipated that by the year  2010, the number                                                                   
would increase to 20 BCF per day.                                                                                               
                                                                                                                                
MR. FENTON thought that sounded  correct and that gas imports                                                                   
would be increased.                                                                                                             
                                                                                                                                
REPRESENTATIVE   RAMRAS   questioned   if  all   Arctic   gas                                                                   
investments globally  are "in trouble", while  the equatorial                                                                   
projects are thriving and robust.                                                                                               
                                                                                                                                
MR. FENTON agreed, noting the challenges in both places.                                                                        
                                                                                                                                
3:25:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS requested  further elaboration  on the                                                                   
global Arctic gas projects.                                                                                                     
                                                                                                                                
MR. FENTON  asked if  the representative  was speaking  about                                                                   
oil and  gas Arctic projects or  LNG projects.   He suggested                                                                   
it would  be difficult to narrow  that scope.   He referenced                                                                   
specific projects.                                                                                                              
                                                                                                                                
REPRESENTATIVE  RAMRAS asked if  the Salkin project  had come                                                                   
in on budget and on time.                                                                                                       
                                                                                                                                
MR. FENTON  replied they had been  out of budget by  a factor                                                                   
of nearly  100%, from  a $10  billion dollar  project to  now                                                                   
over a $22 billion  dollar project.  That project  was two to                                                                   
three years late.                                                                                                               
                                                                                                                                
3:27:55 PM                                                                                                                    
                                                                                                                                
SENATOR   WAGONER    referenced   the   comments    made   by                                                                   
Representative  Ramras regarding  the increase  from 6  to 20                                                                   
BCF by the  U.S. over the next  few years.  He asked  how the                                                                   
U.S. Department  of Commerce  would react  to Alaska  selling                                                                   
gas reserves into a foreign market.                                                                                             
                                                                                                                                
MR.  FENTON said  he had  not  discussed that  with the  U.S.                                                                   
Congressional  delegation  but  agreed  it  is  an  important                                                                   
discussion  to  have.   He  deferred  to his  colleagues  for                                                                   
additional comments regarding the concern.                                                                                      
                                                                                                                                
COMMISSIONER  GALVIN reminded  members  that  there had  been                                                                   
reactions to the reports during  the application process.  He                                                                   
noted that Senator  Murkowski had indicated concern  with the                                                                   
LNG countries organizing into  a gas group - Organization for                                                                   
Petroleum Exporting  Countries (OPEC).  He  acknowledged that                                                                   
these are  statewide concerns.   That is  one of  the reasons                                                                   
that the  State has  determined  that an LNG  Y-line off  the                                                                   
over-line  pipeline would  be one of  the best  opportunities                                                                   
for LNG in Alaska.                                                                                                              
                                                                                                                                
3:30:31 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  referenced Slide 3, the  choice between                                                                   
the LNG and a  pipeline.  He asked about the  issue regarding                                                                   
producers  making   a  long-term  (20-30   year)  commitment.                                                                   
Comparing  the worldwide  large  investments  in LNG,  raises                                                                   
fundamental  questions, including  the fundamentals  existing                                                                   
in Asia  with coal  usage and carbon  output.  He  challenged                                                                   
the manner in which Mr. Fenton presented the scenario.                                                                          
                                                                                                                                
MR. FENTON explained  that there are many buyers  and sellers                                                                   
in the U.S.  market.  Most gas is contracted  for short-term.                                                                   
He pointed  out from the producer's  point of view,  the risk                                                                   
concerns that the  gas would not be taken.   He believed that                                                                   
the producers need to make a long-term  commitment to selling                                                                   
gas.   The producers want to  assure themselves of  an outlet                                                                   
for the gas reserves.                                                                                                           
                                                                                                                                
Regarding the liquidity of the  Asian LNG market, it is not a                                                                   
competitive market.   They are  either monopoly markets  or a                                                                   
defacto  regional   monopoly  with  a  number   of  suppliers                                                                   
competing.   Contracting with  that buyer, the  country would                                                                   
become  dependent  upon  them  to absorb  that  gas  in  that                                                                   
market.  He  acknowledged that there are many  investments in                                                                   
LNG  marketplace.   He asserted  that the  Chinese market  is                                                                   
"energy hungry"  and warned the  world should be  cautious in                                                                   
that market.                                                                                                                    
                                                                                                                                
3:35:52 PM                                                                                                                    
                                                                                                                                
SENATOR  FRENCH  suggested  that  Mr.  Fenton's  presentation                                                                   
"dashes  the  hopes" of  Alaskans  who  want  to see  an  all                                                                   
Alaskan pipeline with  an LNG export facility in  Valdez.  He                                                                   
asked  how  the  proposed  Y-Line  could  overcome  the  same                                                                   
political  obstacles faced  as  a stand  alone  project.   He                                                                   
questioned  how  the balance  could  shift with  an  overland                                                                   
route to Alberta.                                                                                                               
                                                                                                                                
MR. FENTON explained that initially  they were looking at the                                                                   
baseline project; if  the State wants to go for  the LNG, the                                                                   
Y-Line   would  be   the  correct   way   to  address   that.                                                                   
Additionally,  the question regarding  federal export  is one                                                                   
of degree.                                                                                                                      
                                                                                                                                
COMMISSIONER  GALVIN recognized the  dynamic as the  findings                                                                   
being portrayed  as a  "death" to moving  LNG out  of Alaska.                                                                   
He said it was the important to  understand what the findings                                                                   
were  about.   He applauded  the presentation  of Mr.  Fenton                                                                   
regarding  the comparison  to an overland  route, carrying  a                                                                   
better likelihood  for success.  He stressed that  it is only                                                                   
a comparison.   It was never  intended by the  Administration                                                                   
for it  to be considered  an end  to LNG.   It could  be true                                                                   
that there  is someone  that would want  to use the  findings                                                                   
and portray  those as an indication  that LNG will  not work;                                                                   
however,  that  is  not  the   conclusion  of  the  findings.                                                                   
Analyzing  the  LNG  project,   has  determined  that  it  is                                                                   
economic.  The question remains  in comparison to an overland                                                                   
route  and then which  route could  bring more  value to  the                                                                   
State  of Alaska as  a first  entrance.   The overland  route                                                                   
clearly provides  more value.   A  separate issue is  whether                                                                   
LNG  is  viably  economic.   He  believed  that  it  will  be                                                                   
economic.                                                                                                                       
                                                                                                                                
3:41:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GARA   recalled   that   in   January,   the                                                                   
TransCanada proposal  had been  accepted but the  LNG concept                                                                   
was  not endorsed.   He  worried about  the risks  associated                                                                   
with  a Canadian  project getting  the necessary  permitting.                                                                   
He  questioned  if  the Legislative  Body  was  receiving  an                                                                   
objective discussion of the dangers  and shortcomings of LNG.                                                                   
Representative  Gara asked  what  was necessary  for that  to                                                                   
happen.                                                                                                                         
                                                                                                                                
MR. FENTON stated  that if Alaska was faced with  only an LNG                                                                 
project,  the  work already  accomplished  was  not aimed  at                                                                   
reaching a  particular conclusion.   He did not want  to give                                                                   
the impression  that an  LNG project  would be impossible  to                                                                   
do.  In the development of the  North Slope project, there is                                                                   
an enormous amount of gas, with  over 30 million tons a year.                                                                   
The State  of Alaska  will be able  to develop LNG,  however,                                                                   
there will need to be a balance  between the pipeline and the                                                                   
LNG.                                                                                                                            
                                                                                                                                
COMMISSIONER GALVIN  hoped that the  subject of LNG  had been                                                                   
properly addressed.  He recognized  the findings portrayed as                                                                   
detrimental for  getting LNG out  of Alaska.  He  stated that                                                                   
it is  important to understand  what the findings  are about.                                                                   
He applauded the  presentation given by Mr.  Fenton regarding                                                                   
LNG as  a stand-alone  project.   The presentation  indicates                                                                   
that it  is in comparison to  an overland route, which  has a                                                                   
better  value and  likelihood  of success.   It  was not  the                                                                   
Administration's intent for the  finding to be in contrast to                                                                   
LNG.  He clarified  that the TransCanada proposes  a route to                                                                   
an  LNG  project,  which  might  not  otherwise  exist  after                                                                   
identifying all the other factors.   It is a comparison issue                                                                   
and is not the conclusion of those  findings.  The State will                                                                   
make a  profit.  The  question remains  the comparison  to an                                                                   
overland route, which would provide  more value to the State.                                                                   
He emphasized  that the overland route would  clearly provide                                                                   
more value  and would  be economic for  the State  of Alaska.                                                                   
He addressed an  export license as a stand-alone  project and                                                                   
that having an  overland project could first  provides a head                                                                   
start.   The State's conclusion  is that LNG is  important to                                                                   
pursue and  that the overland  route would be the  best place                                                                   
to begin.                                                                                                                       
                                                                                                                                
3:49:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARA  asked how complete an  application would                                                                   
need to be  under AGIA.  He  inquired if they would  need the                                                                   
export license, the ships and the receiving facility.                                                                           
                                                                                                                                
COMMISSIONER GALVIN  addressed the time frame.   That was not                                                                   
an  included hurtle  in  the  AGIA application  process;  the                                                                   
application process  included providing  a full project  that                                                                   
had  all the  commitments  required under  the  law and  that                                                                   
information  available by the  deadline.   There have  been a                                                                   
number of changes for an LNG project,  which do not exist for                                                                   
any overland  project.   It is  important to  give weight  to                                                                   
that concept.   The differences between the  two projects are                                                                   
still inter-dependent  of one another and the  hurdle to show                                                                   
the reserves and  being able to sell it as  separate from one                                                                   
another.  Whereas,  with an overland project,  reserves would                                                                   
have to  be demonstrated  to reach  the market.   The  market                                                                   
itself has a different dynamic  than the Asian market because                                                                   
of the long-term  contracts and the liquidity,  which affects                                                                   
moving the project forward.  It remains a comparison issue.                                                                     
                                                                                                                                
3:53:46 PM                                                                                                                    
                                                                                                                                
SENATOR  HUGGINS  referenced Slide  11  and  asked about  the                                                                   
significant  greater  costs.   He  inquired  if the  analysis                                                                   
includes the incremental costs  between the Valdez tide-water                                                                   
minus the maritime shipping.                                                                                                    
                                                                                                                                
MR. FENTON could not determine that amount.                                                                                     
                                                                                                                                
COMMISSIONER  GALVIN  pointed   out  that  there  will  be  a                                                                   
forthcoming presentation addressing all the cost issues.                                                                        
                                                                                                                                
SENATOR HUGGINS  noted that Alaska  has the longest  existing                                                                   
LNG plant  in the  world.   He requested  an overview  of the                                                                   
history and success of those projects.                                                                                          
                                                                                                                                
MR.  FENTON stated  that they  had not  studied that  project                                                                   
specifically.   The determination was  made in regard  to the                                                                   
industry  rather  than the  Kenai  project;  the project  was                                                                   
developed at  the inception  of the industry  and was  one of                                                                   
the first LNG  projects in the world; it operated  many years                                                                   
serving the Japanese market.                                                                                                    
                                                                                                                                
SENATOR  HUGGINS mentioned  the  complications  in the  Asian                                                                   
market.   He requested  an overview  of that  market and  how                                                                   
long the State had been involved.                                                                                               
                                                                                                                                
MR. FENTON was not clear on the request.                                                                                        
                                                                                                                                
SENATOR HUGGINS  addressed the  State's involvement  with the                                                                   
Port  Authority.    He directed  comments  to  BG-Group  (BG)                                                                   
involvement   internationally  in  LNG   gas.     Other  than                                                                   
regulatory concerns,  they had hoped  to bid under AGIA.   He                                                                   
asked if there had been discussions with that group.                                                                            
                                                                                                                                
MR.  FENTON  responded  that   they  had  not  addressed  the                                                                   
specific project  with that group  but rather dealt  with all                                                                   
companies.   At the  moment, BG  does not  have any  sales in                                                                   
that market.  BG has recently  taken on the responsibility of                                                                   
selling LNG to  Singapore & a new pre-gas terminal  in Chili.                                                                   
Other than that,  BG has no other participation  in the Asian                                                                   
LNG market.                                                                                                                     
                                                                                                                                
COMMISSIONER  GALVIN  was  not  aware  of  BG  providing  any                                                                   
conflicting information on gas strategies.                                                                                      
                                                                                                                                
SENATOR  HUGGINS   understood  that  they   had  contemplated                                                                   
                                                      th                                                                        
submitting  a bid.   He  recalled  that on  January 30,   the                                                                   
Administration  had committed  to examine  the LNG course  of                                                                   
action.                                                                                                                         
                                                                                                                                
4:00:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE     FAIRCLOUGH    communicated     that    the                                                                   
Administration  has put forth  a pipeline as an  alternative,                                                                   
which  does not  preclude a  Y-line or  LNG.   She asked  the                                                                   
consequence to the  State of Alaska's liability  if they were                                                                   
successful  in  the pipeline  process  application  and  then                                                                   
moved to a Y-line or LNG plant concept proposal.                                                                                
                                                                                                                                
COMMISSIONER GALVIN  clarified that a spur line  (Y-line) off                                                                   
the main line  would not be in conflict with  the TransCanada                                                                   
proposal.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH responded that  the Y-line  is not                                                                   
the  question,  but  rather  if   the  State  is  considering                                                                   
exporting and then creating a  Y-line for State gas, how does                                                                   
the Y-Line extract more and does that benefit the State.                                                                        
                                                                                                                                
COMMISSIONER  GALVIN did  not  understand the  question.   He                                                                   
asked  if she  was  referencing the  500  million cubic  feet                                                                   
(mmcf) per day as a separate project.                                                                                           
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH reiterated  that if the State draws                                                                   
more  than.5 bcf  and  if that  was  not moving  through  the                                                                   
Canadian  portion of  the line, there  could be  consequences                                                                   
with  increased  tariffs  and/or  additional  liabilities  by                                                                   
drawing more.                                                                                                                   
                                                                                                                                
COMMISSIONER  GALVIN responded  that the  500 mmcf issues  go                                                                   
away upon  the initial  run of  the gas line;  it is  only in                                                                   
place  until the  initial commencement  of  operations.   The                                                                   
issue is  in regards to  taking more  gas out of  the stream,                                                                   
which ends  up going into Canada,  does the State  then loose                                                                   
value in  royalty gas where  market value  is lower.   One of                                                                   
the  concerns  is  that  the  State,  as  the  owner  of  the                                                                   
resource, is  provided opportunities  to select which  market                                                                   
is  served.   Moving forward,  the issue  of higher-up  value                                                                   
will play  a role  on the royalty-side  associated  with that                                                                   
choice.                                                                                                                         
                                                                                                                                
The State does not have the ability  to dictate where the gas                                                                   
goes; yet royalty  gas is different.  It becomes  an issue of                                                                   
evaluation and the complications  can be eliminated for those                                                                   
who make the initial  offer on the AGIA line.   He noted that                                                                   
Representative  Fairclough had  identified  a question  down-                                                                   
the-road regarding  the Y-line project and what  interest the                                                                   
State has guaranteeing that project  makes the maximum return                                                                   
to the State.  Those concerns  will be addressed later in the                                                                   
process.                                                                                                                        
                                                                                                                                
The  findings address  the  interest that  the  State has  in                                                                   
providing  an  access  to both  markets.    The  relationship                                                                   
between the two markets will ebb  and flow over the years and                                                                   
having  access  to  both markets  will  provide  the  State's                                                                   
leaseholders  to be  able to  maximize  the opportunities  in                                                                   
moving between  those markets.   He  did not  see that  as an                                                                   
issue as  to what the State  needs to control in  the initial                                                                   
selection but rather the economics in an overland project.                                                                      
                                                                                                                                
4:07:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH explained  that the reason that she                                                                   
had  asked the  question  was because  the  State is  telling                                                                   
Alaskans that  we are not  precluding options at  this point,                                                                   
yet if the State  does not understand the economics  of draw-                                                                   
down  or  liability   over  the  bcf  per  day,   it  becomes                                                                   
complicated.                                                                                                                    
                                                                                                                                
4:07:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PEGGY WILSON argued  that the State should not                                                                   
address the  possibility of  gas moving  into China  since it                                                                   
does not meet with U.S. Government support.                                                                                     
                                                                                                                                
MR.  FENTON  replied  that  he  was not  an  expert  on  U.S.                                                                   
politics.  He deferred the question to the Commissioner.                                                                        
                                                                                                                                
COMMISSIONER GALVIN  answered that the query  was relevant to                                                                   
the issues  at hand.   He  recognized that  there would  be a                                                                   
negative reaction to China or  any place in the Asian market.                                                                   
The  concern about  getting  an export  license  is real  and                                                                   
continues to be subject to interpretation.                                                                                      
                                                                                                                                
REPRESENTATIVE  WILSON recalled that  a gas pipeline  through                                                                   
Canada  involves FERC.    She  asked if  they  would also  be                                                                   
involved with an LNG line.                                                                                                      
                                                                                                                                
COMMISSIONER GALVIN  agreed that  with a pipeline  that feeds                                                                   
an export line,  the direct jurisdictional authority  of FERC                                                                   
would  not  cover  the  pipeline   at  that  time;  the  U.S.                                                                   
Department of Energy would be  responsible for regulating the                                                                   
export license.   FERC is an area of uncertainty  because LNG                                                                   
ends up  being a commodity that  could serve either  the U.S.                                                                   
or foreign markets.  FERC has  been somewhat non-committal on                                                                   
their view of  that issue.  It  was fair to say that  if FERC                                                                   
was not set  up in that manner, the Regulatory  Commission of                                                                   
Alaska (RCA) would likely step-in  to regulate it in a manner                                                                   
similar to FERC.   At the federal level, there  would need to                                                                   
be  an export  license from  the U.S.  Department of  Energy,                                                                   
including much federal permitting along the way.                                                                                
                                                                                                                                
REPRESENTATIVE  WILSON  commented   that  has  not  yet  been                                                                   
addressed.   She thought  the process  could be difficult  if                                                                   
Alaska was not  certain that the gas would move  to the lower                                                                   
48 states.  She recommended the subject be discussed.                                                                           
                                                                                                                                
4:13:38 PM                                                                                                                    
                                                                                                                                
SENATOR  HUGGINS reminded  members that  for many years,  the                                                                   
State has been exporting gas to  Japan and that the State has                                                                   
endorsed renewing that certificate.   He urged flexibility in                                                                   
the discussion.                                                                                                                 
                                                                                                                                
4:14:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KERTTULA  asked if the State  had analyzed any                                                                   
of the reasons why the producers  have not yet been providing                                                                   
LNG from Alaska.                                                                                                                
                                                                                                                                
COMMISSIONER   GALVIN  pointed  out   that  query   would  be                                                                   
addressed during the economic analysis.                                                                                         
                                                                                                                                
REPRESENTATIVE  MIKE KELLY believed  that the State's  choice                                                                   
was either yes  or no.  He said there is no  third option and                                                                   
that  the producers  probably  are not  in favor  of the  LNG                                                                   
choice.  He  noted that there is nothing indicated  under the                                                                   
TransCanada proposal including an LNG Y-line.                                                                                   
                                                                                                                                
COMMISSIONER GALVIN affirmed that was true.                                                                                     
                                                                                                                                
4:16:36 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN indicated that  the topic of  discussion                                                                   
for the  6/10/08 meeting would  be Chapter 3 of  the findings                                                                   
and the back-up  material received from Black &  Veatch.  The                                                                   
presenters   will   summarize   the  high   points   in   the                                                                   
presentation materials.                                                                                                         
                                                                                                                                
BLACK & VEATCH PRESENTATION                                                                                                   
                                                                                                                                
4:19:21 PM                                                                                                                    
                                                                                                                                
SCOTT SMITH, BLACK  & VEATCH, provided a  historical overview                                                                   
of  Black &  Veatch,  a  company which  handles  engineering,                                                                   
construction and consulting worldwide.   The primary focus of                                                                   
the  presentation remains  the energy  & water  sectors.   He                                                                   
pointed  out  he leads  the  market  analysis sector  of  the                                                                   
company  and focuses  on  providing commercial  and  economic                                                                   
analysis to the energy industry.                                                                                                
                                                                                                                                
Presentation to the State of Alaska Legislature -                                                                             
     Liquid Natural Gas (LNG) Analysis and Results                                                                            
     (Copy on File).                                                                                                            
                                                                                                                                
4:21:06 PM                                                                                                                    
                                                                                                                                
MR. SMITH outlined Slide 2, the key conclusions:                                                                                
                                                                                                                                
   ·    LNG projects have higher capital costs and therefore                                                                    
        greater risk than a pipeline project;                                                                                   
   ·    Similar to an overland project, price remains the                                                                       
        primary risk to a LNG project;                                                                                          
   ·    LNG projects have positive Net Present Values (NPV)                                                                     
        with base and high LNG price assumptions;                                                                               
   ·    The 4.5 billion cubic feet per day (Bcf/d) proposal                                                                     
        base case project produces a higher NPV than a 4.5                                                                      
        Bcf/d LNG project; and                                                                                                  
   ·    A sustained high oil to gas price relationship is                                                                       
        required for an LNG project to be favorable when                                                                        
        compared to an overland route.                                                                                          
                                                                                                                                
4:25:03 PM                                                                                                                    
                                                                                                                                
MR. SMITH  referenced  Slide 3, which  outlines the  expected                                                                   
LNG  tariffs   for  the  LNG  project   configurations  being                                                                   
considered.   The cash flow is  determined by the  price less                                                                   
the volume.   Highlighted are four different  cases, assuming                                                                   
the same  terms as the TransCanada  proposal.   Comparing the                                                                   
tariff to the LNG tariff results in differences related to:                                                                     
                                                                                                                                
   ·    higher capital costs                                                                                                    
   ·    higher fuel loss                                                                                                        
   ·    higher  operations and maintenance                                                                                      
   ·    higher property taxes                                                                                                   
   ·    delayed start date                                                                                                      
   ·    higher debt                                                                                                             
   ·    LNG shipping                                                                                                            
                                                                                                                                
4:28:01 PM                                                                                                                    
                                                                                                                                
MR. SMITH referenced Slide 4,  applying the gas strategies to                                                                   
the Asian price  formula expectations.  He  stated that price                                                                   
differentials are  the key element  to understand  whether an                                                                   
LNG project economics are favorable  (relative to an overland                                                                   
project).  The chart illustrates  a high LNG case, a base LNG                                                                   
case,  a  low LNG  case  and  the wood  Mackenzie  Henry  hub                                                                   
projection for the years 2008 through 2044.                                                                                     
                                                                                                                                
4:30:31 PM                                                                                                                    
                                                                                                                                
DEEPA  PODUVAL,  CONSULTANT,  BLACK  &  VEATCH,  provided  an                                                                   
overview  of Slide  5, the estimated  cash  flow for the  2.7                                                                   
Bcf/d LNG  case with positive  net cash flow of  $103 billion                                                                   
dollars to the State.                                                                                                           
                                                                                                                                
MS. PODUVAL explained  the cash flow percentages.   She noted                                                                   
that the  State's share  of gross grows  through time  and is                                                                   
driven by price assumptions.   The State's share grows due to                                                                   
the progressivity and production  tax structure.  She pointed                                                                   
out that the percentages of the  total share of the cash flow                                                                   
accrue for  the State  as well  as the  producers.   Over the                                                                   
evaluation period,  the State only receives 33%  of the total                                                                   
cash flow  from the  project and  the producers receive  21%.                                                                   
The net cash flow from the project is $1.3 billion dollars.                                                                     
                                                                                                                                
4:32:49 PM                                                                                                                    
                                                                                                                                
MS. PODUVAL referenced  Slide 6, the estimated  cash flow for                                                                   
the 4.5  Bcf/d LNG  case and  the positive  net cash  flow of                                                                   
$170 billion  dollars  to the  State of Alaska.   She  stated                                                                   
that  the  State  has  an  increasing  share  and  the  slide                                                                   
indicates that  amount is 34%,  with the producers  receiving                                                                   
20%.  The  Point Thompson production field  will affect those                                                                   
amounts.   The  analysis  was designed  to  capture the  cash                                                                   
flow.  There  are several  factors  that  cause oil  and  gas                                                                   
production   to  be  interdependent   including  the   shared                                                                   
facilities & tax benefits.  All  the analysis provided at the                                                                   
meeting represents the impact of the gas line.                                                                                  
                                                                                                                                
4:34:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LINDSEY  HOLMES asked for  further explanation                                                                   
on the LNG-take that will be available to the State.                                                                            
                                                                                                                                
MS. PODUVAL  explained  that the LNG  represents the  project                                                                   
developer  and  is  essentially,  whomever  is  building  the                                                                   
pipeline.                                                                                                                       
                                                                                                                                
4:35:28 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH noted  that the State is accustomed  to seeing                                                                   
a developer receive a 12-14% rate  of return.  He asked why a                                                                   
much higher scenario had been indicated for the LNG.                                                                            
                                                                                                                                
MS.  PODUVAL  responded  that  the  return  on  equity  would                                                                   
continue to  be 14%; the 26%  is the percentage of  the total                                                                   
cash flow.  Because the capital  costs are higher, the equity                                                                   
is earned over  a higher rate and so receives  more cash flow                                                                   
from the project.                                                                                                               
                                                                                                                                
4:36:10 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  asked why the 2021 start  date had been                                                                   
chosen.   He understood  that typically,  an LNG line-run  is                                                                   
about seven  years or less.   He thought that amount  of time                                                                   
will have a tremendous impact on the net present cash flow.                                                                     
                                                                                                                                
MS.  PODUVAL clarified  that  the  projected  start date  was                                                                   
actually 2022, which  was driven by input from  the technical                                                                   
team.  One  year delay comes from  the fact that it  would be                                                                   
outside the  AGIA process and  without having the  process in                                                                   
place to  approve and  get an LNG  project started,  there is                                                                   
already  a one  year  delay.   An  additional  year delay  is                                                                   
attributed to the  construction time frame.   She deferred to                                                                   
the technical team for further clarification.                                                                                   
                                                                                                                                
MR. SMITH  stipulated that  the start  date would be  delayed                                                                   
until the award of the AGIA project.                                                                                            
                                                                                                                                
SENATOR WIELECHOWSKI  reiterated  that backing everything  up                                                                   
seven  years provides  a  "huge impact"  to  the net  present                                                                   
value (NPV).                                                                                                                    
                                                                                                                                
MR. SMITH  agreed, pointing out  that one of the  reasons for                                                                   
the  higher tariff  was  the fact  that  one  of the  project                                                                   
delays means that the project  will experience higher capital                                                                   
costs due to escalation.  Delays  could mean anywhere between                                                                   
20  and  30 cents  in  tariff  costs  on  a per  year  bases,                                                                   
depending on the capital assumptions behind it.                                                                                 
                                                                                                                                
COMMISSIONER GALVIN added that  the technical team, scheduled                                                                   
to  testify at  the 7/10/08  meeting,  could further  clarify                                                                   
those questions.   He noted  that if  the State can  assume a                                                                   
seven year start  date and assume lower costs,  then clearly,                                                                   
the project would appear more  economic than indicated on the                                                                   
charts.    The technical  team  was  asked  to use  the  same                                                                   
schedule and  costs used to  analyze the TransCanada  project                                                                   
and use  that to make  assumptions for  an LNG project.   The                                                                   
primary drivers are the cost assumptions  associated with the                                                                   
liquid faction  terminal.   The second part  will be  the gas                                                                   
treatment plant.                                                                                                                
                                                                                                                                
4:41:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GATTO referenced the  LNG project;  he stated                                                                   
that 26% seems  out of reach.   He questioned if it  was high                                                                   
because  the liquidification  plant  costs  quite  a bit  and                                                                   
offers a different rate of return.                                                                                              
                                                                                                                                
MS. PODUVAL responded  that they have the same  14% return on                                                                   
equity with higher base costs.                                                                                                  
                                                                                                                                
REPRESENTATIVE  GATTO   asked  how  that  would   change  the                                                                   
percent.                                                                                                                        
                                                                                                                                
MR.  SMITH clarified  that the  percentage noted  on the  pie                                                                   
charts are  not returns but  rather percentages of  the total                                                                   
cash collected.   The returns would be much lower  at a 14% -                                                                   
15%  range  because   it  is  assumed  that   it  is  already                                                                   
regulated. The pie chart focuses  on the total pot of dollars                                                                   
rather than how much each party is getting.                                                                                     
                                                                                                                                
4:42:45 PM                                                                                                                    
                                                                                                                                
MS.  PODUVAL  referenced  Slide  7, the  Y-Line  -  aggregate                                                                   
project  cash flow  and  a positive  net  cash  flow of  $353                                                                   
billion dollars  to the State of  Alaska.  The dip  areas are                                                                   
times when capital is being spent.   The chart also indicates                                                                   
the share  available to the  stakeholders; the  State carries                                                                   
43% of the shares with the producers owning 23%.                                                                                
                                                                                                                                
4:43:54 PM                                                                                                                    
                                                                                                                                
MS. PODUVAL  discussed Slide 8,  estimated State  net present                                                                   
value which  is substantially  positive  for all LNG  project                                                                   
configurations  being considered.   That  amount ranges  from                                                                   
$29 billion  dollars to $85 billion  dollars.  The  base line                                                                   
and NPV to the  State just for the overland  project is about                                                                   
$66 billion dollars.                                                                                                            
                                                                                                                                
4:44:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS  referred to Slide 7,  questioning the                                                                   
numbers  indicated  for  TransCanada.    He  asked  if  those                                                                   
amounts only include where the borders start.                                                                                   
                                                                                                                                
MS. PODUVAL affirmed.                                                                                                           
                                                                                                                                
4:45:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARA asked about the range of NPV's.                                                                             
                                                                                                                                
MS. PODUVAL explained that they  represent nominal cash flows                                                                   
and  that they  are being  added  back to  the State  without                                                                   
discounting them back to present day.                                                                                           
                                                                                                                                
4:47:14 PM                                                                                                                    
SENATOR HUGGINS recalled that  TransCanada had indicated that                                                                   
the  Canadian   government  anticipates  making   $8  billion                                                                   
dollars from the pipeline over time.                                                                                            
                                                                                                                                
MR.  SMITH  explained that  Black  &  Veatch did  not  assume                                                                   
TransCanada's assumption's  or prices.  Instead,  they relied                                                                   
upon the  technical team  expert's opinion regarding  capital                                                                   
costs.  Black & Veatch carries  a higher capital base assumed                                                                   
in that analysis.                                                                                                               
                                                                                                                                
HB  3001 and  SB  3001 were  held  in Committee  for  further                                                                   
consideration.                                                                                                                  

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