Legislature(2013 - 2014)SENATE FINANCE 532

02/27/2014 09:00 AM FINANCE


Download Mp3. <- Right click and save file as

Audio Topic
09:08:44 AM Start
09:10:05 AM SB138
09:10:26 AM Presentation: Sectional, Long and Short Term Fiscal Impacts
10:42:20 AM Presentation: Decisions, Alignment, Price, Cost and Risk
06:01:48 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Presentation:
Sectional, Long and Short Term Fiscal
Department of Revenue
Deputy Commissioner Michael Pawlowski
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
Presentation:
Decisions, Alignment, Price, Cost & Risk
Legislative Consultants Janak Mayer & Nikos
Tsafos of Enalytica
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 138                                                                                                           
                                                                                                                                
     "An Act relating to the  purposes of the Alaska Gasline                                                                    
     Development Corporation to advance  to develop a large-                                                                    
     diameter  natural   gas  pipeline   project,  including                                                                    
     treatment  and  liquefaction  facilities;  establishing                                                                    
     the large-diameter  natural gas pipeline  project fund;                                                                    
     creating  a  subsidiary  related  to  a  large-diameter                                                                    
     natural gas  pipeline project, including  treatment and                                                                    
     liquefaction facilities;  relating to the  authority of                                                                    
     the  commissioner  of  natural resources  to  negotiate                                                                    
     contracts related to North  Slope natural gas projects,                                                                    
     to enter into confidentiality  agreements in support of                                                                    
     contract negotiations  and implementation, and  to take                                                                    
     custody  of  gas  delivered  to   the  state  under  an                                                                    
     election  to pay  the  oil and  gas  production tax  in                                                                    
     kind; relating  to the sale,  exchange, or  disposal of                                                                    
     gas delivered  to the  state under  an election  to pay                                                                    
     the oil  and gas  production tax  in kind;  relating to                                                                    
     the  duties of  the commissioner  of revenue  to direct                                                                    
     the   disposition  of   revenues   received  from   gas                                                                    
     delivered to the state in  kind and to consult with the                                                                    
     commissioner of  natural resources  on the  custody and                                                                    
     disposition  of gas  delivered to  the  state in  kind;                                                                    
     relating  to  the  authority  of  the  commissioner  of                                                                    
     natural resources to  propose modifications to existing                                                                    
     state oil  and gas  leases; making  certain information                                                                    
     provided  to the  Department of  Natural Resources  and                                                                    
     the Department  of Revenue exempt from  inspection as a                                                                    
     public record;  making certain tax  information related                                                                    
     to an  election to pay  the oil and gas  production tax                                                                    
     in  kind exempt  from  tax confidentiality  provisions;                                                                    
     relating  to   establishing  under  the  oil   and  gas                                                                    
     production tax  a gross  tax rate  for gas  after 2021;                                                                    
     making  the  alternate  minimum  tax  on  oil  and  gas                                                                    
     produced north of 68 degrees  North latitude after 2021                                                                    
     apply only  to oil;  relating to  apportionment factors                                                                    
     of  the  Alaska  Net  Income  Tax  Act;  authorizing  a                                                                    
     producer's election  to pay the oil  and gas production                                                                    
     tax  in  kind  for  certain gas  and  relating  to  the                                                                    
     authorization;   relating    to   monthly   installment                                                                    
     payments of  the oil and  gas production  tax; relating                                                                    
     to  interest payments  on monthly  installment payments                                                                    
     of  the  oil  and   gas  production  tax;  relating  to                                                                    
     settlements  between producers  and royalty  owners for                                                                    
     oil  and   gas  production  tax;  relating   to  annual                                                                    
     statements  by  producers  and explorers;  relating  to                                                                    
     annual  production   tax  values;  relating   to  lease                                                                    
     expenditures;  amending the  definition of  gross value                                                                    
     at the  'point of production'  for gas for  purposes of                                                                    
     the  oil and  gas  production  tax; adding  definitions                                                                    
     related to  natural gas  terms; clarifying  that credit                                                                    
     may not  be taken against  the in-kind levy of  the oil                                                                    
     and  gas production  tax for  gas for  purposes of  the                                                                    
     exploration incentive  credit, the oil or  gas producer                                                                    
     education credit,  and the film production  tax credit;                                                                    
     making  conforming  amendments;  and providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
9:10:05 AM                                                                                                                    
                                                                                                                                
^PRESENTATION: SECTIONAL, LONG and SHORT TERM FISCAL                                                                          
IMPACTS                                                                                                                       
                                                                                                                                
9:10:26 AM                                                                                                                    
                                                                                                                                
Co-Chair Kelly welcomed the presenters.                                                                                         
                                                                                                                                
9:11:39 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:12:36 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT OF  REVENUE, (DOR) explained the  document titled                                                                    
"CS FOR SB  138 (RES): Commercial Production  of North Slope                                                                    
Gas SECTIONAL ANALYSIS: 28-GS2806\O" (copy on file):                                                                            
                                                                                                                                
     Section 1  sets out  the legislative findings  that the                                                                    
     commercial production  of gas  deposits from  the North                                                                    
     Slope  is of  vital public  interest that  will provide                                                                    
     benefits to  the state; therefore  it is the  intent of                                                                    
     the  legislature  that  further progress  towards  this                                                                    
     goal  incorporate consideration  of  the provisions  as                                                                    
     set out in this section.                                                                                                   
                                                                                                                                
     Section 2  amends AS 31.25.005, related  to the purpose                                                                    
     of the  Alaska Gasline Development  Corporation (AGDC),                                                                    
     to add new subsections (4)  and (5) for the advancement                                                                    
     of  a  large-diameter   natural  gas  pipeline  project                                                                    
     through  acquiring an  equity  interest  in the  large-                                                                    
     diameter pipeline project  and developing treatment and                                                                    
     liquefaction facilities through  the subsidiary created                                                                    
     in new AS 31.25.122.                                                                                                       
                                                                                                                                
     Section 3 conforms AS 31.25.010,  the structure of AGDC                                                                    
     related  to  dissolution,  to include  reference  to  a                                                                    
     large-diameter natural gas pipeline project.                                                                               
                                                                                                                                
     Section 4 amends AS 31.25.080(f) to allow the AGDC in-                                                                     
     state gas  pipeline project  developers to  continue to                                                                    
     coordinate  with   the  developers   of  large-diameter                                                                    
     natural gas pipeline to  the maximum extent practicable                                                                    
     without delaying the progress of developing the in-                                                                        
     state natural  gas pipeline.  In coordinating  with the                                                                    
     developers  of a  large-diameter natural  gas pipeline,                                                                    
     AGDC may use money  appropriated for that purpose under                                                                    
     AS  31.25.110 but  may not  use money  appropriated for                                                                    
     the  in-state gas  pipeline fund  in AS31.25.100.  This                                                                    
     section  removes the  description of  a large  diameter                                                                    
     natural gas  pipeline, the 'common' status  of pipeline                                                                    
     facilities,  and  portions   of  the  area  description                                                                    
     related to a gas pipeline from the North Slope.                                                                            
     Section  5 amends  AS 31.25.100  to  direct that  money                                                                    
     appropriated to the in-state  natural gas pipeline fund                                                                    
     may  not be  used  for the  large-diameter natural  gas                                                                    
     pipeline project under new AS  31.25.005(4) and (5) and                                                                    
     AS 31.25.080(f).                                                                                                           
                                                                                                                                
     Section 6 establishes  AS 31.25.110, the Large-Diameter                                                                    
     Natural Gas Pipeline Project fund  in order to fund the                                                                    
     purposes   of   the   subsidiary  established   in   AS                                                                    
     31.25.122.  Money appropriated  to the  Large- Diameter                                                                    
     Natural Gas Pipeline  Project fund may not  be used for                                                                    
     the  purposes  of  the in-state  natural  gas  pipeline                                                                    
     under  AS  31.25.005(1).   Money  appropriated  to  the                                                                    
     Large-Diameter  Natural Gas  Pipeline Project  fund for                                                                    
     the  purpose of  AS  31.25.005(4) and  (5), the  large-                                                                    
     diameter natural  gas pipeline  project, is to  be held                                                                    
     in  an  account  created  within   the  fund  for  that                                                                    
     purpose.                                                                                                                   
                                                                                                                                
     Section  7, related  to subsidiaries  created under  AS                                                                    
     31.25.120  to  specify  that a  subsidiary  corporation                                                                    
     under this section may only  use money appropriated for                                                                    
     the in-state natural gas pipeline under AS 31.25.100.                                                                      
                                                                                                                                
9:18:29 AM                                                                                                                    
                                                                                                                                
Senator  Dunleavy wondered  if  the  subsidiary was  modeled                                                                    
after  an  existing  model  elsewhere   in  the  world.  Mr.                                                                    
Pawlowski replied that the subsidiary  was not modeled after                                                                    
an  existing structure.  It was  modeled  with support  from                                                                    
contract   counsel   on   corporate  structures   with   the                                                                    
Department of Law  (DOL) with specific intent  to provide as                                                                    
bright  a   line  within  the  Alaska   Gasline  Development                                                                    
Corporation  (AGDC)  as  possible.  Recognizing  that  there                                                                    
would  be   a  discussion  with  the   legislature  how  the                                                                    
relationship should  be structured  for AGDC to  fulfill the                                                                    
mission that the legislature had  tasked. He stated that the                                                                    
AGDC sections  understood that the  subsidiary was  based on                                                                    
Alaska corporate law.                                                                                                           
                                                                                                                                
9:19:28 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:20:16 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Mr. Pawlowski looked at Section 8:                                                                                              
                                                                                                                                
     Section 8 adds new section  AS 31.25.122 to establish a                                                                    
     subsidiary  for a  large-diameter natural  gas pipeline                                                                    
     project  as  a  public  corporation  and  a  government                                                                    
     instrumentality for administrative  purposes but with a                                                                    
     legal  existence independent  from  the  state and  the                                                                    
     AGDC.  The  purpose of  the  subsidiary  is to  acquire                                                                    
     state  equity  interests  in  components  of  a  large-                                                                    
     diameter  natural   gas  pipeline   project,  including                                                                    
     pipelines, treatment, liquefaction  and marine terminal                                                                    
     facilities. The  subsidiary may use  money appropriated                                                                    
     under   AS  31.25.110   and  may   not  to   use  money                                                                    
     appropriated  to  the  in-state  natural  gas  pipeline                                                                    
     project fund in AS  31.25.100. Subsection (b) creates a                                                                    
     seven  member board  of  directors  of the  subsidiary.                                                                    
     Subsection (d)  sets out purposes, (e)  allows the AGDC                                                                    
     to transfer  assets, except for revenues  as restricted                                                                    
     by AS  31.25.100 to the  subsidiary created  under this                                                                    
     section.  Some of  the statutory  provisions applicable                                                                    
     to the  AGDC are incorporated  to aid in  the operation                                                                    
     of the subsidiary. Subsection  (f) relates to employees                                                                    
     of the  subsidiary while  (g) describes  the conditions                                                                    
     of termination of the subsidiary.                                                                                          
                                                                                                                                
Mr. Pawlowski explained Section 9:                                                                                              
                                                                                                                                
     Section  9 amends  AS 31.25.390(5),  the definition  of                                                                    
     "in-state natural gas pipeline",  by adding a reference                                                                    
     to AS 31.25.005(1).                                                                                                        
                                                                                                                                
Mr. Pawlowski looked at Section 10:                                                                                             
                                                                                                                                
     Section 10  adds new definitions  in AS  31.25.390. New                                                                    
     subsection  (7) defines  a "large-diameter  natural gas                                                                    
     pipeline project" and (8)  defines a "subsidiary board"                                                                    
     as meaning a subsidiary under AS 31 25.122.                                                                                
                                                                                                                                
Mr. Pawlowski explained that the next sections would focus                                                                      
on the process of the project, rather than the state's                                                                          
specific involvement.                                                                                                           
                                                                                                                                
9:22:55 AM                                                                                                                    
                                                                                                                                
JOE BALASH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,                                                                      
(DNR) looked at Section 11:                                                                                                     
                                                                                                                                
     Section 11 amends the authority  of the commissioner of                                                                    
     the  Department of  Natural Resources  (DNR) by  adding                                                                    
     new  paragraphs   (10)  -  (13)  to   AS  38.05.020(b).                                                                    
     Effective immediately,  the DNR commissioner  may enter                                                                    
     into commercial  agreements of not more  than two years                                                                    
     duration  for project  services  related  to the  North                                                                    
     Slope  natural gas  project. In  consultation with  the                                                                    
     Commissioner  of  Revenue,  the  DNR  commissioner  may                                                                    
     participate  in negotiations  associated  with a  North                                                                    
     Slope  natural gas  project. A  contract negotiated  in                                                                    
     which  the state  is  a party  would  not be  effective                                                                    
     against  the  state without  legislative  authorization                                                                    
     for  the governor  to execute  the contract.  Paragraph                                                                    
     (12)  permits  the  DNR   commissioner  to  enter  into                                                                    
     confidentiality agreements  to maintain confidentiality                                                                    
     throughout    contract   negotiations    and   contract                                                                    
     implementation.   Confidential   information   obtained                                                                    
     under  paragraph   (12)  shall   be  shared   with  the                                                                    
     legislature  only  in   committees  held  in  executive                                                                    
     session  or  under  confidentiality  agreements.  Final                                                                    
     contracts subject to approval  by the legislature would                                                                    
     not be confidential.                                                                                                       
                                                                                                                                
Commissioner Balash looked at Section 12:                                                                                       
                                                                                                                                
     Section 12  adds new  paragraph (13)  to allow  the DNR                                                                    
     commissioner, in consultation  with the commissioner of                                                                    
     revenue, to take custody of  gas delivered to the state                                                                    
     under new  AS 43.55.014(b), to manage  project services                                                                    
     and  the  disposition of  gas  delivered  to the  state                                                                    
     under new AS 43.55.014(b).                                                                                                 
                                                                                                                                
Mr.  Pawlowski  explained  effective dates  were  often  the                                                                    
reason that a  section may seem like a repeat  of a previous                                                                    
section.  He  stressed  that  taxation   was  based  on  the                                                                    
calendar year, not the fiscal year.                                                                                             
                                                                                                                                
9:26:15 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:27:01 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Commissioner Balash looked at Section  12, page 15, lines 23                                                                    
through 26. He stressed that  the language was attempting to                                                                    
ensure that  there were no  duplicating efforts  between DNR                                                                    
and DOR.                                                                                                                        
                                                                                                                                
Commissioner Balash explained Section 13:                                                                                       
                                                                                                                                
     Section 13 clarifies AS  38.05.180(i) with a conforming                                                                    
     amendment that the exploration  incentive credit may be                                                                    
     applied against  the oil and gas  production tax levied                                                                    
     under AS 43.55.011.                                                                                                        
                                                                                                                                
Commissioner Balash looked at Sections 14 and 15:                                                                               
                                                                                                                                
     Sections 14  and 15 adds  a new subsection (hh)  to the                                                                    
     Alaska  Land Act,  AS 38.05.180,  which deals  with oil                                                                    
     and  gas leasing,  to permit  the  DNR commissioner  to                                                                    
     propose modifications  to existing  oil and  gas leases                                                                    
     relating to the state's ability  to take royalty gas in                                                                    
     kind or in  value, the establishment of  values for the                                                                    
     state's royalty  gas and deductions  for transportation                                                                    
     costs, and  the fixation of  royalty rates of  not less                                                                    
     than  12.5  percent  and modifications  to  net  profit                                                                    
     share  terms in  oil and  gas leases.  Modifications to                                                                    
     existing  oil and  gas leases  would require  a written                                                                    
     determination  by the  DNR  commissioner  that a  North                                                                    
     Slope  natural  gas  project has  sufficient  financial                                                                    
     commitment and commitment of gas  from the leases to be                                                                    
     modified, in addition to concurrence  of the lessees to                                                                    
     the modification.                                                                                                          
                                                                                                                                
Mr. Pawlowski explained  that had been some  mention of "tax                                                                    
as  gas."  The  Heads  of Agreement  (HOA)  stated  that  in                                                                    
addition  to  taking  royalty in-kind,  there  would  be  an                                                                    
opportunity  instead  of  tax  payments  for  the  state  to                                                                    
receive  a larger  share of  the molecules.  The legislation                                                                    
would allow DOR  to leverage the expertise  and the existing                                                                    
mechanisms  that DNR  to dispose  of royalty.  There was  no                                                                    
desire to recreate  a royalty and commercial  section in DOR                                                                    
to  handle  the molecules  that  would  be received  as  tax                                                                    
payments.                                                                                                                       
                                                                                                                                
Commissioner Balash explained Sections 16 through 19:                                                                           
                                                                                                                                
     Sections 16  through 19 amend AS  38.05.183, related to                                                                    
     sales of  royalty oil or  gas, by adding  references to                                                                    
     gas delivered  to the state under  AS 43.55.014(b), the                                                                    
     levy of  production tax on  gas to  be paid in  gas for                                                                    
     certain North Slope leases.                                                                                                
                                                                                                                                
Commissioner Balash highlighted Section 20:                                                                                     
                                                                                                                                
     Section 20  adds two new  subsections (26) and  (27) in                                                                    
     AS  38.05.965.  Subsection  (26) defines  "North  Slope                                                                    
     natural gas project;"  subsection (27) defines "project                                                                    
     services."                                                                                                                 
                                                                                                                                
9:32:32 AM                                                                                                                    
                                                                                                                                
Mr. Pawlowski  shared that  the following  sections referred                                                                    
to specifically to tax provisions.                                                                                              
                                                                                                                                
Mr. Pawlowski outlined Section 21 and 22:                                                                                       
                                                                                                                                
     Sections 21  and 22 amend  AS 40.25.100 related  to the                                                                    
     confidentiality   of   tax   information   to   clearly                                                                    
     establish  as   confidential  information   related  to                                                                    
     contract  negotiations for  a North  Slope natural  gas                                                                    
     project. Section  21 references  new subsection  (k) in                                                                    
     AS  43.05.230 to  except from  taxpayer confidentiality                                                                    
     provisions  the  name  of each  person  that  makes  an                                                                    
     election to  pay the gas  production tax  from modified                                                                    
     North  Slope  leases  in  gas and  the  amount  of  gas                                                                    
     subject to that election.                                                                                                  
                                                                                                                                
Mr. Pawlowski explained Section 23:                                                                                             
                                                                                                                                
     Section  23  amends  AS 40.25.120(a)  to  establish  an                                                                    
     exception   in    public   records    for   information                                                                    
     confidential   under   the   new   provisions   of   AS                                                                    
     38.05.020(b)  (related to  contract negotiations  for a                                                                    
     North Slope natural gas project).                                                                                          
                                                                                                                                
Mr. Pawlowski addressed Sections 24 and 25:                                                                                     
                                                                                                                                
     Sections  24   and  25  amend  the   authority  of  the                                                                    
     commissioner  of the  Department  of  Revenue (DOR)  by                                                                    
     adding new  paragraphs (16) and  (17) in  AS 43.05.010.                                                                    
     Effective  immediately,  paragraph (16)  provides  that                                                                    
     the  DOR   commissioner  may   consult  with   the  DNR                                                                    
     commissioner  on negotiations  associated with  a North                                                                    
     Slope  natural  gas  project.   Section  24  amends  AS                                                                    
     43.05.010 by adding paragraph (17)  to provide that the                                                                    
     DOR  commissioner direct  the  disposition of  revenues                                                                    
     received  from  gas delivered  to  the  state under  AS                                                                    
     43.55.014(b) by  entering into agreements with  the DNR                                                                    
     commissioner.                                                                                                              
                                                                                                                                
Mr. Pawlowski outlined Section 26:                                                                                              
                                                                                                                                
     Section 26 adds  new subsection (k) to  AS 43.05.230 to                                                                    
     except  from  taxpayer confidentiality  provisions  the                                                                    
     name  of each  person that  makes an  election to  pay,                                                                    
     after  2022, the  gas  production tax  in  gas and  the                                                                    
     amount of gas subject to that election.                                                                                    
                                                                                                                                
Mr. Pawlowski discussed Section 27:                                                                                             
                                                                                                                                
     Section 27  amends AS 43.20.144(f) to  clarify that gas                                                                    
     subject  to  an  election  to   pay  the  oil  and  gas                                                                    
     production  tax on  gas as  gas under  AS 43.55.014  is                                                                    
     included  the  extraction  factor  in  the  Alaska  Net                                                                    
     Income Tax Act.                                                                                                            
                                                                                                                                
Mr. Pawlowski looked at Section 28:                                                                                             
                                                                                                                                
     Section 28 amends AS 43.55.011(e),  the levy of the oil                                                                    
     and  gas  production  tax,  to  add  reference  to  the                                                                    
     separate  levy under  AS  43.55.014  for certain  North                                                                    
     Slope gas.  For oil and  gas produced after  January 1,                                                                    
     2014  and before  January 1,  2022, AS  43.55.011(e)(2)                                                                    
     would levy  on producers of  oil and gas  produced each                                                                    
     calendar  year a  flat rate  tax of  35 percent  of the                                                                    
     production tax  value of taxable  oil and  gas produced                                                                    
     from each lease or property  in the state. No change is                                                                    
     made to current  tax ceilings that apply  to Cook Inlet                                                                    
     oil and gas, gas produced  outside the Cook Inlet basin                                                                    
     and used  in the state,  and oil and gas  produced from                                                                    
     new fields  outside the Cook  Inlet basin and  south of                                                                    
     the North Slope.  For oil and gas produced  on or after                                                                    
     January 1,  2022 (after expiration of  the tax ceilings                                                                    
     for Cook  Inlet oil and  gas, and gas  produced outside                                                                    
     the  Cook  Inlet  basin  and used  in  the  state),  AS                                                                    
     43.55.011(e)(3)   would  levy   on  producers   of  oil                                                                    
     produced  each calendar  year  a flat  tax  rate of  35                                                                    
     percent  of the  production  tax value  of taxable  oil                                                                    
     produced from each  lease or property in  the state and                                                                    
     on  producers of  gas,  and  a flat  tax  rate of  10.5                                                                    
     percent of the  gross value at the  point of production                                                                    
     of  gas produced  from each  lease or  property in  the                                                                    
     state.  (Oil   and  gas  subject  to   AS  43.55.011(p)                                                                    
     continue to  be taxed at  no more than four  percent of                                                                    
     gross  value at  the point  of production  until 2027.)                                                                    
     The  tax on  gas  for which  the  DOR commissioner  has                                                                    
     approved  an election  to pay  in gas  would be  levied                                                                    
     under AS 43.55.014.                                                                                                        
                                                                                                                                
9:38:57 AM                                                                                                                    
                                                                                                                                
Mr. Pawlowski outlined Section 29:                                                                                              
                                                                                                                                
     Section  29  amends   AS  43.55.011(f),  the  alternate                                                                    
     minimum tax on  North Slope oil and gas,  to retain the                                                                    
     current minimum  tax until January 1,  2022. After that                                                                    
     date, the  minimum tax would  apply to oil  produced on                                                                    
     the North  Slope. A minor amendment  adds the reference                                                                    
     to  the  tax applying  to  leases  or properties  "that                                                                    
     include land"  to ensure  that property  that straddles                                                                    
     68 degrees  North latitude will be  considered north of                                                                    
     68 degrees North latitude for  purpose of the alternate                                                                    
     minimum tax.                                                                                                               
                                                                                                                                
Co-Chair Kelly asked for clarification  of page 27, line 14.                                                                    
Mr. Pawlowski  responded it  was in  Section 29,  and stated                                                                    
the minimum tax on oil  after January 1, 2022, because there                                                                    
was a  "carving out" of a  minimum tax that was  higher than                                                                    
the 4 percent.                                                                                                                  
                                                                                                                                
Mr. Pawlowski addressed Section 30:                                                                                             
                                                                                                                                
     Section 30 adds AS  43.55.014 which allows producers to                                                                    
     make   an  irrevocable   election,  under   regulations                                                                    
     adopted by DOR,  to pay the oil and  gas production tax                                                                    
     in gas for  gas produced from oil and  gas leases whose                                                                    
     terms   have   been    modified   under   proposed   AS                                                                    
     38.05.180(hh).                                                                                                             
                                                                                                                                
9:43:38 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:46:26 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Mr. Pawlowski continued to discuss Section 30:                                                                                  
                                                                                                                                
     The levy would be 10.5  percent of the taxable gas when                                                                    
     and as the gas is  produced. The producer would pay the                                                                    
     tax by delivering the gas to  the state at the point of                                                                    
     production.  The  DNR  would  manage  the  custody  and                                                                    
     disposition of gas delivered to  the state. Gas subject                                                                    
     to  this  provision  would   not  include  gas  flared,                                                                    
     released, or  allowed to escape  upstream of  the point                                                                    
     of production,  or to gas  used in lease  operations or                                                                    
     for  repressuring. Tax  deficiencies  and interest  and                                                                    
     penalties on any tax deficiency  would be accounted for                                                                    
     as  if   the  tax  was   levied  for  money   under  AS                                                                    
     43.55.011(e).  This   section  would  take   effect  on                                                                    
     January  1, 2015  to be  applied to  gas produced  from                                                                    
     certain  North Slope  leases on  and  after January  1,                                                                    
     2022.                                                                                                                      
                                                                                                                                
Mr. Pawlowski discussed Sections 31 and 32:                                                                                     
                                                                                                                                
     Sections  31 and  32 are  conforming amendments  to the                                                                    
     oil and  gas producer  education credit,  AS 43.55.019,                                                                    
     to  clarify  that the  credit  can  be applied  to  tax                                                                    
     liability under AS 43.55.011(e) only.                                                                                      
                                                                                                                                
Commissioner  Balash explained  the  construct  was for  the                                                                    
state to participate in the project  and take a share of the                                                                    
gas. He stated  that the gas was needed in  order to run the                                                                    
state's share  of the  infrastructure. There  were contracts                                                                    
with providers,  so it was important  to maintain consistent                                                                    
and predictable gas production throughput.                                                                                      
                                                                                                                                
Mr. Pawlowski spoke to Section 33:                                                                                              
                                                                                                                                
     Section 33 amends  AS 43.55.020(a), monthly installment                                                                    
     payments  of  estimated  tax,  to  add  provisions  for                                                                    
     payment of  tax after  January 1,  2022 and  to clarify                                                                    
     the tax rates that apply  to oil and gas produced after                                                                    
     a certain  date. Monthly  installment payments  for oil                                                                    
     and gas  produced on  or after January  1, 2022  are in                                                                    
     new subsection (a)(7).                                                                                                     
                                                                                                                                
Mr. Pawlowski explained Sections 34 and 35:                                                                                     
                                                                                                                                
     Sections  34  and  35  are  conforming  changes  to  AS                                                                    
     43.55.020,  monthly  installment  payments.  Subsection                                                                    
     (g) is  amended to account  for new tax  provisions for                                                                    
     oil and gas  produced after January 1,  2022. A similar                                                                    
     conforming  change  is  made   in  AS  43.55.020(h)  to                                                                    
     account  for interest  on  overpayments of  installment                                                                    
     payments.                                                                                                                  
                                                                                                                                
9:51:07 AM                                                                                                                    
                                                                                                                                
Mr. Pawlowski addressed Sections 36 and 37:                                                                                     
                                                                                                                                
     Sections  36 and  37 amends  AS  43.55.020(l) and  adds                                                                    
     subsection  (m), related  to  making  settlements by  a                                                                    
     producer  with  private  landowner  royalty  owner,  to                                                                    
     account for making a settlement  with the royalty owner                                                                    
     for gas  taxable before January  1, 2022 and  under new                                                                    
     AS 43.55.014.                                                                                                              
                                                                                                                                
Mr. Pawlowski highlighted Section 38:                                                                                           
                                                                                                                                
     Section 38  amends AS  43.55.030, annual  statements by                                                                    
     producers and  explorers, to  require reporting  of the                                                                    
     amount of  gas produced  from a  lease or  property for                                                                    
     which tax is  levied under AS 43.55.014  and the amount                                                                    
     of gas delivered to the state under AS 43.55.014.                                                                          
                                                                                                                                
Mr. Pawlowski discussed Section 39:                                                                                             
                                                                                                                                
     Section  39  amends  AS  43.55.160(a),  calculation  of                                                                    
     annual production  tax values,  to clarify  and conform                                                                    
     to the  levy of  tax under  AS 43.55.011(e)(2)  for oil                                                                    
     and gas produced before January 1, 2022.                                                                                   
                                                                                                                                
Mr. Pawlowski outlined Section 40:                                                                                              
                                                                                                                                
     Section   40  amends   AS   43.55.160(e),  related   to                                                                    
     determination  of  excess  lease expenditures  for  the                                                                    
     purpose of  calculating a carried-forward  loss credit,                                                                    
     to  account for  annual production  tax values  for oil                                                                    
     produced on and after January 1, 2022.                                                                                     
                                                                                                                                
Mr. Pawlowski looked at Section 41:                                                                                             
                                                                                                                                
     Section 41  amends AS 43.55.160(f), a  20 percent gross                                                                    
     value reduction for certain oil  and gas produced north                                                                    
     of 68 degrees  North latitude, so that  gas produced on                                                                    
     and after  January 1,  2022 would  not qualify  for the                                                                    
     gross value reduction in this section.                                                                                     
                                                                                                                                
Mr. Pawlowski discussed Section 42:                                                                                             
                                                                                                                                
     Section 42  amends AS 43.55.160(g), a  10 percent gross                                                                    
     value reduction  for certain oil and  gas produced from                                                                    
     a  unit north  of  68 degrees  North  latitude made  up                                                                    
     solely  of leases  that have  a royalty  share of  more                                                                    
     than 12.5 percent in amount  or value of the production                                                                    
     removed or sold from the  lease so that gas produced on                                                                    
     and after  January 1,  2022 would  not qualify  for the                                                                    
     gross value reduction in this section.                                                                                     
                                                                                                                                
Mr. Pawlowski highlighted Section 43:                                                                                           
                                                                                                                                
     Section 43  amends AS 43.55.160, calculation  of annual                                                                    
     production tax values, to add  a new subsection (h) for                                                                    
     calculation  of annual  production tax  values for  oil                                                                    
     produced on  and after  January 1,  2022. On  and after                                                                    
     January 1, 2022, gas would  be taxed at a percentage of                                                                    
     gross  value. Accordingly,  there would  be no  need to                                                                    
     calculate a production tax value  (gross value at point                                                                    
     of  production   less  lease  expenditures)   for  gas.                                                                    
     Producers would still calculate  a production tax value                                                                    
     of oil  taxable under AS 43.55.011(e)  for the segments                                                                    
     set out in AS 43.55.160(h).                                                                                                
                                                                                                                                
Mr. Pawlowski explained Section 44:                                                                                             
                                                                                                                                
     Section  44   makes  a   conforming  amendment   to  AS                                                                    
     43.55.165,   lease  expenditures,   to  exclude   as  a                                                                    
     deduction from lease expenditures  the tax levied under                                                                    
     AS 43.55.014.                                                                                                              
                                                                                                                                
Mr. Pawlowski discussed Sections 45 through 47:                                                                                 
                                                                                                                                
     Sections 45 through  47 amend, for purposes  of the oil                                                                    
     and  gas  production  tax,   the  definitions  of  "gas                                                                    
     processing plants"  and "point  of production"  for gas                                                                    
     to  be  upstream  of  either   the  first  point  where                                                                    
     accurately   measured,   the   inlet  of   a   pipeline                                                                    
     transporting the gas  to a gas treatment  plant, or the                                                                    
     inlet of  any gas  pipeline system transporting  gas to                                                                    
     market. Section 46 adds a  definition of "gas treatment                                                                    
     plant".                                                                                                                    
                                                                                                                                
Co-Chair Kelly asked what section was currently being                                                                           
discussed. Mr. Pawlowski stated that he was broadly                                                                             
speaking to Section 45.                                                                                                         
                                                                                                                                
9:58:40 AM                                                                                                                    
                                                                                                                                
Mr. Pawlowski outlined Section 48:                                                                                              
                                                                                                                                
     Section   48   makes   conforming  amendments   to   AS                                                                    
     43.98.030,  the film  production tax  credit, to  limit                                                                    
     the applicability  of the credit  to the tax  levied by                                                                    
     AS 43.55.011.                                                                                                              
                                                                                                                                
Mr. Pawlowski spoke to Section 49:                                                                                              
                                                                                                                                
     Section 49 amends  uncodified law to add  a new section                                                                    
     related to direction that at  the time the commissioner                                                                    
     of natural resources submits the  first contract to the                                                                    
     legislature for  approval, the commissioner  of revenue                                                                    
     shall  present  a  plan and  suggested  legislation  to                                                                    
     allow a resident  of the state to participate  as a co-                                                                    
     owner in a  North Slope natural gas  pipeline, and sets                                                                    
     out factors that must be in the plan.                                                                                      
                                                                                                                                
Mr. Pawlowski outlined Section 50:                                                                                              
                                                                                                                                
     Section  50  allows  the  DNR  and  the  DOR  to  adopt                                                                    
     regulations to implement this Act.                                                                                         
                                                                                                                                
Mr. Pawlowski explained Section 51:                                                                                             
                                                                                                                                
     Section 51 instructs the reviser  of statutes to make a                                                                    
     title   change   to   AS  38.05.183   to   include   AS                                                                    
     43.55.014(b).                                                                                                              
                                                                                                                                
Mr. Pawlowski discussed Sections 52 and 53:                                                                                     
                                                                                                                                
     Sections 52  and 53 set  effective dates  for different                                                                    
     sections of  the bill. Sections  1 -10, 12, 13  19, 20,                                                                    
     22,  23,  30,   31,  47  and  48   would  be  effective                                                                    
     immediately. The other sections would be effective                                                                         
     January 1, 2015.                                                                                                           
                                                                                                                                
10:00:58 AM                                                                                                                   
                                                                                                                                
Co-Chair Meyer wondered if the  state received 10 percent of                                                                    
the gas  that was  produced on  federal land.  Mr. Pawlowski                                                                    
replied that the  tax for that gas would be  10.5 percent of                                                                    
the gross value of that gas.                                                                                                    
                                                                                                                                
Co-Chair  Meyer queried  the federal  take of  the gas.  Mr.                                                                    
Pawlowski  responded  that  he  did not  know  the  specific                                                                    
royalties of the  federal take, but shared  that the federal                                                                    
government received corporate income tax.                                                                                       
                                                                                                                                
Co-Chair  Meyer   wondered  if   there  would   be  problems                                                                    
administering the  public management. Mr.  Pawlowski replied                                                                    
that  the  provision  in   the  legislation  was  uncodified                                                                    
direction to DOR to manage  those issues. He felt that there                                                                    
may  or may  not be  an administrative  burden. He  stressed                                                                    
that  it  would  not  be   determined  until  the  work  was                                                                    
complete.  He felt  that the  provision allowed  for DOR  to                                                                    
conduct  the  due  diligence  in   order  to  determine  the                                                                    
possibility of the management.                                                                                                  
                                                                                                                                
10:02:58 AM                                                                                                                   
                                                                                                                                
Vice-Chair   Fairclough   noted    that   there   had   some                                                                    
conversation  about  the  subsidiary. She  referred  to  the                                                                    
Denali Project,  and remarked that there  was a partnership.                                                                    
She wondered why  AGDC was not considered  a subsidiary. Mr.                                                                    
Pawlowski replied that the administration  looked at the HOA                                                                    
as a  proposal. He stressed  that there  was a focus  on how                                                                    
the stated participated  in the project. He  stated that the                                                                    
pipeline  was  in  recognition that  AGDC  was  required  by                                                                    
statute to develop a standalone pipeline.                                                                                       
                                                                                                                                
Vice-Chair  Fairclough  surmised  that  attorneys  would  be                                                                    
evaluating those  proposals. She  looked at Section  13, and                                                                    
queried the  maximum credit that  could be obtained  at that                                                                    
allowance. Commissioner  Balash replied that the  credit was                                                                    
considered a DNR credit.                                                                                                        
                                                                                                                                
Mr. Pawlowski  looked at page  16, line 5 and  remarked that                                                                    
the credit  may not  exceed 50  percent of  the cost  of the                                                                    
drilling  or geophysical  work.  Additionally,  on page  16,                                                                    
line 9 stated  that the credit may not exceed  50 percent of                                                                    
the payment. Therefore, one could  only offset 50 percent of                                                                    
the tax payment.                                                                                                                
                                                                                                                                
10:08:47 AM                                                                                                                   
                                                                                                                                
Vice-Chair Fairclough  wondered if  there was  a cap  on the                                                                    
credits  that  were  taken against  the  oil  revenues.  Mr.                                                                    
Pawlowski  replied that  he would  provide more  information                                                                    
about  the  state's credit  system.  He  furthered that  the                                                                    
state  had many  different credit  provisions, and  each one                                                                    
may have specific limitations.                                                                                                  
                                                                                                                                
Vice-Chair Fairclough stressed that  she was concerned about                                                                    
returning value  to the people  of Alaska  for participation                                                                    
in the  process. She wanted  to ensure the  best partnership                                                                    
in a  commercial relationship. She  understood that  gas was                                                                    
used  to  run the  oil  producing  facilities, and  was  not                                                                    
calculated in a tariff. Mr. Pawlowski agreed.                                                                                   
                                                                                                                                
Vice-Chair Fairclough  surmised that  the best  practice for                                                                    
gas  production  was  receiving  25  percent  value  and  25                                                                    
percent  expense  in  a  full   partner  in  the  commercial                                                                    
relationship.  She   wondered  if  it  was   wise  to  allow                                                                    
monetization  of upstream  gas  on the  downstream, but  not                                                                    
have it count  in the project. Mr.  Pawlowski responded that                                                                    
Section 30 of the legislation addressed that issue.                                                                             
                                                                                                                                
Vice-Chair  Fairclough  agreed  and added  Section  43  also                                                                    
addressed   a  similar   issue,  which   dealt  with   lease                                                                    
expenditures  not  counted  as  oil or  gas.  Mr.  Pawlowski                                                                    
agreed,  and felt  that  Section 30  addressed  more of  her                                                                    
concerns.  He  stated  that  the  key  difference  was  10.5                                                                    
percent of the  gas produced at the point  of production. He                                                                    
stated that it was included  to recognize that there was gas                                                                    
used in the project as  fuel for running the oil facilities.                                                                    
A  gross  value calculation  would  have  deducted the  fuel                                                                    
expenses.  He stated  that  DOR wanted  to  ensure that  the                                                                    
state  had the  full molecules  on the  downstream side.  He                                                                    
explained that the  upstream use was meant  for molecules to                                                                    
run the  power and  lifting the  oil as  part of  normal oil                                                                    
field operations.  Development of the in  kind provision was                                                                    
careful  to  state that  it  was  10.5  percent of  the  gas                                                                    
produced  at  the point  of  production,  so DOR  would  not                                                                    
undercount  the molecules  that  the state  was entitled  to                                                                    
meet its share of fuel cost and movement in the project.                                                                        
                                                                                                                                
Vice-Chair Fairclough perceived that  if there was a penalty                                                                    
or  dispute, the  interest would  not be  in molecules,  but                                                                    
rather  be  in  cash.   Mr.  Pawlowski  responded  that  the                                                                    
provision  was on  page 28,  line  18, and  agreed that  the                                                                    
deficiency would be in cash.                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough understood  that Commissioner  Balash                                                                    
said  that the  state must  maintain its  throughput of  gas                                                                    
moving through  the line to  protect the  state's interests.                                                                    
She  wondered if  the  reason  for taking  the  gas in  kind                                                                    
rather than in value at the  point of sale was because, as a                                                                    
full commercial partner, the state  would carry the expenses                                                                    
of  the  entire project.  The  state  must ensure  that  the                                                                    
throughput  was  high,  so  it  would  receive  the  maximum                                                                    
benefit of being  a full partner. If  the state's percentage                                                                    
of  gas dropped  below its  ownership equity  interests, the                                                                    
state  would  carry a  different  burden  of those  expenses                                                                    
because  it did  not  receive  the full  value  of what  was                                                                    
moving through the line.  Commissioner Balash responded that                                                                    
the HOA spoke  to the offtake and  balancing agreements that                                                                    
were necessary  for DOR and  DNR to be  comfortable entering                                                                    
into those  project services  agreements downstream  for all                                                                    
facilitations. He  stressed that the state  would be seeking                                                                    
its own certainty, in order  to ensure that it could deliver                                                                    
on the obligations to customers and citizens.                                                                                   
                                                                                                                                
10:17:09 AM                                                                                                                   
                                                                                                                                
Vice-Chair Fairclough surmised that  Alaska would attempt to                                                                    
hire  someone to  manage and  purchase  the throughput.  Mr.                                                                    
Pawlowski replied  that the state  would need  certainty for                                                                    
the  gas  coming  into  the   project,  and  it  would  need                                                                    
certainty for the LNG leaving  the project. He stressed that                                                                    
both ends of the equation was necessary.                                                                                        
                                                                                                                                
Vice-Chair Fairclough felt that  there could be a perception                                                                    
in  a few  years about  the energy  company partners  making                                                                    
more money  than Alaska. The  perception may be a  result of                                                                    
the  attempt to  bring  affordable to  energy Alaskans.  She                                                                    
stressed that  the partners  were global  organizations that                                                                    
did not necessarily report profits  in the same way that the                                                                    
state  reported   profits  inside  of  revenue   books.  Mr.                                                                    
Pawlowski responded that her summation was very accurate.                                                                       
                                                                                                                                
Senator  Bishop  was  not  convinced  that  AGDC  should  be                                                                    
considered  a  subsidiary.  He felt  that  there  should  be                                                                    
further  analysis  of the  necessity  of  having AGDC  as  a                                                                    
subsidiary.  He  felt  that there  needed  to  be  extremely                                                                    
qualified people to be a part  of the board and run AGDC. He                                                                    
stressed  that  there were  a  limited  number of  qualified                                                                    
people in the state.                                                                                                            
                                                                                                                                
Senator Dunleavy wondered  if it would be an  all or nothing                                                                    
proposal  when the  offtake  and  balancing agreements  were                                                                    
presented to the  legislature. Commissioner Balash responded                                                                    
that the  interdependencies of all  of the  agreements would                                                                    
be such  that it would be  difficult to modify an  aspect of                                                                    
one  agreement, and  not have  it impact  another agreement.                                                                    
The expectation was that the  contracts that would come back                                                                    
to the  legislature would look  similar to the  royalty sale                                                                    
contracts.                                                                                                                      
                                                                                                                                
10:23:23 AM                                                                                                                   
                                                                                                                                
Senator  Dunleavy surmised  that  the  committee should  not                                                                    
consider  amendments.  Mr.   Pawlowski  responded  that  the                                                                    
ultimate  contract vote  was taken  differently than  a bill                                                                    
vote. The opportunity for legislative  engagement was not at                                                                    
the end of  the process, and felt that  interaction with the                                                                    
legislature was imperative in the executive sessions.                                                                           
                                                                                                                                
Senator  Olson remarked  that  there was  a  concern of  the                                                                    
North Slope Borough and other  boroughs regarding what would                                                                    
happen in  the future. He  did not see any  provision giving                                                                    
those  boroughs satisfaction  and  stability.  He felt  that                                                                    
those  boroughs should  be  consulted  regarding their  real                                                                    
estate  taxing  status. He  wondered  if  there could  be  a                                                                    
definition of  the consultation, so those  communities could                                                                    
be comfortable  with the legislation. Mr.  Pawlowski replied                                                                    
that when  the administration  and the companies  engaged in                                                                    
the  development  of  the  HOA, it  was  a  problem  solving                                                                    
exercise. He  stated that there  were certain  problems that                                                                    
were not the  responsibility of the parties  involved in the                                                                    
HOA.  He  stated  that  property tax  was  provided  by  the                                                                    
legislature and local governments.                                                                                              
                                                                                                                                
Senator Olson  wondered if there  would be opposition  to an                                                                    
amendment  that   would  further  define   consolation  with                                                                    
municipalities. Mr.  Pawlowski responded  that DOR  would be                                                                    
open to discussion regarding that issue.                                                                                        
                                                                                                                                
10:27:40 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:41:26 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:41:45 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:41:59 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:42:07 AM                                                                                                                   
                                                                                                                                
^PRESENTATION: DECISIONS, ALIGNMENT, PRICE, COST and RISK                                                                     
                                                                                                                                
10:42:20 AM                                                                                                                   
                                                                                                                                
JANAK MAYER,  PARTNER, ENALYTICA, discussed  the PowerPoint,                                                                    
"In Kind  vs. in Value,  Risks and Midstream  Options" (copy                                                                    
on file). He  stated that there was an attempt  to provide a                                                                    
high  level overview  the week  prior,  of some  of the  key                                                                    
issues that the legislature needed  in order to consider the                                                                    
legislation. There  was a discussion  regarding some  of the                                                                    
questions  associated with  the  choice of  the  state as  a                                                                    
taxing  authority that  took  royalty and  tax  at the  well                                                                    
head,  and  the issues  of  the  overwhelming value  of  the                                                                    
project consumed at the midstream,  leaving a relatively low                                                                    
residual  value at  the well  head. He  felt that  the state                                                                    
might  want to  consider participating  more broadly  across                                                                    
the value chain.                                                                                                                
                                                                                                                                
Mr.  Mayer  highlighted slide  4,  "In  Kind Vs.  in  Value:                                                                    
Project  Options." He  stated that  the slide  reflected the                                                                    
world  of the  HOA. It  contrasted  the status  quo, of  the                                                                    
state taking  value through  the royalty  and taxing  with a                                                                    
profit based production tax with  value at the well head. It                                                                    
was  contributing  to  upstream costs  solely  and  directly                                                                    
through taxes and/or deductions in  taxes and credits at the                                                                    
well head, but had no  share of the subsequent gas treatment                                                                    
facility, pipeline, and liquefaction  project. The state did                                                                    
not  have to  take on  any debt  to finance  any commitment,                                                                    
because it  did not  have to contribute  any of  the capital                                                                    
cost of the facilities. He  stated that the slide also dealt                                                                    
with the issue  of the question of  the tariff, subsequently                                                                    
on   the  entirety   of  the   midstream  -   gas  treatment                                                                    
processing,  pipeline,  and  liquefaction.  Those  processes                                                                    
were crucial to the question  of how much residual value, if                                                                    
any, there  was for the  state to tax  at the well  head. He                                                                    
stated that  the slide conversely  envisioned the  end point                                                                    
of  the  HOA  process,  if the  HOA  could  be  successfully                                                                    
negotiated. The  state would define  a share of gas  that it                                                                    
took  through  royalty  and   the  growth  production  taken                                                                    
instead as gas instead of tax,  where it had defined a share                                                                    
of ownership in the entirety of the midstream                                                                                   
                                                                                                                                
10:49:22 AM                                                                                                                   
                                                                                                                                
Mr. Mayer discussed slide 5,  "RIV: Upstream Absorbs All the                                                                    
Price   Risk,  Fixed   nature  of   tariff  in   'in  value'                                                                    
alternative  amplifies impact  of  price  movement on  state                                                                    
returns." He stated  that the slide was  a graphical version                                                                    
of some slides from the  Revenue Sources Book calculation in                                                                    
the previous presentation. If the  state was simply a taxing                                                                    
authority,  that   took  its  royalty  in   value  and  took                                                                    
production tax on  a profit base, the  state would, counter-                                                                    
intuitively, become  a "shock absorber." He  stated that the                                                                    
slide would  show how the state  should not be fully  in and                                                                    
transparent.  He  stressed  that  there was  a  large  fixed                                                                    
tariff payment, which was a  very large portion of the total                                                                    
value.  He stated  that the  graph  showed a  barrel of  oil                                                                    
(BOE) equivalent  terms and in corresponding  dollar per BTU                                                                    
terms  to an  LNG  form  delivered to  an  Asian market.  He                                                                    
stated that, when prices were  high, there would be a higher                                                                    
net price  of oil,  because LNG was  priced at  a discounted                                                                    
relationship to oil.                                                                                                            
                                                                                                                                
10:52:33 AM                                                                                                                   
                                                                                                                                
Mr. Mayer looked  at slide 6, "'In Kind'  with Equity Offers                                                                    
More  Downside  Protection,  'In value'  structure  protects                                                                    
producers,  not sate,  in low  price environment  because of                                                                    
tariff  component,  Higher   State  of  Alaska (SOA)  equity                                                                    
pushes  up the  price at  which  'in value'  is better  than                                                                    
equity." If one  took slide 5's understanding  and looked at                                                                    
more  results of  what  he saw  as  the overall  assumptions                                                                    
through an economic  model through a lifetime  of a project.                                                                    
He  felt  that  the  slide reflected  the  outcomes  of  the                                                                    
choices that the  state faced about the value  that it could                                                                    
receive  from   the  project  through  different   modes  of                                                                    
participation, either  as a taxing  entity or as an  in kind                                                                    
participant. The green  line was the accrued  value in terms                                                                    
of cumulative  cash flows over  the life of the  project. If                                                                    
all  of the  off tax  cash flows  that would  come from  the                                                                    
project, the graphs showed what  it would look like for each                                                                    
participant. The  left graph  was the  state of  Alaska, the                                                                    
middle  was  the producers,  and  the  right graph  was  the                                                                    
federal  government.  The Y-axis  was  the  total cash  flow                                                                    
value  across time  to each  party, and  the X-axis  was the                                                                    
price of LNG  delivered into Asia on a  scale from $10/MMBTU                                                                    
to $18/MMBTU. He stated that the  slope of the green line of                                                                    
the left  chart was  a much deeper  slope. He  stressed that                                                                    
the state  would have  the greatest share  of price  risk in                                                                    
the  status quo  in value  scenario, because  so much  value                                                                    
could disappear at the well  head when prices decline due to                                                                    
the  fixed  tariff  that  applied   to  the  gas  treatment,                                                                    
pipeline,  and  liquefaction.  The   red  and  yellow  lines                                                                    
represented  the world  of in  kind  participation. The  red                                                                    
line represented  a 20  percent share,  and the  yellow line                                                                    
represented  a 25  percent share.  It showed  that, at  high                                                                    
prices, the state was  not as well off as it  would be in an                                                                    
in value  world. Conversely,  at low  prices, the  state was                                                                    
substantially   better.    He   remarked   that    in   kind                                                                    
participation  protected the  state better  from price  risk                                                                    
than  in value  participation, because  of the  intuition in                                                                    
the previous slide.                                                                                                             
                                                                                                                                
10:57:26 AM                                                                                                                   
                                                                                                                                
Mr.  Mayer explained  slide 7,  "SOA Share  of value  Higher                                                                    
than  Equity Share,  SOA  participation  in midstream  means                                                                    
fixed  tariff  for  producers no  longer  'guaranteed'."  He                                                                    
stated that  it was  easy to  look at  the state  bearing 25                                                                    
percent of  the cost,  if the  state had  25 percent  of the                                                                    
cost, and therefore the state  had 25 percent of the overall                                                                    
value  that  the  project created.  He  stressed  that  that                                                                    
assumption was not  accurate. He pointed out  that the state                                                                    
would take much more than  25 percent in most circumstances.                                                                    
The slide  showed the net  present value of those  same cash                                                                    
flows over the life of the  project, and looked at the total                                                                    
economic  value accrual  on a  percentage basis.  He pointed                                                                    
out that in all cases,  there was substantially more than 25                                                                    
percent at the total value going  to the state of Alaska. HE                                                                    
stressed that  there was a  focus of a  range from 30  to 50                                                                    
percent depending.  The state would  have the  highest share                                                                    
of  value in  the lowest  prices  and would  fall at  higher                                                                    
prices in-kind scenario. The in  value scenario reflected an                                                                    
opposite outcome for the state.                                                                                                 
                                                                                                                                
Mr. Mayer highlighted  slide 8, "SOA Equity  Leads to higher                                                                    
Government  take  on  Average;  'In  value'  entails  lowest                                                                    
government take,  especially in low  prices as cash  goes to                                                                    
producers; Split between  Fed vs. SOA split  depends on both                                                                    
'in value  vs. 'in kind' as  well as SOA equity  share." The                                                                    
state showed the same figures  in cumulative cash flows over                                                                    
the life of  the project in terms of the  share going to the                                                                    
state,  producer,  and  federal   government  in  the  three                                                                    
different  scenarios: in  value, 20  percent equity,  and 25                                                                    
percent equity.                                                                                                                 
                                                                                                                                
Co-Chair Kelly handed the gavel to Co-Chair Meyer.                                                                              
                                                                                                                                
11:03:16 AM                                                                                                                   
                                                                                                                                
Senator Bishop looked at the  left column, and noted that it                                                                    
showed  50 percent  in value  total government  take between                                                                    
the  green and  yellow bars.  Mr. Mayer  agreed, and  stated                                                                    
that it was at the lower  price levels, but rose to the mid-                                                                    
fifties at the higher levels.                                                                                                   
                                                                                                                                
Senator Bishop  wondered if there  could be a  reflection of                                                                    
the cash  returned to  the state, if  there was  an assigned                                                                    
cash value. Mr.  Mayer remarked that one should  not look at                                                                    
the sum  of the green and  yellow bars, but rather  the take                                                                    
to the  state of Alaska. He  remarked that there would  be a                                                                    
dramatic drop  at lower  price levels, and  it was  taken by                                                                    
the  federal  government. He  stressed  that  the state  was                                                                    
taking most of  its value from taxing at the  well head, but                                                                    
the  federal  government  was taxing  at  the  entire  value                                                                    
stream.                                                                                                                         
                                                                                                                                
Co-Chair Meyer handed the gavel to Co-Chair Kelly.                                                                              
                                                                                                                                
11:06:27 AM                                                                                                                   
                                                                                                                                
Co-Chair Meyer looked at the  price per BTU starting at $10,                                                                    
but  there were  other  contracts that  were  below $10.  He                                                                    
wondered why that was the case.                                                                                                 
                                                                                                                                
NIKOS  TSAFOS, PARTNER,  ENALYTICA, responded  that, looking                                                                    
at gas  pricing, North  America had some  of the  lowest gas                                                                    
prices in the world. He  stated that Europe was somewhere in                                                                    
the  middle, with  pricing of  between $9  to $12.  Asia was                                                                    
fairly  high,  with  pricing  near between  $13  to  16.  He                                                                    
announced  that   there  were  some  slides   later  in  the                                                                    
presentation that dealt with the structure of pricing.                                                                          
                                                                                                                                
Co-Chair  Meyer  felt that  there  should  be a  worst  case                                                                    
scenario  represented in  the presentation.  He wondered  if                                                                    
the  supply  of  gas  was becoming  more  plentiful,  so  he                                                                    
wondered if  there would  be more  downward pressure  put on                                                                    
the prices rather than the  upward price. Mr. Tsafos replied                                                                    
that  a  worst case  scenario  would  be beneficial  to  the                                                                    
analysis. He  stated that there  could be a point  where the                                                                    
project was built, and the  day the project goes online when                                                                    
the prices would  be much lower than expected.  He agreed to                                                                    
provide a worst case scenario analysis.                                                                                         
                                                                                                                                
Co-Chair  Meyer expressed  concern  with  Russia, and  their                                                                    
aggressive low-rate contract  acceptance. Mr. Tsafos replied                                                                    
that Russia  was not  going to  "under cut"  Alaska, because                                                                    
Russia had  a very high  cost structure do  to environmental                                                                    
and technical issues bringing the gas to market.                                                                                
                                                                                                                                
11:12:17 AM                                                                                                                   
                                                                                                                                
Vice-Chair Fairclough remarked  that Alaska had participated                                                                    
in  many different  oil tax  regimes, so  as the  worst case                                                                    
scenarios were  modeled, she stressed  that there  would not                                                                    
be  final  investment  decisions until  the  contracts  were                                                                    
signed. Mr.  Tsafos agreed, and  furthered that  there would                                                                    
be  a slide  related to  how the  state could  contractually                                                                    
protect itself from adverse effects.                                                                                            
                                                                                                                                
Vice-Chair  Fairclough looked  at the  bars on  slide 8;  it                                                                    
appears that  the producers  make more  than the  state. She                                                                    
felt  that  the  producers  should  be  reflected  as  three                                                                    
different  companies. Mr.  Mayer  agreed that  the red  bars                                                                    
were the combination of three companies.                                                                                        
                                                                                                                                
Mr. Mayer addressed  slide 9, "Equity Boosts  SOA Outlays to                                                                    
$10.2 billion  to $12.3 billion;  Annual outlays  could peak                                                                    
at  $2.7 billion  (20 percent  equity) to  $3.3 billion  (25                                                                    
percent equity), assuming  no debt; Even in  status quo ('in                                                                    
value'), state has outlays through  the tax system." The HOA                                                                    
set out a possibility of a total state share.                                                                                   
                                                                                                                                
11:20:16 AM                                                                                                                   
                                                                                                                                
Mr. Tsafos explained  slide 10, "Price and  Cost Risks; Cost                                                                    
Escalation/Delays."   When  the   state  takes   equity,  it                                                                    
functions like an  oil and gas company. The  slide was meant                                                                    
to  identify what  could go  wrong in  the equity  world. It                                                                    
showed a list  of LNG projects that were  developed over the                                                                    
previous decade, and what kind of delays they faced.                                                                            
                                                                                                                                
Mr. Tsafos discussed slide 11,  "Buyers Often Take Equity in                                                                    
LNG Projects."                                                                                                                  
                                                                                                                                
     In half  of the  world's LNG capacity,  a share  of the                                                                    
     LNG is sold to equity partners                                                                                             
                                                                                                                                
     Such  deals can  mitigate risk  by aligning  supplier -                                                                    
     buyer interest (e.g. output shortfall)                                                                                     
                                                                                                                                
     Buyers get  sense of supply  security, and  these deals                                                                    
    often open up the project to third-party financing                                                                          
                                                                                                                                
Mr.  Tsafos  spoke  to  slide   12,  "Project  Finance  Well                                                                    
Established in LNG."                                                                                                            
                                                                                                                                
     IHS  estimates  that  LNG   projects  raised  over  $97                                                                    
     billion in third-party financing since 2000                                                                                
                                                                                                                                
     Financing   from   project  sponsors,   export   credit                                                                    
     agencies, multilateral banks and commercial banks                                                                          
                                                                                                                                
     Commercial loans  can also secure  sovereign guarantees                                                                    
     as insurance                                                                                                               
                                                                                                                                
     The Japan  Bank of International Cooperation  (JBIC) is                                                                    
     the largest single provider of funds                                                                                       
                                                                                                                                
11:24:35 AM                                                                                                                   
                                                                                                                                
Mr.  Tsafos  highlighted  slide  13,  "SOA  Cash  Call  $4.8                                                                    
billion - $5.5 billion  with 70/30 debt/equity; Peak outlays                                                                    
shrink to  $1.2 to  $1.3 billion  depending on  equity level                                                                    
(20  percent  or 25  percent)."  He  stated that  the  slide                                                                    
compared  a  world along  standard  practice  in LNG,  which                                                                    
showed that the peak outlays  may be closer to $1.5 billion.                                                                    
He remarked that the slide  was not intended to downplay the                                                                    
state  commitment, but  to take  the overarching  number and                                                                    
qualify it based on standard industry practices.                                                                                
                                                                                                                                
Vice-Chair  Fairclough  referred   to  a  presentation  that                                                                    
discussed a  pipeline structure.  She wondered if  the 70/30                                                                    
debt/equity  was  the  best option  for  Alaska.  Mr.  Mayer                                                                    
replied  that  it  was important  to  differentiate  between                                                                    
capital structures for the purpose  of tariff setting versus                                                                    
capital structures for the state's  share and how it chooses                                                                    
to  finance its  obligations.  Capital  structures for  rate                                                                    
setting  were reflective  of  the  actual capital  structure                                                                    
underlying  the project.  He furthered  that there  was some                                                                    
regulatory legal fiction that  stated that regardless of the                                                                    
actual capital structure,  it would be treated  as though it                                                                    
was  the set  tariff. He  stated  that the  MOU showed  that                                                                    
there was an  assumption that started with the  cost of debt                                                                    
was  5 percent,  cost of  equity was  12 percent,  and there                                                                    
would be  a capital structure  of 75/25 percent split.  As a                                                                    
result,  there  would be  a  higher  leverage with  a  lower                                                                    
tariff from the state's perspective.                                                                                            
                                                                                                                                
11:29:51 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
11:30:07 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
11:30:45 AM                                                                                                                   
RECESS                                                                                                                          
                                                                                                                                
5:05:20 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Mr. Tsafos  addressed slide 14,  "Price Exposure  Defined at                                                                    
Contract Signing."                                                                                                              
                                                                                                                                
     Oil  linkage does  not mean  identical  linkage to  oil                                                                    
     (e.g. Taiwan, below); bargaining power defines linkage                                                                     
                                                                                                                                
     New contracts  do not impact  existing deals  (e.g. new                                                                    
     Henry Hub-based LNG vs. existing oil-linked SPAs)                                                                          
                                                                                                                                
     But   if  price   is  seriously   out   of  sync   with                                                                    
     fundamentals, parties can trigger a review clause                                                                          
                                                                                                                                
Mr.  Tsafos  explained  slide 15,  "Expensive  Projects  can                                                                    
Hedge Against Volatility."                                                                                                      
                                                                                                                                
     "S-curves"  are clauses  that  change the  relationship                                                                    
     between oil and gas above or below thresholds                                                                              
                                                                                                                                
     Instead of a  linear link, gas prices  do not rise/fall                                                                    
     as  much   if  oil   prices  rise/fall   above  certain                                                                    
     thresholds                                                                                                                 
                                                                                                                                
     They reduce downside risk  by forgoing some upside-they                                                                    
     can even provide a floor/ceiling on prices                                                                                 
                                                                                                                                
5:16:09 PM                                                                                                                    
                                                                                                                                
Mr. Tsafos  looked at slide 16,  "Midstream Options: Project                                                                    
Structure." The  slide was a simplification  of the project,                                                                    
breaking it into  four components. He stated  that there was                                                                    
a  status quo,  HOA, MOU  Option 1,  and MOU  Option 2.  The                                                                    
status quo  was in value and  the state had no  ownership in                                                                    
the  facilities. The  state took  no debt,  and there  was a                                                                    
tariff to haggle over matters  of valuation. The HOA changed                                                                    
in value to in kind, but  not definitively. The HOA took the                                                                    
GTP  and LNG  ownership  from zero  to  25 percent.  Because                                                                    
there  was an  ownership  interest in  the  first column  of                                                                    
upstream GTP  and LNG, the  state was required to  invest to                                                                    
correspond  with  the  equity.   The  MOU  contemplated  two                                                                    
different  options, but  the  in kind,  up  stream, and  LNG                                                                    
ownership stayed the  same. The only thing  that changed was                                                                    
the ownership of the GTP,  treatment plan, and the pipeline.                                                                    
There were  two options. The  state had a starting  point of                                                                    
25  percent,   and  the  25   percent  would  be   moved  to                                                                    
TransCanada.  Therefore,  TransCanada  was  responsible  for                                                                    
paying for the  25 percent of the costs of  the studies that                                                                    
were linked to the GTP and  pipeline. There was an option to                                                                    
buy back, so consider staying with  zero or buy back a share                                                                    
of the equity.                                                                                                                  
                                                                                                                                
Mr.   Tsafos  explained   slide   17,  "Midstream   Options:                                                                    
Options." He  remarked that there was  an analysis necessary                                                                    
to understand that there was gas  in the North Slope and the                                                                    
gas  should  be  brought  to market.  A  liquefaction  plant                                                                    
needed  to  be  constructed.  He  stated  that  there  were,                                                                    
broadly speaking, four ways to  structure the midstream, and                                                                    
they were displayed on the slide.                                                                                               
                                                                                                                                
5:23:25 PM                                                                                                                    
                                                                                                                                
Mr.  Tsafos discussed  slide 18,  "Midstream Options:  State                                                                    
Interests."                                                                                                                     
                                                                                                                                
     Producer-SOA Alignment                                                                                                     
                                                                                                                                
          Minimize disputes over where value is allocated                                                                       
                                                                                                                                
          Tariffs reflect value maximization across the                                                                         
          entire chain                                                                                                          
                                                                                                                                
     Third-Party Expansion                                                                                                      
                                                                                                                                
          Midstream   becomes   an   enabler   for   further                                                                    
          exploration and development                                                                                           
                                                                                                                                
          Expansion   principles    favor   development   of                                                                    
          additional transportation capacity                                                                                    
                                                                                                                                
     In-state Deliveries                                                                                                        
                                                                                                                                
          Alaskan consumers receive cost  at the lowest cost                                                                    
          possible (given adequate                                                                                              
          returns on investment)                                                                                                
                                                                                                                                
          Execution  Pipeline is  delivered on  time and  at                                                                    
          the lowest possible cost                                                                                              
                                                                                                                                
     Continuity and Momentum                                                                                                    
                                                                                                                                
          Project   maintains    and   accelerates   current                                                                    
          investment interest                                                                                                   
                                                                                                                                
          Project leverages work to date  and is not delayed                                                                    
          by possible litigation                                                                                                
                                                                                                                                
Mr. Tsafos displayed slide 19, "Producer Only: Alignment."                                                                      
                                                                                                                                
                                                                                                                                
     Producer-SOA Alignment                                                                                                     
                                                                                                                                
          Significant    potential    for   disputes    over                                                                    
          allocation  of   value,  and  optimal   level  for                                                                    
          midstream tariff                                                                                                      
                                                                                                                                
     Third-Party Expansion                                                                                                      
                                                                                                                                
          Focus  on   commercializing  producers'  resources                                                                    
          over gas belonging to third parties                                                                                   
                                                                                                                                
     In-state Deliveries                                                                                                        
                                                                                                                                
          Uncertain  tariff  for   in-state  deliveries  (of                                                                    
          SOA's gas)                                                                                                            
                                                                                                                                
     Execution                                                                                                                  
                                                                                                                                
          Strong   and  proven   ability  to   execute,  but                                                                    
          midstream  becoming  less  of  a  core  focus  for                                                                    
          majors                                                                                                                
                                                                                                                                
     Continuity and Momentum                                                                                                    
                                                                                                                                
          Uncertainty  about possibility  of litigation  and                                                                    
          loss of work done to date                                                                                             
                                                                                                                                
Mr. Tsafos explained slide 20, "SOA Equity: More Expansion                                                                      
Bias but Burdon on SOA."                                                                                                        
                                                                                                                                
     Producer-SOA                                                                                                               
                                                                                                                                
          Alignment Strong  alignment between  producers and                                                                    
          SOA                                                                                                                   
                                                                                                                                
     Third-Party Expansion                                                                                                      
                                                                                                                                
          Relies  on SOA  to drive  expansions, seeking  new                                                                    
          entrants and  / or  new partners;  SOA may  not be                                                                    
          best placed to fill this role                                                                                         
                                                                                                                                
     In-state                                                                                                                   
                                                                                                                                
          Deliveries   SOA  can   use  its   equity-entitled                                                                    
          capacity to  carry gas to  local markets  at lower                                                                    
          cost                                                                                                                  
                                                                                                                                
     Execution                                                                                                                  
                                                                                                                                
          Strong and  proven ability to execute  for initial                                                                    
          investment;  expansion  will  depend  on  securing                                                                    
          capabilities and/or another party                                                                                     
                                                                                                                                
     Continuity and Momentum                                                                                                    
                                                                                                                                
          Uncertainty  about possibility  of litigation  and                                                                    
          loss of work done to date                                                                                             
                                                                                                                                
Co-Chair Kelly handed the gavel to Co-Chair Meyer.                                                                              
                                                                                                                                
5:27:54 PM                                                                                                                    
                                                                                                                                
Mr. Tsafos looked at slide 21, "MOW: expansion Bias and                                                                         
Momentum; Bus Best Deal?"                                                                                                       
                                                                                                                                
     Producer-SOA Alignment                                                                                                     
                                                                                                                                
          Strong  alignment   between  producers   and  SOA;                                                                    
          capital   structure   for  rate-setting   purposes                                                                    
          appears within  norm, but  unclear if  new bidding                                                                    
          could have produced lower tariff                                                                                      
                                                                                                                                
     Third-Party Expansion                                                                                                      
                                                                                                                                
          TransCanada  will   be  advocate  for   a  project                                                                    
          structure that encourages  expansion and will have                                                                    
          incentive    to    drive    expansion    of    the                                                                    
          infrastructure based on market interest                                                                               
                                                                                                                                
     In-state Deliveries                                                                                                        
                                                                                                                                
          SOA can use its  equity-entitled capacity to carry                                                                    
          gas to  local markets at lower  cost; proexpansion                                                                    
          bias   further   incentivizes  possible   in-state                                                                    
          deliveries                                                                                                            
                                                                                                                                
     Execution                                                                                                                  
                                                                                                                                
          TransCanada    brings   execution    knowhow   and                                                                    
          expertise,   while    producers   reinforce   cost                                                                    
          discipline (to ensure lowest possible tariff)                                                                         
                                                                                                                                
     Continuity and Momentum                                                                                                    
                                                                                                                                
          Project   maintains  and   accelerates  investment                                                                    
         interest and leverages work done to date                                                                               
                                                                                                                                
5:31:08 PM                                                                                                                    
                                                                                                                                
Mr. Tsafos discussed slide 22, "Bid: Will Reward Compensate                                                                     
for Cost in Time and Money?"                                                                                                    
                                                                                                                                
     Producer-SOA Alignment                                                                                                     
                                                                                                                                
          Strong  alignment between  producers and  SOA; new                                                                    
          bid could  lead to  a lower  tariff, but  it could                                                                    
          also lead  to a higher one;  low investor interest                                                                    
          could also slow down entire process                                                                                   
                                                                                                                                
     Third-Party Expansion                                                                                                      
                                                                                                                                
          Third   party  will   have   incentive  to   drive                                                                    
          expansion  of the  infrastructure based  on market                                                                    
          interest,  but would  likely  have less  influence                                                                    
          over current negotiations                                                                                             
                                                                                                                                
     In-state Deliveries                                                                                                        
                                                                                                                                
          SOA can use its  equity-entitled capacity to carry                                                                    
          gas to  local markets at lower  cost; proexpansion                                                                    
          bias   further   incentivizes  possible   in-state                                                                    
          deliveries                                                                                                            
                                                                                                                                
     Execution                                                                                                                  
                                                                                                                                
          Third  party  would   presumably  bring  execution                                                                    
          knowhow  and  expertise,   while  producers  would                                                                    
          reinforce  cost   discipline  (to   ensure  lowest                                                                    
          possible tariff)                                                                                                      
                                                                                                                                
     Continuity and Momentum                                                                                                    
                                                                                                                                
          Uncertainty  about possibility  of litigation  and                                                                    
          loss of work done  to date; HOA negotiations could                                                                    
          slow down  in anticipation of new  bidding process                                                                    
          and license award                                                                                                     
                                                                                                                                
Mr. Tsafos explained slide 23, "SOA Needs to Carefully                                                                          
Weigh Key Questions."                                                                                                           
                                                                                                                                
     What compensation  might the SOA  have to pay  and what                                                                    
     intellectual property will Alaska LNG retain?                                                                              
                                                                                                                                
     Will  the HOA  process slow  down if  the midstream  is                                                                    
     tied in litigation?                                                                                                        
                                                                                                                                
     What are  the odds  that a  new selection  process will                                                                    
     deliver better terms than those available today?                                                                           
                                                                                                                                
     To what  extent was the AGIA  process representative of                                                                    
     the industry's interest in an Alaskan pipeline?                                                                            
                                                                                                                                
     Would  a new  tariff  offset  absence from  negotiating                                                                    
     table; reduced momentum; cost to dissolve AGIA?                                                                            
                                                                                                                                
Mr. Tsafos highlighted slide 24, "Financially, TransCanada                                                                      
Deal is Akin to a Loan."                                                                                                        
                                                                                                                                
     TransCanada   shoulders  a   share  of   SOA's  capital                                                                    
    commitments and Alaska repays over time with tariff                                                                         
                                                                                                                                
     SOA outlays fall  by $1,700 million (no  buyback) to $1                                                                    
     billion (buyback) during development period                                                                                
                                                                                                                                
Mr.  Tsafos  explained  slide 25,  "TransCanada  Lowers  SOA                                                                    
Outlays by $3 billion to $5 billion."                                                                                           
                                                                                                                                
     TransCanada's participation would lower SOA peak                                                                           
     outlays by $0.8 billion to $1.4 billion                                                                                    
                                                                                                                                
     Buyback option also lowers outlays before FID (pre-                                                                        
     2019)                                                                                                                      
                                                                                                                                
5:44:05 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer   wondered  what  it  would   look  like  if                                                                    
TransCanada  was not  involved, and  it was  only the  three                                                                    
producers  and  the  state  of   Alaska,  with  one  of  the                                                                    
producers building the pipeline.   Mr. Tsafos responded with                                                                    
slide  20.  He  stressed  that the  producers  were  in  the                                                                    
business  of  finding  and  developing   oil  and  gas.  The                                                                    
infrastructure was generally seen  as what the facilities do                                                                    
to  find and  produce oil  and gas.  TransCanada was  in the                                                                    
business of building pipelines.                                                                                                 
                                                                                                                                
Co-Chair Meyer wondered  if there may be  more motivation to                                                                    
get more  involvement in the  pipeline, if a  producer owned                                                                    
the pipeline. Mr.  Tsafos responded that a  producer built a                                                                    
pipeline  with a  great capacity,  but only  used a  limited                                                                    
amount of the space, one  could approach the producer to use                                                                    
the  spare  capacity  and  the   producer  could  make  that                                                                    
allowance.                                                                                                                      
                                                                                                                                
5:50:26 PM                                                                                                                    
                                                                                                                                
Mr.  Mayer   furthered  that   financially,  the   deal  was                                                                    
equivalent to  a 7  percent interest  loan. The  state would                                                                    
put  up  less   capital  and  take  slightly   less  of  the                                                                    
subsequent cash flows,  because it needed to  pay the tariff                                                                    
to  TransCanada.   If  there  were  no   other  benefits  of                                                                    
TransCanada's involvement,  one may  look at it  and believe                                                                    
that  it was  an  expensive loan,  because  the state  could                                                                    
raise the  capital more cheaply.  He stated that one  of the                                                                    
benefits was  that it  is not  a loan  that the  state would                                                                    
carry  on  its balance  sheet,  so  the overall  calculation                                                                    
would be considered based on  many factors. He stressed that                                                                    
there were  considerations regarding  expansion orientations                                                                    
that were  possible with the  contract with  TransCanada. It                                                                    
could be  argued that the  state had a  strong pro-expansion                                                                    
orientation.  He felt  that the  question was  how much  the                                                                    
state  wants to  or  thinks  it is  capable  of becoming  an                                                                    
effective  pipeline  company.  He stated  that  the  current                                                                    
issues were  different for  the pipeline  and GTP  than they                                                                    
were for the liquefaction.  He felt that the differentiation                                                                    
was   essential  to   determine   where   the  third   party                                                                    
involvement  would be  in the  different  components of  the                                                                    
project.                                                                                                                        
                                                                                                                                
5:55:04 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer surmised that  a partnership with TransCanada                                                                    
may encourage  expansion of  the project  in the  future. He                                                                    
wondered if  RCE oversaw the  expansion. Mr.  Mayer deferred                                                                    
to  the   administration  for  regulatory   information.  He                                                                    
stressed that that  MOU would codify in  contract the actual                                                                    
capital structure.                                                                                                              
                                                                                                                                
Vice-Chair Fairclough  had a  constituent that  had concerns                                                                    
regarding  whether or  not  gas could  be  committed to  the                                                                    
project. She  hoped that  there would  be an  opportunity to                                                                    
present the  available of gas  when the project  goes online                                                                    
for production. She shared that  Larry Persily had contacted                                                                    
her  office regarding  the  federal  guarantee. The  federal                                                                    
guarantee was for a North  American project specifically. It                                                                    
was  his  estimation that  congress  would  probably not  be                                                                    
amenable to help the state move the gas to another country.                                                                     
                                                                                                                                
Co-Chair Meyer  looked at  the "TransCanada  Capital Project                                                                    
Performance" (copy  on file).  He stated  that TransCanada's                                                                    
history was substantial and impressive.                                                                                         
                                                                                                                                
Vice-Chair  Fairclough  remarked  that TransCanada  was  the                                                                    
only North American pipeline company  that had worked in the                                                                    
Arctic.                                                                                                                         
                                                                                                                                
Co-Chair Meyer  pointed out that  their history  seemed very                                                                    
impressive.                                                                                                                     
                                                                                                                                
Vice-Chair Fairclough  remarked that the  federal government                                                                    
may  have  some  issues  regarding   the  cost  overruns  of                                                                    
TransCanada and the Keystone project.                                                                                           
                                                                                                                                
SB  138  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
022714 SFIN, enalytica, Feb 27.pdf SFIN 2/27/2014 9:00:00 AM
SB 138
CSSB138(RES) Sectional Analysis Version O.pdf SFIN 2/27/2014 9:00:00 AM
SB 138
CSSB138(RES) Summary of Changes.pdf SFIN 2/27/2014 9:00:00 AM
SB 138
022714 TransCanada Capital Project Performance.pdf SFIN 2/27/2014 9:00:00 AM
SB 138