Legislature(2013 - 2014)BUTROVICH 205

02/20/2014 08:00 AM RESOURCES


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08:03:49 AM Start
08:04:47 AM SB138
08:52:13 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
Consultants - Nikos Tsafos and Janak Mayer
Enalytica
Dept. of Natural Resources
Dept. of Revenue
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                     
                                                                                                                                
8:04:47 AM                                                                                                                    
CHAIR GIESSEL announced that the  only order of business would be                                                               
SB 138 and the presentation from Enalytica.                                                                                     
                                                                                                                                
JANAK  MAYER, Partner,  Enalytica,  Anchorage, Alaska,  presented                                                               
information  on   "Competitiveness,  Project  Structure   &  Cash                                                               
Exposure."  said  it   was  his  third  year   working  with  the                                                               
legislature on energy issues.                                                                                                   
                                                                                                                                
NIKOS  TSAFOS, Partner,  Enalytica, Anchorage,  Alaska, presented                                                               
information  on  "Competitiveness,   Project  Structure,  &  Cash                                                               
Exposure"  and  said  his  background   is  in  natural  gas  and                                                               
consulting.                                                                                                                     
                                                                                                                                
8:06:05 AM                                                                                                                    
MR. TSAFOS said  he would address the question  of whether Alaska                                                               
will be in the money or out of  the money and how that related to                                                               
"in kind"  or "in value," the  mid-stream options in the  MOU and                                                               
address the  state's cash exposure.  He showed a chart  of places                                                               
around the  world that have  LNG noting that Alaska  is competing                                                               
in a  world with many  choices. However, many of  those resources                                                               
have  considerable risks.  The  key element  in  looking at  this                                                               
chart  was to  reassure  Alaska  and to  draw  a key  distinction                                                               
between  an expensive  project,  a  project that  is  out of  the                                                               
money, and a project that doesn't get built.                                                                                    
                                                                                                                                
8:08:31 AM                                                                                                                    
MR. TSAFOS showed a  similar map of LNG sites in  the mid to late                                                               
2000's and began  with Trinidad that had just brought  on a train                                                               
in 2005 and were proposing  another. At some point Venezuela laid                                                               
out plans  for three  separate LNG  facilities, Nigeria  had just                                                               
brought train six  on line and it had a  number of other proposed                                                               
projects. (But if  Nigeria built everything it said  it was going                                                               
to build it would overtake  Qatar.) Equatorial Guinea in 2007 had                                                               
just  brought on  a  project and  in 2008  and  2009 people  were                                                               
working on a  second train. North Africa was  "really opening up"                                                               
and Algeria  was very  aggressive. Libya had  just opened  up the                                                               
deal with  Kaddafi that brought  in ENI,  Shell, and BP  that all                                                               
had proposed  projects there. Egypt  had just started  up, Norway                                                               
was bringing  on line a  project, Russia  had a just  finalized a                                                               
project  with partners,  Qatar  had placed  a  moratorium on  new                                                               
projects, but  Iran was still going.   Myanmar at some  point was                                                               
thinking about  exporting gas by  pipeline or LNG,  but Australia                                                               
was moving  very slowly and  Russia obviously  had a lot  of gas,                                                               
but at huge costs.                                                                                                              
                                                                                                                                
The reason he showed them this  chart with all the projects on it                                                               
was because  none of them  ever happened - none!  Algeria finally                                                               
built  some   projects,  but  they  basically   offset  some  old                                                               
facilities they  had but were  shut down. Everything  happened in                                                               
Australia and the reason was  because everything else had failed.                                                               
So,  when companies  were looking  for supplies,  when you  start                                                               
crossing everything off  the list, whatever remains  is the place                                                               
you go. The key element he  wanted to point out is that Australia                                                               
was "by no means" the low-cost  choice. All the cheap stuff never                                                               
materialized. The reason he says  that is because it is important                                                               
to distinguish  between an expensive  project, a project  that is                                                               
out of  the money, and  a project that  does not get  built. Just                                                               
because there are  a lot of other projects out  there that may be                                                               
cheaper than Alaska doesn't mean that  all are going to happen or                                                               
that Alaska can't  compete in that market. At the  end of the day                                                               
what really  matters is whether  Alaska can sign contracts  for a                                                               
price that make the buyers and the sellers happy.                                                                               
                                                                                                                                
8:12:09 AM                                                                                                                    
SENATOR FRENCH asked about the  Snofit expansion in 2005, because                                                               
their  Black &  Veatch  Royalty study  says it  went  on line  in                                                               
October 2007.                                                                                                                   
                                                                                                                                
MR. TSAFOS agreed that the first  train went on line in 2007, but                                                               
an expansion  was proposed.  The reason he  said this  is because                                                               
yes, Alaska  is an  expensive project, but  it doesn't  mean that                                                               
it's an impossible  project. Alaska, in particular,  has a number                                                               
of  attractions;  folks  in  Japan   are  getting  excited  about                                                               
Alaska's potential. Compared  to the shale gas  revolution in the                                                               
Lower 48, the route from Alaska  to Japan is not only closer, but                                                               
it does not  cross any "choke points:" territorial  waters of any                                                               
country  that Japan  is concerned  about. A  lot more  than price                                                               
determines what  Japan gets built,  because they worry  about the                                                               
Strait of Malacca, the South China Sea and other problem areas.                                                                 
                                                                                                                                
8:14:32 AM                                                                                                                    
His graph was a simplified version  of what the four options - by                                                               
no  means exhaustive  options -  and would  look at  how the  MOU                                                               
changes that  structure when going  through the numbers  for each                                                               
option.                                                                                                                         
                                                                                                                                
8:16:16 AM                                                                                                                    
MR.  MAYER explained  the by  going to  the status  quo -  taking                                                               
royalty and  production tax in  value - that far  from insulating                                                               
the  state from  price  exposure actually  increases  it in  many                                                               
ways.  The reason  for  that is  that by  solely  looking at  the                                                               
wellhead for  value you have  this enormous fixed  cost component                                                               
(the $66-odd  dollars of tariff) that  would apply to all  of the                                                               
different  midstream   elements  combined  that   would  actually                                                               
amplify the effect of movement in price.                                                                                        
                                                                                                                                
He  asked  them  to  think (abstractly)  about  the  impact,  for                                                               
instance, of  another fixed claim:  the mortgage that is  a fixed                                                               
claim on the  portion of the value of one's  house. For instance,                                                               
if you buy a $100,000 house,  put down $10,000 and have a $90,000                                                               
mortgage,  and  then  the  value  of  the  house  appreciates  by                                                               
$10,000, the fixed  claim remains that same,  but your investment                                                               
has doubled.  If the  value of the  house depreciates  by $10,000                                                               
the fixed claim  remains the same, but your  entire investment is                                                               
gone. So  the 10 percent  change in value  of the house  can give                                                               
one  100  percent   change  either  way  in  the   value  of  his                                                               
investment.  So, leverage  in that  sense  increases exposure  to                                                               
price risk.                                                                                                                     
                                                                                                                                
The idea that  any form of fixed claim, whether  it's a loan from                                                               
the  bank   or  having   another  party   build  some   piece  of                                                               
infrastructure and  pay them a  tariff for  that - those  are all                                                               
fixed claims  that are a  form of  leverage - would  increase the                                                               
state's exposure to price. So,  taking value by solely taxing the                                                               
wellhead even  though the  state isn't  directly paying  a tariff                                                               
itself, by  calculating the wellhead  value on the basis  of that                                                               
implied  tariff  is  essentially   economic  leverage,  and  that                                                               
increases the state's exposure to price and price risk.                                                                         
                                                                                                                                
8:19:00 AM                                                                                                                    
SENATOR  DYSON asked  him  to  explain the  tariff  piece on  the                                                               
graph.                                                                                                                          
                                                                                                                                
MR. MAYER explained that in comparison  to the world of oil where                                                               
the  tariff combined  for TAPS,  marine transport  and everything                                                               
else is  maybe $10, here the  tariff is as much  as $66/BOE. This                                                               
means if  you take the  approach of  simply taxing the  well head                                                               
value  that is  the same  as  saying this  part of  the stream  -                                                               
regardless of  what the  price is  - is always  going to  get its                                                               
return first.  The state would  take what's left over  after that                                                               
in the  same way  as the bank  is always going  to get  its money                                                               
first.                                                                                                                          
                                                                                                                                
8:20:22 AM                                                                                                                    
MR.  MAYER said  they ran  their model  looking at  the world  of                                                               
royalty and production  tax in kind as 25 percent  gas share with                                                               
a   corresponding  equity   share   with  the   idea  that   it's                                                               
counterintuitively  reducing  the  state' price  exposure  rather                                                               
than  increasing  it  (precisely  because  they  are  removing  a                                                               
substantial part of that element of leverage from the equation).                                                                
                                                                                                                                
8:21:09 AM                                                                                                                    
SENATOR FRENCH  went to  the Black  & Veatch  study and  asked if                                                               
their  model took  into account  the B&V  warning that  the state                                                               
could lose up  to 70 percent of  the value of the  royalty gas by                                                               
taking it in kind. Is there any  reduction in the value of the in                                                               
kind gas  because of the  marketing issues and the  other factors                                                               
that the study pointed out?                                                                                                     
                                                                                                                                
MR. MAYER  answered that was  an excellent question and  they had                                                               
assumed  parity. And  if  one were  to say  there  is a  specific                                                               
impact on the state that it  receives a poorer price than others,                                                               
it wouldn't change  the slope of the line, but  it would bring it                                                               
down.                                                                                                                           
                                                                                                                                
SENATOR FRENCH requested  a slide of the state  losing 25 percent                                                               
in the translation from value to in  kind to get a better idea of                                                               
what might be our first or second years' experience.                                                                            
                                                                                                                                
MR. MAYER agreed.                                                                                                               
                                                                                                                                
CHAIR GIESSEL noted the arrival of Senator McGuire.                                                                             
                                                                                                                                
8:22:59 AM                                                                                                                    
MR.  MAYER  continued to  explain  that  the  slope of  the  line                                                               
depends on  a range of other  factors: one is the  tariff through                                                               
taxing at the  wellhead or the physical tariff one  has by having                                                               
other parties  build the infrastructure  and paying them  for it.                                                               
It is a fixed claim that  increases the exposure he stated. There                                                               
will be  other forms of  leverage as the project  develops. These                                                               
assumptions  from  Black &  Veatch  assume  a 70  percent  equity                                                               
capital structure behind the project.  That means that the state,                                                               
if it's a 25 percent participant,  is only on the hook for direct                                                               
cash for  30 percent of its  total capital call for  its share of                                                               
the project and  the bank has first claim on  the cash flows from                                                               
the project, increasing the price exposure.                                                                                     
                                                                                                                                
This represents the pure in kind  world that the actuary sets out                                                               
before getting  into the detail  of the  MOU and the  question of                                                               
what goes to  TransCanada. If there is a  third party participant                                                               
in some portion  of the midstream you are again  bringing back in                                                               
some element of a fixed claim  and the question then becomes what                                                               
is the  ideal way of  juggling that.  Because by going  with that                                                               
world you  are reducing the  state's initial upfront  cash outlay                                                               
exposure  (which is  important to  manage), but  that also  gives                                                               
someone else  first cash call.  There is a balancing  act between                                                               
what you  are doing  in that  participation versus  the decisions                                                               
one  is making  further down  the  track on  things like  overall                                                               
level  of debt  and equity  in the  project. These  could balance                                                               
each  other out.  For  example, a  bigger  share for  TransCanada                                                               
could mean  the state needs to  take a little less  debt in doing                                                               
this  to even  out  the  risk reward  that  goes  with the  price                                                               
exposure. It's a  question of thinking about all  fixed claims as                                                               
a form  of leverage that  can be  balanced against each  other to                                                               
achieve a degree of price  exposure that the state is comfortable                                                               
with.                                                                                                                           
                                                                                                                                
8:25:38 AM                                                                                                                    
MR. MAYER noted that they  had corrected the slide they presented                                                               
last  time that  had  an  error and  also  updated  the model  to                                                               
reflect  a few  additional  things: factoring  in  the fact  that                                                               
under SB 138 costs from  production tax purposes remain claimable                                                               
against oil  taxes regardless  of whether they  come from  oil or                                                               
gas expenses. To that extent,  they talked about the state having                                                               
a 25  percent share in  the entire midstream from  gas processing                                                               
down to the  LNG facility but not having to  front other cash for                                                               
upstream development. In fact, effectively  by having those costs                                                               
be  deductible against  oil  taxes there  is  an after-tax  state                                                               
contribution  towards upstream  expenses  and  those numbers  are                                                               
reflected in this slide.                                                                                                        
                                                                                                                                
8:26:45 AM                                                                                                                    
SENATOR FRENCH  asked about  the overall  government take  of the                                                               
project.  Black &  Veatch says  it's  from 70-85  percent and  it                                                               
seems  like  they  are  splitting the  net  present  value  50/50                                                               
between the state, the feds and producers.                                                                                      
                                                                                                                                
MR.  MAYER said  they would  like to  discuss that  with Black  &                                                               
Veatch  in a  little more  detail to  understand their  modeling,                                                               
because it looks like there is a slight discrepancy.                                                                            
                                                                                                                                
SENATOR  FRENCH  quipped that  they  might  have different  ideas                                                               
about the  word "slight,"  because they're  talking about  $20 or                                                               
$30 billion.                                                                                                                    
                                                                                                                                
8:27:48 AM                                                                                                                    
MR. MAYER  said the MOU  starts off  with the overall  25 percent                                                               
share across  the midstream that the  HOA entails and then  has a                                                               
number  of  possibilities;  option  1 would  be  that  the  state                                                               
exercises  its  right to  purchase  a  share of  the  TransCanada                                                               
vehicle that  is responsible  for the state's  25 percent  of the                                                               
gas processing plant and the  pipeline. If that were exercised to                                                               
the full  40 percent envisioned in  the MOU, the state  would end                                                               
up with a 10 percent stake  in that portion of the midstream, but                                                               
still 25 percent share in the liquefaction project.                                                                             
                                                                                                                                
The alternative is  if the state has no stake  in the upstream or                                                               
in the  pipeline and  only retains  the 25  percent stake  in the                                                               
liquefaction project. The  next slide would show  what that would                                                               
mean to  the state  in terms  of overall  project cash  flows and                                                               
what the state  is on the hook for, particularly  in the years of                                                               
construction.                                                                                                                   
                                                                                                                                
8:29:24 AM                                                                                                                    
MR. MAYER showed a graph of the  pure world of the SOA 25 percent                                                               
stake in gas  treatment and processing, pipeline and  LNG and the                                                               
effect on total  cash flows of TransCanada having  100 percent of                                                               
gas treatment  and pipeline on  one line  (red) and if  the state                                                               
exercises its equity  option and TransCanada only  has 60 percent                                                               
of that 25  percent share the effect on the  cash flow is another                                                               
line  (yellow). Obviously  having an  additional partner  in this                                                               
decreases   the   cash   exposure   in  the   early   years   and                                                               
correspondingly means  that one takes  less of the cash  in later                                                               
years. He  said it was easier  to compare cash flows  to what one                                                               
might get from another investment.                                                                                              
                                                                                                                                
8:31:19 AM                                                                                                                    
SENATOR MCGUIRE  asked if he  had a  position on the  7.1 percent                                                               
that  TransCanada wants  to  assess the  state  (because it's  an                                                               
equity loan). Is that fair market value?                                                                                        
                                                                                                                                
MR. MAYER said that was  an excellent and relevant question. It's                                                               
a fixed  claim on the  cash flows of  the project. Under  the MOU                                                               
there is  a 12  percent cost of  equity and a  5 percent  cost of                                                               
debt;  a  70/30  percent  split between  those  two  in  weighted                                                               
average cost of  capital is 7.1 percent  during construction, and                                                               
for any subsequent expansions once  the pipeline is in service is                                                               
a 75/25 percent split.                                                                                                          
                                                                                                                                
The MOU also  has the rate tracker differential that  gets set at                                                               
the  time of  final investment  decision, so  they know  what the                                                               
actual rate  is depending on how  the 30 year treasury  has moved                                                               
between now and the time of  final investment decision.  There is                                                               
risk in both  directions, but he suggested  primarily upward risk                                                               
in where  that may  move over  the next  several years,  but that                                                               
decision can also be made based on conditions at that time.                                                                     
                                                                                                                                
MR.  MAYER  said  there  are  a number  of  questions:  one  what                                                               
limitations there are on the  state's total ability to carry debt                                                               
for  such a  project and  the  difference in  that sense  between                                                               
TransCanada doing  this versus  the state  doing it  through debt                                                               
and all  the other  issues they have  talked through  in previous                                                               
sessions  in terms  of having  a  professional pipeline  operator                                                               
that makes  its money by  moving molecules, not by  selling them.                                                               
However, he said, you can't look  at this only in cash terms have                                                               
a  stake in  the project.  TransCanada  brings a  premium to  the                                                               
table that one needs to weigh.                                                                                                  
                                                                                                                                
8:34:41 AM                                                                                                                    
SENATOR BISHOP said you can't  lose sight of the leverage (having                                                               
a  lower tariff  rate  for instate  use of  gas  to Alaskans)  by                                                               
having TransCanada  able to  negotiate it.  Alaskans want  to see                                                               
something else out  of this project besides cash  to the treasury                                                               
as  direct cash  back in  their pocket  at the  burner tip.  That                                                               
value is  here and it's not  showing up. But if  that was modeled                                                               
over 40 years it would equal a real number.                                                                                     
                                                                                                                                
MR. MAYER  said that  was true, but  the counterpoint  is whether                                                               
the state could  take that 25 percent stake  itself and (arguably                                                               
charge a  very low tariff) and  also be a good  pipeline manager,                                                               
particularly  when  it comes  to  expansions.  If  it is  a  sole                                                               
partner  in an  expansion,  does it  really want  to  get into  a                                                               
business like that in the future by itself?                                                                                     
                                                                                                                                
8:36:36 AM                                                                                                                    
MR. MAYER  addressed what the  state is potentially "on  the hook                                                               
for" saying they looked solely at  net cash flow out in the first                                                               
years  of  a   project's  lifespan  in  a   number  of  different                                                               
scenarios. The first thing they noticed was that even in the in-                                                                
value/no  equity world  there is  negative cash  out. That  comes                                                               
back to the  question he mentioned previously:  because costs are                                                               
deductible against oil  production tax as well as  both state and                                                               
federal corporate income tax, simply  from their being investment                                                               
(in this  case) in the  upstream there is effectively  a negative                                                               
cash impact  of that  to the  state. Investment,  particularly at                                                               
this level by itself creates an implicit liability to the state.                                                                
                                                                                                                                
The state  could have close to  $3.5 to $5 billion  in total cash                                                               
call for  the capital outlay  in a  25 percent equity  across the                                                               
value chain.  The path of  the MOU reduces  that by up  to $1-1.5                                                               
billion by having  another partner to share some  of that capital                                                               
burden with.                                                                                                                    
                                                                                                                                
He said  this shouldn't be taken  as gospel in terms  of how cash                                                               
is actually  spent through  the project; those  plans are  a long                                                               
way off  and it's hard to  know how they will  look. Enalytica is                                                               
trying to  be conservative  as possible by  saying that  maybe 30                                                               
percent of the cash could be spent  in one year, which is how you                                                               
get to the negative $1.5 billion in 2023.                                                                                       
                                                                                                                                
8:39:24 AM                                                                                                                    
SENATOR FRENCH  said he  liked the slide,  but he  imagined David                                                               
Teal, a  legislative financial analyst,  sitting in  the audience                                                               
and developing a  big stomach ache as he envisioned  the State of                                                               
Alaska spending $1.2 billion in 2023  on a project in a year when                                                               
they will be looking at deficits  and worrying about how long our                                                               
savings will last. The public  should be thinking about where the                                                               
money will come from in these long out years.                                                                                   
                                                                                                                                
8:40:21 AM                                                                                                                    
SENATOR MICCICHE said  what the slide covers is  the variation in                                                               
the potential  cash outlay  depending on  what deal  gets entered                                                               
into  and he  asked Mr.  Mayer  to talk  a little  bit about  the                                                               
sliding scale  of the lowest  to the highest potential  outlay in                                                               
those years on this slide.                                                                                                      
                                                                                                                                
MR. MAYER  explained that there is  always some outlay even  in a                                                               
case of  not participating  in kind  at all. So,  in a  peak year                                                               
that could be half a billion or  just over that in a peak year of                                                               
construction versus  $1.5 billion in the  case of equity at  a 25                                                               
percent  level  throughout the  value  chain.  By having  another                                                               
partner, TransCanada  as proposed in  the MOU, that  $1.5 billion                                                               
peak spending annual  exposure could then be clawed  back to $1.1                                                               
to $1.2 billion.                                                                                                                
                                                                                                                                
8:41:41 AM                                                                                                                    
SENATOR MICCICHE said  with all due respect to  Senator French it                                                               
sounded  like  a scary  statement;  the  reality  of it  is  that                                                               
Alaskans would  like gas  available so  that their  futures could                                                               
look  a  little  brighter  and they  could  have  some  potential                                                               
industrial activity. But  there is a cost all the  way across the                                                               
value chain no matter how  the state chooses to participate. This                                                               
discussion is about if we want to  share on some of the upside or                                                               
sit back and have it all sort of be outside of our control.                                                                     
                                                                                                                                
CHAIR GIESSEL said the other  implication is if the state doesn't                                                               
participate if the project would even go forward at all.                                                                        
                                                                                                                                
8:42:33 AM                                                                                                                    
MR. TSAFOS  added that the other  part they have talked  about in                                                               
previous  presentations is  there  is nothing  that prevents  the                                                               
state from  offloading part of that  25 percent along the  way if                                                               
it gives  heartache to too many  people. The state could  think a                                                               
little more strategically;  it may make sense to  have 25 percent                                                               
share today  and for the first  one, two, three years  before the                                                               
project has  momentum, but  the state could  also decide  at that                                                               
point that  it's a lot of  money to invest. He  opined that there                                                               
would be a lot  of companies that would be happy  to take some of                                                               
that share  off our  hands and  that there  are multiple  ways to                                                               
mitigate the state's cash exposure.                                                                                             
                                                                                                                                
8:43:53 AM                                                                                                                    
SENATOR MICCICHE  said he  assumed that in  most of  the analyses                                                               
the state's cost of capital is  6 percent and the cost of capital                                                               
from TransCanada at 7.1 percent.                                                                                                
                                                                                                                                
MR.  MAYER  asked him  what  he  meant  by  the state's  cost  of                                                               
capital.                                                                                                                        
                                                                                                                                
SENATOR  MICCICHE said  he meant  our Triple  A rating  where the                                                               
cost of our capital is lower than TransCanada's.                                                                                
                                                                                                                                
MR.  MAYER answered  the cost  of debt  entailed in  the MOU  for                                                               
TransCanada  will cost  the  state 5  percent and  come  up to  7                                                               
percent  when blended  with the  12 percent  cost of  equity. The                                                               
modeling  in their  recent slides  looked at  the returns  rather                                                               
than the cash  outlays in the early years.  For simplicity's sake                                                               
they went with  a 5 percent cost of debt  for their analyses, but                                                               
they could use other numbers.                                                                                                   
                                                                                                                                
8:45:49 AM                                                                                                                    
SENATOR MICCICHE asked  what he would call a  realistic scale for                                                               
the cost of capital over the next 30 years.                                                                                     
                                                                                                                                
MR. MAYER said 6 percent  could be called the state's opportunity                                                               
cost of capital, but it  can borrow capital at substantially less                                                               
than that.                                                                                                                      
                                                                                                                                
SENATOR MICCICHE said  it is important to  really understand that                                                               
in comprehending the full value of TransCanada's relationship.                                                                  
                                                                                                                                
MR. TSAFOS  agreed. The way  they look at  it, the state  has two                                                               
numbers: what  it can borrow  (cost of debt) and  its opportunity                                                               
cost  (alternative uses  for funds).  They  will definitely  work                                                               
through  that  analysis.  That  is  why  chart  11  shows  bigger                                                               
variations. They  are not assuming  that it's just a  1.1 percent                                                               
difference.  He underscored  the  difference between  opportunity                                                               
cost and borrowing cost.                                                                                                        
                                                                                                                                
8:48:02 AM                                                                                                                    
MR.  MAYER concluded  with  a slide  showing  that 70/30  percent                                                               
debt/equity  ratio  would  be 30  percent  of  the  corresponding                                                               
capital call.  This is simply to  say what the maximum  in a base                                                               
cost scenario would  look like what if the state  decided that it                                                               
wanted to reduce price risk and do this all through equity.                                                                     
                                                                                                                                
8:49:12 AM                                                                                                                    
SENATOR FRENCH  said he appreciated  the "base case,"  because if                                                               
there are  20 percent cost  overruns, everything  gets multiplied                                                               
by 20  percent. He asked  if that would  be from the  $60 billion                                                               
figure.                                                                                                                         
                                                                                                                                
MR. MAYER replied $45-65 billion  cost of the midstream including                                                               
$3-4 billion  in upstream  costs above  that (GTP,  Pipeline, and                                                               
LNG plant).                                                                                                                     
                                                                                                                                
8:49:47 AM                                                                                                                    
SENATOR MICCICHE asked if the  initial outlay is higher going in-                                                               
kind if the state would gain more downside protection.                                                                          
                                                                                                                                
MR. MAYER  said that was correct.  There are many ways  to change                                                               
that red line.                                                                                                                  
                                                                                                                                
SENATOR  MICCICHE asked  if slide  11  cash flows  for the  state                                                               
between  the two  cases  of  in value  and  in  kind were  fairly                                                               
substantial for the long term.                                                                                                  
                                                                                                                                
MR. MAYER responded particularly if  one is looking solely at the                                                               
undiscounted cash  flows. If one  looks at the net  present value                                                               
of what the state is giving  up, they could present some analysis                                                               
on that,  but it is a  relatively small piece of  the total value                                                               
of  the project.  It is  a significant  reduction in  the upfront                                                               
capital required, but  it's a significant reduction  in the total                                                               
cash flows for the project (it's  giving a piece of the midstream                                                               
to a third party in the in kind world).                                                                                         
                                                                                                                                
CHAIR GIESSEL held SB 138 in committee.                                                                                         

Document Name Date/Time Subjects
SRES enalytica 20140220.pdf SRES 2/20/2014 8:00:00 AM
SB 138