Legislature(2003 - 2004)

10/14/2004 09:05 AM House BUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
             LEGISLATIVE BUDGET AND AUDIT COMMITTEE                                                                           
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                        October 14, 2004                                                                                      
                           9:05 a.m.                                                                                          
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
LEGISLATIVE BUDGET AND AUDIT                                                                                                    
                                                                                                                                
 Representative Ralph Samuels, Chair                                                                                            
 Representative Mike Chenault                                                                                                   
 Senator Lyman Hoffman                                                                                                          
 Senator Con Bunde                                                                                                              
 Representative Reggie Joule, Alternate                                                                                         
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator Tom Wagoner, Vice Chair                                                                                                
 Senator Kim Elton                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
LEGISLATIVE BUDGET AND AUDIT                                                                                                    
                                                                                                                                
 Representative Mike Hawker                                                                                                     
 Representative Vic Kohring                                                                                                     
 Representative Beth Kerttula                                                                                                   
                                                                                                                                
 Senator Gene Therriault, Vice Chair                                                                                            
 Senator Ben Stevens                                                                                                            
 Senator Gary Wilken                                                                                                            
                                                                                                                                
 SENATE RESOURCES                                                                                                               
                                                                                                                                
 Senator Fred Dyson                                                                                                             
 Senator Ralph Seekins                                                                                                          
 Senator Georgianna Lincoln                                                                                                     
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                       
                                                                                                                                
  Senator John Cowdery                                                                                                          
  Senator Gretchen Guess                                                                                                        
  Senator Hollis French                                                                                                         
  Representative Eric Croft                                                                                                     
  Representative Bud Fate (via teleconference)                                                                                  
  Representative Lesil McGuire                                                                                                  
  Representative Carol Gatto                                                                                                    
  Representative Nancy Dahlstrom                                                                                                
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
ALASKA NATURAL GAS PIPELINE ISSUES                                                                                              
                                                                                                                                
Presentations                                                                                                                 
                                                                                                                                
The Process of and Criteria Used  in Making a Decision on Whether                                                               
to Invest in a Pipeline Project  - Mr. Ron Brintnell, Director of                                                               
Gas Pipeline Development, Enbridge                                                                                              
                                                                                                                                
The Process of and Criteria Used  in Making a Decision on Whether                                                               
to Invest in An Upstream or Midstream Project - Mr. Ken Thompson                                                                
President and  CEO, Pacific  Star Energy  and Mr.  Joe Marushack,                                                               
Vice President of Alaska Gas Development, ConocoPhillips Alaska                                                                 
[Presenting on behalf of ConocoPhillips, BP, and Exxon Mobil]                                                                   
                                                                                                                                
Economic  Impacts  of Alaskan  Ownership  of  an Interest  in  an                                                               
Alaska Natural  Gas Project  - Mr.  Tony Palmer,  Vice President,                                                               
Alaska Business Development, TransCanada                                                                                        
                                                                                                                                
Training and  Hiring Alaskans for  a Gas Pipeline  - Commissioner                                                               
Greg O'Claray,  Department of Labor &  Workforce Development; Mr.                                                               
Jim Sampson,  Alaska President, AFL-CIO; Mr.  Jim Laiti, Business                                                               
Manager, Plumbers  and Pipefitters  Local 375; Mr.  Click Bishop,                                                               
Executive Board  Member, Operating Engineers Local  302; Mr. Mike                                                               
Gallagher, Business  Manager/Secretary-Treasurer, Laborers' Local                                                               
341; Mr.  Dick Cattanach, Executive Director,  Associated General                                                               
Contractors;   Mr.   Bob   Morigeau,   District   Representative,                                                               
Operating Engineers 302                                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-32, SIDE A [BUD TAPE]                                                                                                 
                                                                                                                                
CO-CHAIR  RALPH   SAMUELS  called   the  joint  meeting   of  the                                                             
Legislative Budget  and Audit Committee and  the Senate Resources                                                               
Standing  Committee  to  order at  9:05  a.m.  Senators  Hoffman,                                                               
Elton, Cowdery,  and Guess  and Representatives  Chenault, Gatto,                                                               
Joule and Chair Samuels were  present. He announced the committee                                                               
would take up the first agenda  item, The Process of and Criteria                                                             
Used in  Making a  Decision on  Whether to  Invest in  a Pipeline                                                             
Project, and introduced Mr. Brintnell.                                                                                        
                                                                                                                                
MR.  RON   BRINTNELL,  Director  of  Gas   Pipeline  Development,                                                               
Enbridge, thanked members for this  third opportunity to speak to                                                               
the  committee. He  said  he  hoped to  bring  a unique  pipeline                                                               
development  perspective   to  the   discussions  and   gave  the                                                               
following  presentation [based  on a  Powerpoint presentation,  a                                                               
copy of which is located in the committee file.]                                                                                
                                                                                                                                
     A little  bit of  background -  today almost  all major                                                                    
     interstate pipelines, both in  the United States and in                                                                    
     Canada, are owned independently  of producers. They are                                                                    
     run independently  but there has been  some transition.                                                                    
     For example, the Alliance  pipeline, which Enbridge now                                                                    
     owns 50 percent of,  runs from British Columbia through                                                                    
     to Chicago so it's a  pretty substantial pipeline - not                                                                    
     only interstate  but across [the] border.  It initially                                                                    
     was mostly producers that were  in that project. It was                                                                    
     producer led.  Enbridge was  the only  pipeline company                                                                    
     from  day one.  We started  off with  about 15  percent                                                                    
     ownership  and that  particular project,  what happened                                                                    
     is the producers had a desire  to get a new pipeline up                                                                    
     and running and so they led  it to the point where they                                                                    
     felt  that  it was  going  to  get developed  and  they                                                                    
     slowly  exited that  project  and  more pipeliners  got                                                                    
     involved. Because there aren't  as many producers right                                                                    
     now owning  pipelines doesn't mean  there isn't  a role                                                                    
     for  them in  the development  of projects.  We've seen                                                                    
     before that that works well  and I'll talk a little bit                                                                    
     more  about how  pipelines evolve  over time  and their                                                                    
     ownership evolves.                                                                                                         
                                                                                                                                
     The MacKenzie  Delta project  in Canada  is one  of the                                                                    
     most recent  producer led pipelines so  there are still                                                                    
     ones that  are being  led solely by  producers. Another                                                                    
     example is in the U.S.  Rockies and Canada - is looking                                                                    
     to  develop  a  project  ...  basically  from  Colorado                                                                    
     through  to  Wyoming  and  that's   being  led  by  the                                                                    
     producers so producers do do  their own development but                                                                    
     typically you'll see some sort of transition.                                                                              
                                                                                                                                
     What  does it  take to  get a  pipeline built?  Some of                                                                    
     this will  be repetitive from what  you've heard before                                                                    
     but  I want  to  bring you  a pipeliner's  perspective.                                                                    
     Basically  there [are]  two things  that get  pipelines                                                                    
     built. You  either have  supply-push and  that's partly                                                                    
     what  we   see  here  today  in   Alaska.  There  [are]                                                                    
     substantial resources  available that need a  home. The                                                                    
     producers and  the developers of  that gas  are looking                                                                    
     for a  way to  move it  to market  and there  isn't any                                                                    
     existing capacity to do so.                                                                                                
                                                                                                                                
     Examples of that, like I  said, are the Alaska pipeline                                                                    
     but,  also  more   recently,  the  Maritimes  Northeast                                                                    
     Pipeline in the Canadian  East Coast. Gas was developed                                                                    
     out there about five years  ago. The producers went out                                                                    
     and found it.  There wasn't any ready market  for it on                                                                    
     the Canadian  East Coast so  they developed  a pipeline                                                                    
     to run  through to  the Boston area  and they  did that                                                                    
     jointly. That  was another case where  producers worked                                                                    
     cooperatively  with pipelining  companies  to get  that                                                                    
     project done  so that  was a case  where supply  had no                                                                    
     home and they went out and developed a pipeline.                                                                           
                                                                                                                                
     The other  supply push is  where there  is insufficient                                                                    
     take-away   capacity.   There   is   already   capacity                                                                    
     available but  it is not able  to take all the  gas and                                                                    
     move it to market. Alliance  was an example of that, as                                                                    
     I mentioned  before, where  TransCanada had  a pipeline                                                                    
     running from the western  Canadian sedimentary basin to                                                                    
     the  Chicago area  to Ontario  to the  market, but  the                                                                    
     producers felt  that it was  insufficient, that  it was                                                                    
     depressing   prices.  They   went  out   and  led   the                                                                    
     development  of   a  new  pipeline  and   that  led  to                                                                    
     Alliance.  Same thing  is happening  right  now in  the                                                                    
     U.S. Rockies.  I think you  heard yesterday  about Kern                                                                    
     River's  expansion  to   California.  It's  expanded  a                                                                    
     couple of  times. There have  been new  pipelines being                                                                    
     developed. El  Paso is  developing the  Cheyenne Plains                                                                    
     project  to move  gas out  of the  Rockies so  it's not                                                                    
     that there  isn't capacity,  it's just  insufficient to                                                                    
     get  that  gas  moving  to  market,  which  results  in                                                                    
     depressed prices so there's a  driver to try to get the                                                                    
     pipeline built.                                                                                                            
                                                                                                                                
     The other  catalyst, I  like to  call it,  is basically                                                                    
     market  pull. We  heard a  lot yesterday  from UBS  and                                                                    
     others, and I'm  sure you've heard lots of  it over the                                                                    
     last several months about the  fact that Alaskan gas is                                                                    
     needed.  The  market  for gas  is  continuing  to  grow                                                                    
     through  gas-fired  generation,  just  through  general                                                                    
     economic growth  both in Canada and  the United States,                                                                    
     so we  believe there's a  need and a market  desire for                                                                    
     the additional gas - that's  what's driving all the LNG                                                                    
     development is the fact that the market requires it.                                                                       
                                                                                                                                
     So,  in the  case of  Alaska, we  believe that  there's                                                                    
     both a  market pull  and a supply  push. It's  not just                                                                    
     the fact that  this gas doesn't have a home  or needs a                                                                    
     home. The  market requires  it and  so we  believe that                                                                    
     the market will ultimately step  up and I'll talk a bit                                                                    
     about that  because I  think there  is the  ability for                                                                    
     the market to  play a role, not just  the producers and                                                                    
     the state  to be capacity  holders but others  as well,                                                                    
     and the  biggest driver for  the market  to potentially                                                                    
     step up  is that  there is increased  cost of  gas. Ten                                                                    
     dollar gas? It  doesn't make Moms and  Dads happy, plus                                                                    
     it  makes  the  economics of  various  industries  more                                                                    
     difficult so there  is the desire on the  behalf of the                                                                    
     downstream  market to  see not  only lower  prices, but                                                                    
     also more price stability.  The volatility we see today                                                                    
     is not good for anyone.                                                                                                    
                                                                                                                                
     Investment environment  - what  do pipeliners  look for                                                                    
     when  considering  to invest,  not  only  in an  Alaska                                                                    
     pipeline but  I'd like to  talk more  generically about                                                                    
     investment  in  general.  What  do  Enbridge  or  other                                                                    
     pipeline  companies look  for when  they're considering                                                                    
     an investment?                                                                                                             
                                                                                                                                
     Firstly,  we  want to  know  that  there's an  adequate                                                                    
     supply  behind  the  pipeline.   These  are  long  term                                                                    
     investments - 20, 30, 40  plus years. It's nice to know                                                                    
     that  there will  be an  adequate supply.  That doesn't                                                                    
     mean  it needs  to be  fully developed  today. It  just                                                                    
     means that  we have  to have  a sense  that it  has the                                                                    
     ability to be  developed. In the case  of Alaska, we've                                                                    
     heard  a  lot  about  the fact  that  there's  lots  of                                                                    
     potential for  new supplies  and so  as a  developer of                                                                    
     pipelines, we like  to hear that. You know,  we like to                                                                    
     encourage new  growth and  if we were  to work  on this                                                                    
     project,  we would  want to  encourage  the ability  to                                                                    
     move more  gas on the  pipeline, not just  the existing                                                                    
     shippers but those in the future as well.                                                                                  
                                                                                                                                
     In terms  of shipper commitment,  we want to  know that                                                                    
     those who  commit to  take capacity can  pay for  it in                                                                    
     the long  haul because this is  a long-term commitment.                                                                    
     You heard  yesterday about the  billions of  dollars of                                                                    
     commitment that the various parties  are going to make.                                                                    
     That's substantial dollars.  The federal loan guarantee                                                                    
     will  help  but  we  will  still have  to  do  our  own                                                                    
     independent credit  checks on the various  shippers. In                                                                    
     the case  of the  Alaska project,  they will  be pretty                                                                    
     substantive  and  creditworthy  parties  but  in  other                                                                    
     projects,  unlike the  Alaska project,  you may  find a                                                                    
     more diverse group.  It was interesting in  the days of                                                                    
     the marketers,  credit was an interesting  issue and it                                                                    
     became  more so  in the  last four  or five  years when                                                                    
     some of  those marketers'  credit wasn't so  strong. So                                                                    
     it is an area we look at pretty closely.                                                                                   
                                                                                                                                
     The constructability  - can  we build  it, not  only in                                                                    
     terms of  land access  but just  in the  environment we                                                                    
     find  ourselves in  when trying  to build  it. Alaska's                                                                    
     going  to be  challenging. You've  heard, I  think over                                                                    
     previous  hearings,  things  about  the  difficulty  of                                                                    
     building in  permafrost. It takes a  company that's had                                                                    
     experience and  understands those challenges to  get it                                                                    
     built, so it's not just a  matter of being able to have                                                                    
     the finances to  build it. You have to  have the skills                                                                    
     to be  able to build  it. Enbridge has had  some pretty                                                                    
     significant  experience in  building in  permafrost. We                                                                    
     were the first ones to  build and operate in permafrost                                                                    
     in  Canada. We've  been doing  that since  1985 so  you                                                                    
     have to  have someone who's experienced  in the various                                                                    
     challenges in being able to build a pipeline.                                                                              
                                                                                                                                
     Material and labor - you've  probably heard quite a bit                                                                    
     about this over the last  several months. With the size                                                                    
     of this project,  it does have the  ability to overheat                                                                    
     the  market for  labor. There's  going to  be a  lot of                                                                    
     jobs, a  lot of  job opportunities. That  also -  and I                                                                    
     think someone joked yesterday about  the fact that, you                                                                    
     know,  has the  ability to  create the  desire to  make                                                                    
     more  money,  maybe we'll  slow  that  project down  or                                                                    
     we'll ask for more. Hence,  there has to be the ability                                                                    
     to balance  that and  have dialog  with the  unions and                                                                    
     with others on how we can  all make a fair profit and a                                                                    
     fair return from this but  not overheat the market. You                                                                    
     also have  to have a look  at what is also  going to be                                                                    
     going on  at the same  time. The Alaska project  is not                                                                    
     the only  project that's potentially going  to be going                                                                    
     on in  this kind  of timeframe so,  as a  pipeliner, we                                                                    
     try  to   see  what  other  projects   might  be  being                                                                    
     developed  at the  same time  and have  that dialog  to                                                                    
     make sure  that we're  not trying to  pull too  hard on                                                                    
     the same resources.                                                                                                        
                                                                                                                                
REPRESENTATIVE  ERIC CROFT  asked  Mr. Brintnell  to address  the                                                               
price of steel.                                                                                                                 
                                                                                                                                
MR. BRINTNELL  said that right  now, the  price of steel  is very                                                               
high. The Chinese  market is taking all of the  steel it can get.                                                               
The price of  steel has increased 50 to 75  percent over the last                                                               
couple  of years.  That price  increase is  causing problems  for                                                               
pipeline companies  in being able  to predict what the  costs are                                                               
going  to  be. Some  of  the  existing  projects that  are  going                                                               
forward today  relied on  relatively firm  pricing, only  to find                                                               
out  that is  not  the case  because  the market  is  so hot.  He                                                               
acknowledged that  will be  a challenge  for the  Alaska pipeline                                                               
project because  it will require so  much steel and will  tax the                                                               
ability of the  steel mills to produce it. He  thought that issue                                                               
can  be dealt  with by  initiating  a serious  dialog with  steel                                                               
producers. He  said it does not  differ from the labor  market in                                                               
that you say,  "Okay, here's an opportunity for you  to make some                                                               
money but let's  be realistic as to what  your expectations are."                                                               
He said  another consideration  will be the  type of  steel used.                                                               
Some  of  the  newer  steels  have  not  been  tested  over  long                                                               
distances.                                                                                                                      
                                                                                                                                
CO-CHAIR  SAMUELS  asked if  the  steel  manufacturing plants  or                                                               
pipeline companies do the testing.                                                                                              
                                                                                                                                
MR. BRINTNELL said the pipeline  companies do and noted that some                                                               
limited scope tests  are underway right now  for the higher-grade                                                               
steels.                                                                                                                         
                                                                                                                                
CO-CHAIR SAMUELS asked the timeframe of the tests.                                                                              
                                                                                                                                
MR. BRINTNELL said it is not  the testing that is as important as                                                               
getting comfortable  with the technology.  He said,  for example,                                                               
X-180 pipe  has been used in  the United States for  a very short                                                               
time on the  Cheyenne Plains project, even though  that steel has                                                               
been around for a while.                                                                                                        
                                                                                                                                
CO-CHAIR  SAMUELS   announced  that  Representatives   Fate  (via                                                               
teleconference),  Gara,   Croft  and   Senator  French   were  in                                                               
attendance.                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO asked Mr. Brintnell  to equate the amount of                                                               
steel that  will be  necessary to build  the pipeline  to another                                                               
project, such as  building an aircraft carrier, so  that he could                                                               
gauge how involved getting the metal will be.                                                                                   
                                                                                                                                
MR.  BRINTNELL  likened that  to  comparing  widgets. He  thought                                                               
another  presenter said  that it  might take  the entire  world's                                                               
steel capacity production, although he  would not go that far. He                                                               
said  the  amount  will  depend  on the  size  of  the  pipeline.                                                               
Enbridge has  considered not only  48 and 52-inch  pipelines, but                                                               
it has also considered a  36-inch pipeline, the reason being that                                                               
the existing  steel mills in North  America are able to  handle a                                                               
36-inch  pipeline. He  said although  capacity might  have to  be                                                               
increased if a  36-inch pipeline is built, the  steel mills could                                                               
continue  to  build  36-inch  or 42-inch  pipe  once  the  Alaska                                                               
pipeline is  completed. Enbridge  believes a substantial  part of                                                               
the  steel can  be sourced  within America  but offshore  sources                                                               
will be necessary because of the size of the project.                                                                           
                                                                                                                                
REPRESENTATIVE GATTO asked if the  world's steel production could                                                               
be tied up in this project for one year.                                                                                        
                                                                                                                                
MR. BRINTNELL was unsure.                                                                                                       
                                                                                                                                
REPRESENTATIVE  GATTO questioned  whether this  project could  be                                                               
stalled by a lack of metal.                                                                                                     
                                                                                                                                
MR.  BRINTNELL  said  the  steel   supply  is  a  very  important                                                               
consideration so ascertaining  where the metal will  come from is                                                               
part of the  dialog that must take place now,  as well as whether                                                               
the Chinese market will remain as hot as it is now.                                                                             
                                                                                                                                
CO-CHAIR SAMUELS  noted that Representative Dahlstrom  joined the                                                               
committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GARA  pointed  out  that  Enbridge  is  the  only                                                               
company that is  proposing to build one or  two 36-inch pipelines                                                               
instead of  a larger one,  which could  increase the cost  of the                                                               
project  substantially. He  asked Mr.  Brintnell why  two 36-inch                                                               
pipes would make this project cheaper.                                                                                          
                                                                                                                                
MR. BRINTNELL answered:                                                                                                         
                                                                                                                                
     ... A  couple of reasons,  one is  do we know  what the                                                                    
     shipper  commitments are  going to  look like  from day                                                                    
     one. Do we  know what development might  look like down                                                                    
     the track? You know, we've  heard the fact that we want                                                                    
     to make  sure that  the Alaska  project isn't  just for                                                                    
     existing  producers, that  there's the  opportunity for                                                                    
     others  who, as  they develop  supply, to  bring it  on                                                                    
     board. You  heard a bit  yesterday about being  able to                                                                    
     loop. The positives,  and I want to make  it clear that                                                                    
     Enbridge is  not pushing dual 36-inches,  we just think                                                                    
     it's important to  be considered as an  option, is that                                                                    
     you can  start off  slower. You  can build  one 36-inch                                                                    
     pipe, make  sure it's full and,  as additional supplies                                                                    
     come  onboard,   either  because  you  don't   want  to                                                                    
     overheat  the market  - you  heard yesterday  about the                                                                    
     impact  that can  have on  prices,  which impacts  your                                                                    
     netbacks, both  as the state  and as the  producer. You                                                                    
     can bring on looping, 'incrementalize' the supply.                                                                         
                                                                                                                                
     The other thing  is it adds reliability. If  you have a                                                                    
     dual 36-inch line  versus a single 48 or  single 52, if                                                                    
     there is an  issue with part of the  line, a compressor                                                                    
     failure  or somewhere  along the  line you  need to  do                                                                    
     maintenance on a  piece of the line, you  don't go from                                                                    
     100  percent   capacity  to  50   percent  -   you  go,                                                                    
     typically,  from  100  percent  capacity  to  about  70                                                                    
     percent  capacity -  just the  way you  can bypass  the                                                                    
     section that  you have a  problem in [indisc.]  to flow                                                                    
     so there  is some reliability benefits  associated with                                                                    
     dual 36.                                                                                                                   
                                                                                                                                
     So, in  the context  of what do  you invest  in, that's                                                                    
     one of the  things, and ... you'll see later  on that I                                                                    
     talk about reliability. Reliability  is not just price.                                                                    
     Shippers look  to a pipeline  company not only  to give                                                                    
     them a competitive  price, they also want  to make sure                                                                    
     the gas  gets to move  because if you're going  to have                                                                    
     to pay  your shipping commitment  - and you  heard that                                                                    
     yesterday  that a  big  part  of this  is  ... in  most                                                                    
     cases, you're  going to pay.  I wouldn't say  it's Hell                                                                    
     or high water,  but in most cases, you're  going to pay                                                                    
     for your  shipping commitments. You  want to  make sure                                                                    
     that  that gas  can flow.  And  so, in  the context  of                                                                    
     reliability,   what  do   you   invest  in.   Sometimes                                                                    
     duplication is more reliable and  you're willing to pay                                                                    
     more for that.                                                                                                             
                                                                                                                                
MR. BRINTNELL continued with his presentation.                                                                                  
                                                                                                                                
     And then finally,  can you finance it? I'll  talk a bit                                                                    
     more about  that later on.  You sort of segued  into my                                                                    
     next  slide,  which  is   what  motivates  the  various                                                                    
     parties because,  as a  pipeline developer,  we're only                                                                    
     one  of  three   parties  potentially  to  participate.                                                                    
     Producers  do   want  the  lowest  cost   of  delivery.                                                                    
     Obviously, as the  state and as the  producers you want                                                                    
     the  highest possible  netback but  I have  experienced                                                                    
     before   where  the   lowest   cost  pipeline   doesn't                                                                    
     necessarily get  to be the  one that gets to  be built.                                                                    
     They're  looking for  reliability. They're  looking for                                                                    
     'optionality.'  You know,  does your  pipe give  things                                                                    
     that  others wouldn't?  And  I  say 'optionality,'  for                                                                    
     example,  in  the case  of  the  Alliance pipeline.  It                                                                    
     provided    for   free    fuel-only   interruption    -                                                                    
     interruptible service.  So what do the  various parties                                                                    
     bring to the table -  so they're not just talking about                                                                    
     the lowest demand charge but  what other things can you                                                                    
     bring to the table.                                                                                                        
                                                                                                                                
     The market's  the same thing.  The added mix,  I guess,                                                                    
     in  the downstream  market is  they all  started buying                                                                    
     the  gas so  they  want to  know -  they  want to  have                                                                    
     competitive and reliable gas pricing.                                                                                      
                                                                                                                                
     And then  the transporter  side -  we're looking  for a                                                                    
     fair  return  and I  will  talk  a  bit about  what  we                                                                    
     classify  as fair  return,  risk/reward balance,  later                                                                    
     on.  But we  want to  have manageable  risk. We're  not                                                                    
     looking for  no risk. There  isn't the ability  to have                                                                    
     no risk but  we want to understand our risk  to be able                                                                    
     to  manage it  and then  have some  financial certainty                                                                    
     around the risk that we define.                                                                                            
                                                                                                                                
     You heard  yesterday a  bit about -  from what  we call                                                                    
     the  [indisc.] bar  hopping. I  like to  call this  the                                                                    
     oval of opportunity. Basically,  as the risks increase,                                                                    
     as  investors  and  developers  in  pipelines,  we  are                                                                    
     looking  for the  opportunity to  make more  money. Now                                                                    
     that's just  - they go  hand-in-hand. We will  and have                                                                    
     been,  when  we can  take  risk,  pipeliners will  take                                                                    
     development risk. We like to  take the risk we think we                                                                    
     can manage.  One of the  things the  pipeline companies                                                                    
     do is  build pipelines so  we should be able  to manage                                                                    
     construction  risk and  we'll take  some of  that risk.                                                                    
     Things that are beyond  our control, for example, steel                                                                    
     price. No matter  how hard we might want to  try, as an                                                                    
     individual company,  to manage steel prices,  we can't.                                                                    
     We can't  control the  global market  so those  are the                                                                    
     kinds of  risks where you  have to  try and look  for a                                                                    
     balance between the developer  and the other industries                                                                    
     as to who gets to share that risk-reward balance.                                                                          
                                                                                                                                
     You  know, technology  - we  talked a  bit about  that.                                                                    
     Where  do you  decide  to take  which  pipe? It  really                                                                    
     depends on  where you  are in the  process. As  we move                                                                    
     along on  the Alaskan project,  it has become  more and                                                                    
     more important  to move it  along faster. Well,  do you                                                                    
     take the risk of unproven  technology? You might and it                                                                    
     might  bring the  cost down,  but you  have to  bear in                                                                    
     mind that you're  taking a risk. So that's  the kind of                                                                    
     thing  -  you have  a  dialog  with  not only  our  own                                                                    
     company  and the  banks  because  they're important  to                                                                    
     this,  but also  the shippers  themselves saying  look,                                                                    
     there are things we can do.  We can bring the cost down                                                                    
     but  there's a  cost.  The  cost is  the  risk goes  up                                                                    
     essentially.                                                                                                               
                                                                                                                                
     What do we  need to invest? Typically, and  I think you                                                                    
     heard this  yesterday, typically looking for  return on                                                                    
     equity  around  12 to  15  percent.  Fifteen percent  -                                                                    
     there are projects  going on right now that  are in the                                                                    
     15 percent  area. There  are those going  on at  12. It                                                                    
     could  potentially  be  lower   than  that.  It  really                                                                    
     depends upon  what the risk  balance is.  Our investors                                                                    
     look  - the  people that  invest in  pipeline companies                                                                    
     are looking  for return  so they're  looking for  us to                                                                    
     make, you know,  an adequate return - 12  to 15 percent                                                                    
     is kind of the range they're  looking for us to make on                                                                    
     investments,  otherwise they  could invest  their money                                                                    
     somewhere else.  So that's kind  of the range  in order                                                                    
     for  us to  get the  equity we  need in  our companies.                                                                    
     That's the range  of return we're looking  for. We need                                                                    
     access to that and there  was quite a bit of discussion                                                                    
     yesterday about  the fact that  for this  project there                                                                    
     likely will  be a fair  bit of opportunity to  bring in                                                                    
     various types of debt, both  through the equity markets                                                                    
     and through the  other forms but we  have to understand                                                                    
     where that debt is coming from.                                                                                            
                                                                                                                                
     I  talked a  bit about  cost certainty.  It's not  cost                                                                    
     certainty as  much as it's  predictability. We  need to                                                                    
     be able to  predict what those costs are.  What are the                                                                    
     bands?  You   asked,  in  the  context   of  making  an                                                                    
     investment decision and I'll bring  it back to about 36                                                                    
     versus  52 or  48, having  built quite  a bit  with the                                                                    
     small diameter pipe, we are  better able to predict, we                                                                    
     think, what the cost variability  might be like in that                                                                    
     and so  put a  tighter band on  what the  outside might                                                                    
     be, versus say,  a 52 or a 48, which  hasn't been tried                                                                    
     as  much so  you have  a higher  unpredictability on  a                                                                    
     higher size  pipe that you might  not have on a  36. So                                                                    
     that is having the ability  to better manage and better                                                                    
     understand   that  cost   uncertainty.   Is  it   worth                                                                    
     something to the shippers? It  might be or they may say                                                                    
     no, I  want the lowest  cost pipe. But that's  the kind                                                                    
     of thing we consider when we look at pipes.                                                                                
                                                                                                                                
     Regulatory certainty - I'm sure  it's been talked quite                                                                    
     a bit about  in previous hearings, not so  much in this                                                                    
     one, but that's important  to us as pipeline developers                                                                    
     - understanding the process not  only from gaining land                                                                    
     access  but  just  in  terms  of  getting  the  tariffs                                                                    
     approved. In  this project we've got  the FERC approval                                                                    
     we're  going  to need  to  have.  We're  to the  NEB  -                                                                    
     National  Energy  Board  approval  in  Canada.  Can  we                                                                    
     understand the  process? Do we understand  the process?                                                                    
     Is it clearly defined -  and not only the process going                                                                    
     into it but over the long  haul? One of the things that                                                                    
     pipeliners are most concerned about  is that we develop                                                                    
     a  project  only  to find  the  regulatory  environment                                                                    
     change after  the fact.  We're willing  to look  at the                                                                    
     oval of  opportunity and take  more risk, but  we don't                                                                    
     want to then find out  that after we've taken that risk                                                                    
     and expected a higher return,  only to have that clawed                                                                    
     back after they've said well  no, you've taken the risk                                                                    
     and thanks  very much and  now we want a  lower return.                                                                    
     We want  to have  regulatory stability over  the longer                                                                    
     haul.                                                                                                                      
                                                                                                                                
     ... The last  point is we need to  understand how we're                                                                    
     going  to  get access  to  the  land, both  the  state,                                                                    
     federal,    private   and    the   aboriginal    Native                                                                    
     corporations that play a big role there.                                                                                   
                                                                                                                                
REPRESENTATIVE CROFT  asked what risk Mr.  Brintnell is referring                                                               
to since cost overruns would be added to a FERC 12 percent base.                                                                
                                                                                                                                
MR. BRINTNELL said  that is not necessarily true  even though the                                                               
implication  has been  made  that pipeliners  do  not take  risk.                                                               
Enbridge has a long history of  that not being the case. Enbridge                                                               
prefers negotiated settlements  in which it will  take some risk.                                                               
During   the  negotiations   for  the   Alliance  Pipeline,   the                                                               
developers negotiated a 12 percent  return but that was variable.                                                               
If  the  developers were  able  to  bring  the project  in  under                                                               
budget, the  return could go up.  If it came in  over budget, the                                                               
return  went down.  In the  case  of the  Alliance Pipeline,  the                                                               
return  did go  down  so  the shippers  were  not  the only  ones                                                               
bearing  the brunt  of a  cost overrun.  He noted  that more  and                                                               
more,   pipeline   companies   are   entering   into   negotiated                                                               
settlements.  Enbridge believes  the  Alaska pipeline  will be  a                                                               
negotiated   settlement  that   will  contain   some  risk/reward                                                               
balancing. He added:                                                                                                            
                                                                                                                                
     Other  things are  you take  some risks  operationally.                                                                    
     Our  ANR-Vector Pipeline,  which runs  from Chicago  to                                                                    
     Ontario,  we benefit  and take  pain on  an O&M  basis,                                                                    
     operation  and maintenance  basis, so  if we  do better                                                                    
     than we predict,  then we, the pipeline  owners, get to                                                                    
     share in  some of those  benefits. But if we  do worse,                                                                    
     we bear  the pain and  we share that with  shippers. So                                                                    
     it isn't  quite as  straightforward as no  risk because                                                                    
     you  could   build  a  no-risk  pipeline.   But,  quite                                                                    
     frankly,  I  don't  think that  any  of  the  shippers,                                                                    
     including  the state  if you  decide to  be a  shipper,                                                                    
     works  out  that  way.  I   think  you're  looking  for                                                                    
     pipeline companies to take some  risk and be innovative                                                                    
     on  how  they might  be  able  to  do that.  And  we're                                                                    
     willing to do  that. We want to. I mean  the reality is                                                                    
     our  investors  in our  companies  look  for us  to  do                                                                    
     better than just,  you know, a flat rate.  They want us                                                                    
     to try and make more  money and so they're expecting us                                                                    
     to take risk.                                                                                                              
                                                                                                                                
REPRESENTATIVE GARA  said everyone has  accepted as a  given that                                                               
the investors  in a pipeline  expect a 12  to 15 percent  rate of                                                               
return, as  that is what  pipelines have earned  historically. He                                                               
questioned  why  that is  still  the  case in  today's  financial                                                               
markets where people are looking  hard to find an investment that                                                               
will return 7 percent.                                                                                                          
                                                                                                                                
MR. BRINTNELL said  that number is not "gospel" but  one needs to                                                               
distinguish  between financial  investors who  will take  a lower                                                               
return and companies  that know how to  run pipelines. Enbridge's                                                               
investors are  looking for Enbridge to  bring a return in  the 12                                                               
to 15  percent range, depending  on the risk. He  maintained that                                                               
this project  cannot be solely  financed by  financial investors.                                                               
He pointed out  that the other owner of the  Alliance Pipeline is                                                               
a  financial player,  not  a pipeline  company.  Its returns  and                                                               
expectations  are different  but  they  do not  know  how to  run                                                               
pipelines and are in it solely on an investment basis.                                                                          
                                                                                                                                
REPRESENTATIVE  FATE   recalled  that  a  36-inch   pipeline  was                                                               
discussed at  an earlier date and  asked if that option  is still                                                               
on the table. He asked what  some of the deleterious aspects of a                                                               
36-inch pipeline would be.                                                                                                      
                                                                                                                                
MR. BRINTNELL  said that option  is certainly still on  the table                                                               
for Enbridge because  it reduces the potential risk.  He said the                                                               
downside is  the higher cost.  However, if  growth to 4  BCF does                                                               
not occur for five to seven years, it makes more sense.                                                                         
                                                                                                                                
CO-CHAIR SAMUELS noted the presence of Senator Wagoner.                                                                         
                                                                                                                                
MR.   BRINTNELL   said   he  would   not   focus   on   financing                                                               
considerations  as  that  topic   was  discussed  at  length  the                                                               
previous day but he pointed  out that basically, Enbridge and the                                                               
financial community  are looking for  the same things.  The banks                                                               
want  to be  assured  they are  dealing  with financially  strong                                                               
players and that whoever is  putting equity in has experience. He                                                               
repeated that financial players will  take a lower rate of return                                                               
because they  know that those who  are looking for a  higher rate                                                               
of return have  the experience and are risking  their own dollars                                                               
to make a return. He pointed  out that regarding risk, "Our money                                                               
comes last, the  banks come first." Financing  companies are also                                                               
looking at  the quantity and  kinds of reserves that  are backing                                                               
the pipeline. He continued with his presentation:                                                                               
                                                                                                                                
     There can be quite a  broad variety of sources of debt,                                                                    
     and  I won't  go through  this. Once  again, you  heard                                                                    
     yesterday  quite   a  bit   about  who   might  invest,                                                                    
     including the  equity market,  pension funds,  but they                                                                    
     are  looking  for  -  they   are  happy  to  invest  in                                                                    
     pipelines  because the  returns  are  higher than  they                                                                    
     might get  in other  ways but they  still want  to know                                                                    
     that  there's someone  reliable  and able  to run  that                                                                    
     pipe.  That's   why  they're   willing  to   invest  in                                                                    
     potentially  not the  same  return  that others  might,                                                                    
     because they're not pipeliners.                                                                                            
                                                                                                                                
     I'm going to skip through  this. This talks a bit about                                                                    
     what they're looking for and  the biggest thing is debt                                                                    
     service coverage ratio. They  want to know that there's                                                                    
     sufficient  commitment to  pay  them  back because  the                                                                    
     banks get  paid first  and participants  like ourselves                                                                    
     get paid  later and  hence, the reason  why you  want a                                                                    
     slightly larger return because you're paid last.                                                                           
                                                                                                                                
     A bit of  a commercial for those of you  who don't know                                                                    
     who or  may not  know who Enbridge  is. We're  a pretty                                                                    
     substantial  pipeline company  - about  $13 billion  in                                                                    
     assets.  We own  and  operate the  world's largest  oil                                                                    
     pipeline  so we  have  a number  of  years of  pipeline                                                                    
     experience. We  built the first pipeline  in continuous                                                                    
     permafrost, so  the most  technical hurdles  and issues                                                                    
     we've  got  a  bit  of  experience  with.  We  built  a                                                                    
     distribution  company in  Inuvik [ph]  so we  know that                                                                    
     one  of  the  key  aspects of  this  project  is  local                                                                    
     markets and how  can that be accessed  so we're looking                                                                    
     to try and help in that.                                                                                                   
                                                                                                                                
     We may  or may not  be an investor  in the LDCs  but at                                                                    
     least  we  understand  some   of  the  difficulties  in                                                                    
     getting gas to new areas.  We brought gas to Inuvik. We                                                                    
     brought  gas  to New  Brunswick,  which  never had  gas                                                                    
     before. So  being an LDC company,  a local distribution                                                                    
     company ourselves,  we kind of  understand some  of the                                                                    
     challenges that  it takes to  get gas to new  regions -                                                                    
     just  like Alaska  is trying  to do.  We have  a strong                                                                    
     environmental  track  record.   We  have  won  numerous                                                                    
     awards  for   building  pipelines  and   operating  our                                                                    
     pipelines.  We think  we're kind  of  uniquely able  to                                                                    
     participate in this  project and we think  that we have                                                                    
     a strong history  - we do have a strong  history - with                                                                    
     engaging First Nations people.                                                                                             
                                                                                                                                
     We  will  be looking  at  taking  a potential  shipping                                                                    
     commitment on  the pipeline  so I  know there  were two                                                                    
     divergent  opinions  yesterday   as  to  whether  local                                                                    
     distribution companies  would in fact step  up and take                                                                    
     capacity.  Enbridge is  taking a  very serious  look at                                                                    
     taking  capacity  on  our  own   right  for  our  local                                                                    
     distribution   company   in   Ontario,  so   we   could                                                                    
     potentially  be a  shipper. We  are looking  to go  and                                                                    
     talk to  other LDCs,  both in the  Chicago area  and as                                                                    
     far  east  as New  York.  We  believe, and  we've  seen                                                                    
     indications, that they  will be or might  be willing to                                                                    
     step  up. The  issue they  face  is being  able to  get                                                                    
     regulatory approval.  With markers stepping  up several                                                                    
     years   ago  and   taking  capacity,   the  LDCs   were                                                                    
     discouraged and, in fact, told  they couldn't take long                                                                    
     term capacity commitments.  With those markers leaving,                                                                    
     the opportunity  is there  to let  them take  it again,                                                                    
     but the regulators have to  be encouraged to allow them                                                                    
     to do that. So we're going  to go out and work with the                                                                    
     LDCs to  see if  we can't have  some dialog  with those                                                                    
     regulators and  potentially with the  states themselves                                                                    
     because we  think they're  the ones  that are  going to                                                                    
     benefit from  your gas.  You'll benefit  because you're                                                                    
     going  to earn  the royalties  and the  revenues. Those                                                                    
     states benefit  because the  gas gets  there and  so we                                                                    
     believe that there  is an opportunity for  Alaska to go                                                                    
     and talk  to those other  states and encourage  them to                                                                    
     encourage their regulators of those  LDCs to be able to                                                                    
     take  long-term  commitments.  And  we  know  they  are                                                                    
     looking at it. I've talked  to LDCs that are looking at                                                                    
     potentially   taking  long-term   commitments  on   LNG                                                                    
     facilities  so if  they're  willing  to take  long-term                                                                    
     commitments  on  LNG,  why  not  Alaska?  So  we  think                                                                    
     there's an opportunity there.                                                                                              
                                                                                                                                
     And I guess the last part  of the commercial is we have                                                                    
     had pretty extensive cross-border.  The one thing we've                                                                    
     talked about - these hearings  are all about Alaska but                                                                    
     this  is  a  cross-border  project  so  we  think  it's                                                                    
     important to be able to look  not only at the U.S. side                                                                    
     but  the  Canadian  side and  understand  some  of  the                                                                    
     politics and  issues and we've  had a  long experience,                                                                    
     through   Alliance  and   through   Vector  and   other                                                                    
     pipelines  of dealing  cross-border. So  we think  that                                                                    
     we're uniquely  well positioned there and  that sort of                                                                    
     ends the commercial.                                                                                                       
                                                                                                                                
REPRESENTATIVE GATTO  said the Governor  remarked that he  was in                                                               
active negotiations  with both TransCanada and  the producers. He                                                               
understood  the  Governor   to  say  that  was   because  he  had                                                               
reimbursable service  agreements (RSAs).  He asked  Mr. Brintnell                                                               
if Enbridge has reimbursable service agreements also.                                                                           
                                                                                                                                
MR. BRINTNELL  said Enbridge has  not signed an RSA,  not because                                                               
it is  averse to  doing so  but because it  has been  focusing on                                                               
where  it can  add value  first, which  is why  it is  looking at                                                               
having the  LDC discussions and  at dual 36-inch pipelines  and a                                                               
few other things. He noted that  Enbridge is more than willing to                                                               
sign those agreements  but, again, believes it  is more important                                                               
to  focus on  other areas  of the  project right  now. Enbridge's                                                               
understanding is that the rights-of-way  will not be exclusive so                                                               
it is  not concerned that there  will be no opportunity.  He said                                                               
Enbridge officials met with the Governor's staff this week.                                                                     
                                                                                                                                
REPRESENTATIVE GATTO  indicated that dual 36-inch  pipelines will                                                               
have more capacity  than a single 48-inch line, so  that the dual                                                               
36-inch  pipelines  may  cost  more  but  can  deliver  more.  He                                                               
estimated that it would take 1.8  36-inch lines to equal a single                                                               
48-inch  line. He  asked  for  the ratio  of  the increased  cost                                                               
versus what the state would get.                                                                                                
                                                                                                                                
MR. BRINTNELL  guessed the  amount to be  .5 billion  cubic feet,                                                               
maybe more. He added:                                                                                                           
                                                                                                                                
     The thing about it is is  that you don't directly go to                                                                    
     a dual 36. You loop it out  so the beauty of it is that                                                                    
     if we  thought we were only  going to get to  the point                                                                    
     that  we  needed  capacity  for   a  48,  you  wouldn't                                                                    
     necessarily   fully   loop   out  the   36.   You   can                                                                    
     incrementalize  yourself  to  the  various  capacities,                                                                    
     unlike building  a single pipe  where you build  it and                                                                    
     it's there. In  the case of a dual pipe,  you can build                                                                    
     it up over time.                                                                                                           
                                                                                                                                
SENATOR  GUESS indicated  that Governor  Murkowski opined  during                                                               
his presentation yesterday  that he must take some  risk in order                                                               
to move the project forward.  She asked Mr. Brintnell his opinion                                                               
about  whether  the  state  must  take risk  or  must  take  some                                                               
ownership in the pipeline to move the project forward.                                                                          
                                                                                                                                
MR.  BRINTNELL replied  that Enbridge  believes the  state has  a                                                               
role  to  play  and  the  ability  to  take  some  risk  that  an                                                               
independent company like Enbridge does not. He continued:                                                                       
                                                                                                                                
     There are some benefits that  the state will get from a                                                                    
     project that  someone who was just  purely investing in                                                                    
     the pipeline  won't. You  know, the  fact that  the gas                                                                    
     moves  from the  state  has some  benefits  so I  think                                                                    
     there  [are]  benefits  in participation  ...  it  just                                                                    
     depends on  how you structure  the risk. I'll  give you                                                                    
     an  example,  not  necessarily what  I  would  advocate                                                                    
     here,  but we've  looked at  before where  some parties                                                                    
     are   willing  to   take  more   risk   or  have   more                                                                    
     opportunities than  [indisc.] a  producer who  would be                                                                    
     participating in  the pipeline.  They might  be willing                                                                    
     to take more back-end risks.  In other words, allow the                                                                    
     pipeline to  take potentially a  lower return  but have                                                                    
     more stable returns and they  would get more returns at                                                                    
     the back-end.  So, you know,  that's the kind  of thing                                                                    
     the  state  potentially could  do  is  say okay,  we'll                                                                    
     participate  on  an  equity   basis.  We'll  take  more                                                                    
     returns than you will, Enbridge  or a pipeline company,                                                                    
     because we're willing to take  slightly more risk. So I                                                                    
     think that  the state, you  know, could have a  role to                                                                    
         play here. Is it essential? I'm not sure it's                                                                          
     essential but it's positive.                                                                                               
                                                                                                                                
SENATOR GUESS  said she is  aware of the positives  and negatives                                                               
but was trying to ask whether it is essential.                                                                                  
                                                                                                                                
CO-CHAIR  SAMUELS  asked  if  Enbridge  has  partnered  with  any                                                               
government entity, regarding an equity share.                                                                                   
                                                                                                                                
MR. BRINTNELL could  not think of any  government partnerships in                                                               
the  Canadian  or  U.S.  pipelines  but he  was  not  sure  about                                                               
offshore projects in Colombia or Spain.                                                                                         
                                                                                                                                
CO-CHAIR  SAMUELS   asked  if  Enbridge   simply  did   not  need                                                               
government equity participation in  the Canadian or U.S. pipeline                                                               
projects  or  whether  it  chose  not  to  deal  with  government                                                               
bureaucracy.                                                                                                                    
                                                                                                                                
MR.  BRINTNELL  said  Enbridge did  not  need  government  equity                                                               
participation.  He  pointed  out  that  Alaska  is  in  a  unique                                                               
position because 12 percent of 4 BCF  per day amounts to a lot of                                                               
gas and puts Alaska in a unique position.                                                                                       
                                                                                                                                
SENATOR ELTON  asked Mr.  Brintnell if he  was referring  only to                                                               
equity.                                                                                                                         
                                                                                                                                
MR.  BRINTNELL said  he  was. In  terms  of shipper  commitments,                                                               
Enbridge discussed a project with  the Wyoming Pipeline Authority                                                               
in which the  state might have been a shipper.  He clarified that                                                               
Enbridge has  had dialogs with  government entities  about entity                                                               
participation in the past but nothing was formalized.                                                                           
                                                                                                                                
CO-CHAIR SAMUELS  thanked Mr. Brintnell for  his presentation and                                                               
introduced  Mr. Ken  Thompson, past  Executive Vice  President of                                                               
ARCO  and  the  past  President  of  Arco  Alaska,  and  Mr.  Joe                                                               
Marushack,   Vice   President    of   Alaska   Gas   Development,                                                               
ConocoPhillips  Alaska.  He noted  that  Mr.  Marushack would  be                                                               
presenting on  behalf of ConocoPhillips,  BP and Exxon  Mobil. He                                                               
informed members that Mr. Thompson  would be giving two different                                                               
presentations  and wearing  two  "hats" so  he  asked members  to                                                               
limit  questions  to  the  specific  presentation  entitled,  The                                                             
Process of and  Criteria Used in Making a Decision  on Whether to                                                             
Invest in an Upstream or Midstream Project.                                                                                   
                                                                                                                                
MR. KEN  THOMPSON explained to  members that he would  be wearing                                                               
the hat  of an ex-ARCO  Executive Vice President, having  sat and                                                               
participated in  meetings of  that corporation  for his  last two                                                               
years at ARCO, and that he  would also be arguing for capital for                                                               
Alaska as President of Arco Alaska  from 1994 to 1998 and explain                                                               
how projects  got prioritized on  the capital allocation  list of                                                               
that corporation.  He said he  is currently serving on  the audit                                                               
committees of  the boards  of directors of  Alaska Air  Group and                                                               
the Coeur  D'Alene Mines Corporation,  where he  oversees capital                                                               
allocations. He began:                                                                                                          
                                                                                                                                
     How   did  large   corporations  like   an  ARCO   make                                                                    
     decisions? How  did capital get approved  when projects                                                                    
     were commercial? Not all  projects that were commercial                                                                    
     were  approved. There  is a  finite  amount of  capital                                                                    
     that  any company  can  spend, as  I'll  describe in  a                                                                    
     moment.                                                                                                                    
                                                                                                                                
     Before  I get  into  that, I'm  going  to briefly  talk                                                                    
     about  something that's  extremely  important from  the                                                                    
     discussions yesterday. Those were  ... [END OF TAPE 04-                                                                    
     32, SIDE A]                                                                                                                
                                                                                                                                
TAPE 04-32, SIDE B                                                                                                            
                                                                                                                                
MR. THOMPSON continued:                                                                                                         
                                                                                                                                
     ...  or   helped  oversee  signing  of   joint  venture                                                                    
     agreements  for natural  gas  development and  pipeline                                                                    
     development with  Malaysia. It was joint  venture LLCs,                                                                    
     profit   sharing,  as   well   as   they  took   equity                                                                    
     participation.  I  also  signed similar  joint  venture                                                                    
     participation agreements  in the country of  Thailand -                                                                    
     also, in  the country  of Indonesia,  where ARCO  had a                                                                    
     lot  of operations.  All  the deals  we  made there  in                                                                    
     development   [were]   equity  participation   by   the                                                                    
     government company,  as well as production  sharing and                                                                    
     profit  sharing.  I  also   signed  deals  in  Trinidad                                                                    
     natural gas and  also deals in the country  of Qatar in                                                                    
     the  Middle East.  All of  these deals  were, in  fact,                                                                    
     what Pedro Van Meurs talked about yesterday.                                                                               
                                                                                                                                
     These were  deals that ARCO  moved ahead on  on natural                                                                    
     gas development,  where those countries took  an equity                                                                    
     participation  and  I  recommend that  the  legislature                                                                    
     also  approve   that  Alaska  this  time   changes  the                                                                    
     business model, that this time,  Alaska takes an equity                                                                    
     participation  in the  pipeline  - at  least your  12.5                                                                    
     percent  share  to  more  or  less  obtain  the  tariff                                                                    
     profits on  your royalty share  of gas. I've  also been                                                                    
     recommending  for two  years that  the  state take  its                                                                    
     royalty gas in-kind  and you get in the  market and you                                                                    
     see  what you  can  do, whether  it's  your own  little                                                                    
     division  that   you  set   up  with   experienced  gas                                                                    
     marketing or you  can contract that out  to very viable                                                                    
     excellent gas marketing firms.                                                                                             
                                                                                                                                
     These decisions  are very important. I  also found very                                                                    
     important,  and it  was very  significant, and  I don't                                                                    
     know if all  of us fully understood the  impact of what                                                                    
     UBS  was  saying  yesterday and  Lehman  Brothers  were                                                                    
     saying  yesterday. After  the  federal legislation  was                                                                    
     passed,  where the  federal  government will  guarantee                                                                    
     the debt, capital markets will  flow to this particular                                                                    
     project now. It is financeable.  And, it will lower the                                                                    
     risk  substantially on  anyone because  the state,  for                                                                    
     your share, will put in  20 percent equity and the rest                                                                    
     is  - and  this is  significant -  it is  project debt,                                                                    
     non-recourse  back to  the state  or the  corporations.                                                                    
     You'd have to  make sure that [indisc.]  happen but the                                                                    
     likelihood of  that is higher  now that you  have those                                                                    
     loan guarantees.                                                                                                           
                                                                                                                                
     On a shelf in my living  room, which I'm very proud of,                                                                    
     is a beautiful clock that was  given to me by the Prime                                                                    
     Minister  of   Malaysia  and  the  Prime   Minister  of                                                                    
     Thailand  for ARCO  signing a  joint venture  agreement                                                                    
     with those  two countries for  a gas pipeline  from the                                                                    
     central part  of the Gulf  of Thailand  and development                                                                    
     of a  huge gas field  there that's underway. It  was an                                                                    
     equity  sharing where  they take  equity ownership  and                                                                    
     it's also  profit sharing. And  I hope someday  you all                                                                    
     have clocks because  we've done the same  thing here in                                                                    
     Alaska and  this time  you better  take the  profits of                                                                    
     transporting  your own  gas rather  than  paying it  to                                                                    
     owners out of state.                                                                                                       
                                                                                                                                
     Now let me  get to this other subject, which  is how to                                                                    
     pen these - how to  get these on the capital allocation                                                                    
     of these  major corporations. So  I want to  talk about                                                                    
     what  is  the  importance   of  capital  budgeting  and                                                                    
     allocation in  a corporation. How  do they  decide what                                                                    
     projects to  do? What is the  framework that executives                                                                    
     in different  locations like  this one  understand that                                                                    
     process? What is the investment  criteria they use, the                                                                    
     sensitivity they look  at? And then what  are the risks                                                                    
     they may look at and  what are the common techniques of                                                                    
     risk  mitigation because  we have  to answer  that risk                                                                    
     mitigation.  You heard  every speaker  talk about  that                                                                    
     yesterday and you  hear me talk about it.  That will be                                                                    
     how  we  mitigate  the  risk,  such  as  taking  equity                                                                    
     participation,  such  as  sharing   part  of  the  risk                                                                    
     involved  with  the  other investors  could  make  this                                                                    
     project go forward.                                                                                                        
                                                                                                                                
     I'll also  talk about something  that in the  press and                                                                    
     in speeches that gets  thrown out somewhat haphazardly,                                                                    
     and there is a big  difference. I'm going to talk about                                                                    
     commercial  rate  of  return and  competitive  rate  of                                                                    
     return  -  it's  very  significant  to  understand  the                                                                    
     difference,   and  then   just   wrap   up  with   some                                                                    
     conclusions or recommendations.                                                                                            
                                                                                                                                
     I've  already  talked  about  experience  with  capital                                                                    
     portfolios serving on a couple  of boards, also serving                                                                    
     on corporate boards, also with  experience in ARCO that                                                                    
     I've already mentioned. At one  time I was also manager                                                                    
     and  resource   planning  for  ARCO,  which   the  sole                                                                    
     function was  capital allocation  of budget -  that was                                                                    
     it.  It  is  one  of  the  most  significant  financial                                                                    
     activities a  firm does. It really  determines the core                                                                    
     activities  of the  firm over  a  long-term future.  It                                                                    
     confirms  which  projects  receive capital  to  proceed                                                                    
     timely and  which ones do  not receive capital.  A very                                                                    
     important point,  a controversial point  sometimes, but                                                                    
     it's simple to  understand - not all  projects that are                                                                    
     commercial or even  competitive are approved internally                                                                    
     when capital  is constrained.  When there's  not enough                                                                    
     cash to go around, not  everything gets done. How do we                                                                    
     make  sure in  such  a world  that  the Alaska  project                                                                    
     makes it  on the list?  And the capital  constraints do                                                                    
     force an  allocation process  - I  worked 26  years for                                                                    
     ARCO. In those 26 years,  not once did all the projects                                                                    
     that we  had on  our list get  approved because  it was                                                                    
     more capital than we had  available. Most companies and                                                                    
     large corporations are that way.                                                                                           
                                                                                                                                
     Decisions must  be made  carefully and  rationally with                                                                    
     owners,  and this  is important,  with shareholders  in                                                                    
     mind. Why does  a shareholder invest in  Exxon Mobil or                                                                    
     ConocoPhillips, a past ARCO, a  BP - and it's important                                                                    
     to  understand why  they invest  in that  versus -  and                                                                    
     then  what  the shareholders  want  to  see out  of  an                                                                    
     Enbridge and  a TransCanada,  because that  impacts the                                                                    
     capital allocation decisions.                                                                                              
                                                                                                                                
     This  is  an  interesting  - in  slide  5,  really  the                                                                    
     capital budgeting  fits into the financial  planning of                                                                    
     a  corporation.  The  overall   financial  goal,  if  a                                                                    
     business  wants to  stay in  business, is  maximize the                                                                    
     shareholder wealth - the stock  price increases and the                                                                    
     dividends   is   earning   enough   return   for   that                                                                    
     shareholder or  they'll exit and  take their  money out                                                                    
     of  the business  by selling  their shares.  So really,                                                                    
     when a chief  financial officer gets all  this cash in,                                                                    
     this last -  in the year 2003, at  relatively lower oil                                                                    
     prices, in the 30s, not  the 50 bucks we're seeing now,                                                                    
     the CFO  of Exxon Mobil  was looking at this  chart and                                                                    
     said how do I spend the  $30 billion cash flow I got in                                                                    
     2003? BP said how do I  spend my $20 billion cash flow?                                                                    
     After everything else, how do  I invest the $20 billion                                                                    
     I got left from my revenues  minus all my expenses - of                                                                    
     all  fields, of  all  overhead, I've  got $30  billion.                                                                    
     Where do I  spend it? I've got $20 billion  at BP and I                                                                    
     have  $10 billion,  just under  9.8  actually, was  for                                                                    
     ConocoPhillips  last year.  I haven't  looked to  see -                                                                    
     some of  those numbers  may be  doubled this  year with                                                                    
     oil prices. I don't know.                                                                                                  
                                                                                                                                
     So how do you decide?  You have to allocate between the                                                                    
     pots. You  have to make  an investment decision  of the                                                                    
     capital  - what  projects,  long-term, short-term,  but                                                                    
     you also  have to make  very important dividends  - how                                                                    
     much of that cash flow  will go back to shareholders in                                                                    
     terms of dividend that can  prop your share price up or                                                                    
     also many investors  want to see that  dividend - maybe                                                                    
     see that dividend  increase over time. You  need to pay                                                                    
     those owners.                                                                                                              
                                                                                                                                
     But I want  to talk about the one  box about investment                                                                    
     decision capital  budgeting. You  see, the cash  flow -                                                                    
     when you see a lot of cash,  not all of it can come for                                                                    
     projects.  Shareholders want  a big  piece of  that and                                                                    
     they  do deserve  it in  the dividends  that are  paid.                                                                    
     Also that CFO,  when they're looking at  it, we'll talk                                                                    
     about the debt  equity mix. How much debt  is safe? How                                                                    
     much  debt is  unsafe?  Looking at  projects, how  much                                                                    
     equity, and we certainly  heard UBS and Lehman Brothers                                                                    
     talk about  those debt equity ratios  yesterday on this                                                                    
     project.  Whether it's  20 percent  equity put  in, the                                                                    
     rest is  debt guaranteed by the  federal government, is                                                                    
     a sweet deal. I have not  seen one like that come along                                                                    
     in a long time.                                                                                                            
                                                                                                                                
     Broad  framework for  capital  budgeting  - again,  the                                                                    
     maximized shareholder  - and when projects  go through,                                                                    
     and when  I was a  young engineer looking  at projects,                                                                    
     we understood there were different  phases. One, it was                                                                    
     an  idea.  You're sitting  around  the  table, an  idea                                                                    
     comes up for exploration or midstream, yes?                                                                                
                                                                                                                                
REPRESENTATIVE  CROFT asked,  "On the  overall -  so, a  producer                                                               
that knew that this was a  possible commercial venture - that the                                                               
pipeline  was commercial  -  if it  knew it  would  also have  an                                                               
adverse impact  on the overall gas  prices for the next  15 or 20                                                               
years, I  mean how  is that internally  computed? There's  a plus                                                               
and minus.  It will make  some money on the  one end but  it will                                                               
lower the return  I would get for my LNG  projects or others. How                                                               
are those rationalized?"                                                                                                        
                                                                                                                                
MR.  THOMPSON said  the decision  is very  difficult because  the                                                               
companies  must  also take  into  consideration  that delaying  a                                                               
project for three years might prevent  an impact on gas prices on                                                               
the rest  of their  gas, yet  if that  project is  delayed, other                                                               
competitors could bring in LNG.  He said producers should be very                                                               
concerned that  if enough gas  supply is not brought,  gas prices                                                               
could  get to  a point  where a  lot of  fuel switching  to other                                                               
resources  could  take  place  and  people  might  conserve  more                                                               
effectively.  In addition,  if  different  countries cannot  grow                                                               
their economies because prices are  too high, the demand could be                                                               
dampened. He continued:                                                                                                         
                                                                                                                                
     So, if you don't get your  gas on the market, prices go                                                                    
     too high, you  could dampen demand for the  rest of the                                                                    
     gas. That's going to happen  anyway and there's ways of                                                                    
     calculating that.  You know, DOE mentioned  that if gas                                                                    
     was brought  on by  2012, gas  prices would  decline by                                                                    
     about  25 cents,  I think  was the  report if  I recall                                                                    
     right.  On the  other hand,  other factors  could cause                                                                    
     the same thing.  So it's a tough  balance. You mitigate                                                                    
     the risk is one way, and we'll talk about it later.                                                                        
                                                                                                                                
     So we  have the  idea phase. Then  you start  doing the                                                                    
     preliminary evaluation  and on something  this massive,                                                                    
     you put people  on it, you spend  money. Producers, for                                                                    
     example, spent, as  you all well know,  $125 million. I                                                                    
     would say  that would be in  the preliminary evaluation                                                                    
     phase.                                                                                                                     
                                                                                                                                
     Now we're about  to approach a decision  sometime and I                                                                    
     hope the  decision is made by  the end of 2005.  It was                                                                    
     also very  significant, a subtle point  that didn't get                                                                    
     reported  by the  press  here,  another very  important                                                                    
     point  in  that  federal legislation  was  the  federal                                                                    
     government saying  if there are  no applications  for a                                                                    
     certificate  of  an  Alaska gas  transportation  system                                                                    
     within 18 months, certainly by  the end of next year or                                                                    
     February  or March  of 2006,  the  Secretary of  Energy                                                                    
     shall conduct a study  of alternative approaches to the                                                                    
     construction and  operation. And  I would say  that you                                                                    
     ought to  be sure and  have that in any  fiscal package                                                                    
     that  you pass.  You tie  in  with the  federal law  of                                                                    
     anything you  pass, you make that  date very important,                                                                    
     and I'll  talk about that  later of why  the importance                                                                    
     in a  capital allocation decision.  We want to  get all                                                                    
     these  companies -  producers,  pipeline companies,  to                                                                    
     the true business evaluation  phase, which crosses over                                                                    
     the final detailed engineering  and cost estimates into                                                                    
     the permitting phase and what  have you, and then after                                                                    
     all  of that,  which could  take a  couple years,  only                                                                    
     then do you make that  decision at board rooms to start                                                                    
     digging dirt  and put  a pipeline  in the  ground. Most                                                                    
     projects go  through these  kinds of  phases and  to be                                                                    
     approved, the  project must pass  all of  those phases.                                                                    
     It is  important that the  Alaska gas  pipeline project                                                                    
     has  passed the  preliminary evaluation  phases to  the                                                                    
     degree  that companies  are  interested  enough in  the                                                                    
     producers that  they have lobbied hard  for the federal                                                                    
     legislation and  are working with  the state.  They are                                                                    
     wanting to  be able to  lay something, I think,  on the                                                                    
     table  to  their  boards  that will  get  them  to  the                                                                    
     business  evaluation  phase.  And   when  you're  in  a                                                                    
     company,  and  you're  a manager-executive  even  of  a                                                                    
     profit center  like in Alaska,  you learn this  kind of                                                                    
     stuff.  That's  how the  company  works  so you  get  a                                                                    
     system   of  capital   evaluation  that   becomes  very                                                                    
     cultural.                                                                                                                  
                                                                                                                                
SENATOR ELTON asked Mr. Thompson where the corporations are on                                                                  
that list now and how working through the different steps will                                                                  
mesh with the 18-month timeline in the federal legislation.                                                                     
                                                                                                                                
MR. THOMPSON said in 1996, when  he was president of Arco Alaska,                                                               
he  formed a  permanent group  to work  the Alaska  gas pipeline.                                                               
[Prior to that]  the three companies formed ad  hoc project teams                                                               
every three years  to study the project  for commercial potential                                                               
and determined  it was not  a commercial venture. The  teams were                                                               
again  created  on a  two-year  basis  and again  determined  the                                                               
project was not  commercial, the main reason being that  a lot of                                                               
re-injection was  going on.  By 1996, Arco  Alaska was  the first                                                               
company to form a permanent team  to determine what it would take                                                               
to get  the project  done. The  team was  fully staffed  and Arco                                                               
Alaska brought in its best folks. He told members:                                                                              
                                                                                                                                
     I would  challenge the  timetable it was  in -  so it's                                                                    
     not just 18 months to  make the decision about going to                                                                    
     the evaluation  phase, I'd say  it's been 10  years. In                                                                    
     1996   we  really   began   in-depth  the   preliminary                                                                    
     evaluation  phase  with  permanent staffing.  Prior  to                                                                    
     that  it  was ad  hoc  team  staffing. Does  that  make                                                                    
     sense? So we  were in the idea phase prior  to then, in                                                                    
     1996  when   ARCO  crossed  over  to   the  preliminary                                                                    
     evaluation  phase,   and  I  know   ConocoPhillips  has                                                                    
     continued that work by having  a permanent gas team, so                                                                    
     it's been  10 years.  So 18  more months  to go  to the                                                                    
     business  evaluation phase,  but  the only  way to  get                                                                    
     them there is  mitigating part of the  risks that we'll                                                                    
     talk about  later and we  know that mitigating  the big                                                                    
     chunk  was  federal  legislation  and  now  it's  state                                                                    
     fiscal certainty. That's the next  big thing if we want                                                                    
     to  get them  to the  business evaluation  phase, along                                                                    
     with  they  want certainty  in  Canada  as far  as  the                                                                    
     regulations  and  they're  trying to  reduce  costs  as                                                                    
     well.                                                                                                                      
                                                                                                                                
     So, I would  hope, in 18 months, and I  met with one of                                                                    
     the undersecretaries  of energy  on this very  matter a                                                                    
     year  ago, the  federal  government sees  this gas  now                                                                    
     being  needed  for  consumers,  and  if  in  18  months                                                                    
     there's not something laid out  there, they are looking                                                                    
     at alternatives.  And I will tell  you the alternatives                                                                    
     they'll look at, and UBS  and Lehman Brothers hit on it                                                                    
     yesterday.  They  will   look  at  somehow  alternative                                                                    
     financing and who  isn't out there that  wants to build                                                                    
     this and get on with it?                                                                                                   
                                                                                                                                
SENATOR ELTON  asked if the process  is just short of  a business                                                               
evaluation.                                                                                                                     
                                                                                                                                
MR. THOMPSON said that is correct  and, in fact, producers may be                                                               
saying they are in that phase  now and could be. He explained, "I                                                               
would  venture certainly,  in my  mind,  the business  evaluation                                                               
phase where  I can  start taking  it to a  board of  directors is                                                               
where now I've got a timetable to  make a decision - 18 months, I                                                               
have wonderful federal legislation  and, hopefully, by next March                                                               
or April and  this next year, the fiscal package  by the state is                                                               
done  and then  you  can take  that and  then  more certainty  in                                                               
Canada  and then  you can  get to  that true  business evaluation                                                               
phase where after the couple  of years of detailed engineering to                                                               
get  the  cost honed  in,  as  well as  permitting,  right-of-way                                                               
procurement, you could  then go to the board and  you say this is                                                               
a go-ahead or reject meeting."                                                                                                  
                                                                                                                                
REPRESENTATIVE CROFT noted that Mr.  Thompson said that it didn't                                                               
make any sense  for ConocoPhillips to pursue  the project earlier                                                               
because it was making more money reinjecting the gas.                                                                           
                                                                                                                                
MR. THOMPSON  clarified that decision included  two main factors:                                                               
gas prices were  about $2 to $2.50  MCF but a constant  $3 MCF is                                                               
necessary to  get a 12 percent  return; second, a lot  of the gas                                                               
was being  reinjected into  the oil  realm and  there was  a very                                                               
high oil  rate. As time goes  on, that very high  incremental oil                                                               
rate declines.                                                                                                                  
                                                                                                                                
REPRESENTATIVE CROFT  asked if  that is one  of the  problems the                                                               
state faces  in confronting the  internal capital  management. He                                                               
furthered that the  state is not just dealing  with the economics                                                               
of  the project  but  also with  competing  economics within  the                                                               
company.                                                                                                                        
                                                                                                                                
MR. THOMPSON  replied, "Sure. In  that case,  I will tell  you my                                                               
advice  is  you're   better  off  having,  at   that  time,  that                                                               
incremental oil. That incremental  oil rate through gas injection                                                               
declines  and declines.  By 2010  it  may be  diminimus and  it's                                                               
something that the companies look  at. It's something the Oil and                                                               
Gas Conservation Commission is surely looking at too."                                                                          
                                                                                                                                
REPRESENTATIVE GARA  noted, in relation to  Mr. Thompson's remark                                                               
that companies  have a  finite amount of  capital to  spend, that                                                               
ConocoPhillips just  signed onto a  joint venture deal  in Russia                                                               
and has  "angles" on jumping  from there  into Iraq. He  asked if                                                               
the  fact  that  ConocoPhillips  has  committed  money  elsewhere                                                               
should be cause for concern for the Alaska project.                                                                             
                                                                                                                                
MR.  THOMPSON said  hopefully, ConocoPhillips  will  also try  to                                                               
balance  this project  at the  right time  and to  its portfolio.                                                               
However,   ConocoPhillips  is   a  D   and  P   [Development  and                                                               
Production]  company, as  are Exxon  Mobil and  BP. He  explained                                                               
that those  companies have  to allocate  a certain  percentage in                                                               
their  portfolios. He  pointed  out that  ARCO used  to  own a  5                                                               
percent share of LUKoil, which  ConocoPhillips bought. LUKoil had                                                               
set  a  deadline  for  its  bid.  He  noted  deadlines  are  non-                                                               
discretionary  in  that  if  you don't  meet  the  deadline,  the                                                               
opportunity  is  gone. He  said  as  long  as an  opportunity  is                                                               
available, it  is called "discretionary"  and you may or  may not                                                               
have to allocate capital. He then stated:                                                                                       
                                                                                                                                
     Another  reason  they want  that  deal  is that  purely                                                                    
     development and production. For  Exxon Mobil, return on                                                                    
     capital  employed -  you heard  that return  on capital                                                                    
     employed for  the pipeline being 12  percent, or return                                                                    
     on equity, return on capital  employed is a compilation                                                                    
     of  all  this. Return  on  capital  employed for  Exxon                                                                    
     Mobil in  upstream development and production  was 30.6                                                                    
     percent  according  to  their annual  report.  Now  you                                                                    
     would  put money  into development  and production?  Or                                                                    
     are you  going to put  it in  a pipeline that  makes 12                                                                    
     percent? The answer is you  do want some in 12 percent,                                                                    
     particularly   if  it's   strategic  in   getting  your                                                                    
     products to  market. And if  you'll notice, and  by the                                                                    
     way, that average over there  I took for the allocation                                                                    
     last year,  it's 2003, I  took rough averages  and then                                                                    
     rounded  up  out  of  the Exxon  Mobil  and  BP  annual                                                                    
     reports -  you can  get a breakdown  of how  they spent                                                                    
     their  capital.  About  10  percent  of  their  capital                                                                    
     budget, total  budget after they  figured out  how much                                                                    
     to go to shareholders  through dividends and then their                                                                    
     other   financing  needs,   they  allocate   big  bucks                                                                    
     worldwide and  average 10 percent in  exploration. Very                                                                    
     risky, it's  expense, high  risk. You  can hit  and you                                                                    
     can  lose   so  you   balance  that.   Development  and                                                                    
     production, that is their bread and butter.                                                                                
                                                                                                                                
     You  know,  a  shareholder  wants to  invest  in  these                                                                    
     companies because  they're in oil and  gas development,                                                                    
     not because  they're pipeline  companies. So  they only                                                                    
     allocate,  and this  is important  to understand,  they                                                                    
     only allocated to pipelines  and natural gas processing                                                                    
     only  about 10  percent. So  when you're  competing for                                                                    
     the pie,  it's not  only you're  having to  compete for                                                                    
     the  total budget  -  maybe only  10  percent of  their                                                                    
     whole budget is  getting allocated. Now if  you take an                                                                    
     Enbridge, a MidAmerican Energy,  a TransCanada, I would                                                                    
     suspect it's 80 percent or  more that goes to pipelines                                                                    
     because shareholders are buying  them because they want                                                                    
     that more  constant kind of  return, as well  as that's                                                                    
     what  the  business  is they're  in.  Midstream  is  10                                                                    
     percent. Downstream, oil  refining and retail marketing                                                                    
     was 20  percent and  then chemical  manufacturing. CFO,                                                                    
     CEOs,  boards   will  discuss   what  percent   of  the                                                                    
     portfolio  - it's  sort of  like an  individual has  to                                                                    
     decide how  much in bonds,  how much in  money markets,                                                                    
     how much maybe  in stock. These boards  will decide how                                                                    
     much in these phases of  the business and last year for                                                                    
     pipelines, natural  gas processing,  10 percent  of the                                                                    
     capital for those lines of business.                                                                                       
                                                                                                                                
     What criteria  [are] used? According  to a  survey done                                                                    
     by the Harvard  Business School last year  of 700 major                                                                    
     corporation CFOs, 70 percent  of corporations make most                                                                    
     of their  decisions that you  get -  you get it  in the                                                                    
     bucket -  whether or  not it gets  done is  a question,                                                                    
     but at  least to make  it to the board  table, internal                                                                    
     rate of  return is  one of the  criteria and  then also                                                                    
     discounted cash flow,  net present value -  if you look                                                                    
     at all the  cash flows in the future  what's that worth                                                                    
     today? And  then payback  period, especially  if prices                                                                    
     collapse.  When prices  collapse,  and  prices go  low,                                                                    
     companies look at payback period  and only do things of                                                                    
     short payback,  for example. But  my years at  ARCO, at                                                                    
     mini-corporations, certainly  with Alaska  Airlines, as                                                                    
     well as Coeur D'Alene  Mines Corporation, internal rate                                                                    
     of return and discounted  cash flow, net present value,                                                                    
     are two of  the most important criteria.  And for those                                                                    
     that  want to  learn  more about  this exciting  topic,                                                                    
     page  9  defines all  those.  Net  present value,  flow                                                                    
     stream  over 40  years,  how  much is  it  worth to  me                                                                    
     today? Internal rate  of return is that  rate of return                                                                    
     on  projects  that  you'd want  to  use  and  sometimes                                                                    
     companies have  hurdle rates rate  of return.  You just                                                                    
     saw Enbridge talk about 12  to 15 percent, for example,                                                                    
     and  that's  fairly  common.  Twelve  percent  is  very                                                                    
     common. In testimony  Exxon gave a couple  years ago to                                                                    
     the state they said 15 percent rate of return.                                                                             
                                                                                                                                
     Okay, let's have some fun  now. Just quickly - here now                                                                    
     you're the  board of a  corporation. I'm going  to tell                                                                    
     you  you've had  a phenomenal  year because  oil prices                                                                    
     have been  above $40 a  barrel -  I should have  put 50                                                                    
     but - and  you have no capital constraint.  You have so                                                                    
     much cash flow that you  have no capital constraint and                                                                    
     you have three projects that you  can do - A, B, and C.                                                                    
     And  these are  all  over the  world.  Summing up  that                                                                    
     column  that  says  INV  -  that's  investment  on  the                                                                    
     project. The C1  is the cash flow that  would come from                                                                    
     it in the first year and  you see the cash flow coming,                                                                    
     positive cash flow in the  five years. You can discount                                                                    
     it at 12 percent and you  get the net present value and                                                                    
     then I showed  you the investor's rates  of return. You                                                                    
     have  unlimited  capital   constraint.  Which  projects                                                                    
     would  this board  do?   All of  them. You  have enough                                                                    
     money.  They  all are  above  the  12 percent  rate  of                                                                    
     return. They're all positive  net present value. Uh-oh,                                                                    
     here  it  comes, tough  decision  for  the board.  Here                                                                    
     comes  a   brilliant  young  engineer  in   asking  for                                                                    
     projects that - there's three  of them - engineer A, B,                                                                    
     and C and they all  argue. And what's interesting, they                                                                    
     all  lay out  for you  projects that  are above  the 12                                                                    
     percent rate of  return - 21 percent,  14 percent. Only                                                                    
     the  oil prices  have fallen  to $30  a barrel  and you                                                                    
     don't have $130 million capital  you can spend now. You                                                                    
     can only spend 80. It's  pretty much like our families.                                                                    
     The  family wants  to spend  more often  than what  you                                                                    
     take in and  you have to allocate, you  have to budget.                                                                    
     So  this corporation,  this board  is going  to budget,                                                                    
     you only have  $80 million to spend and  you have three                                                                    
     very good projects. Which two would you do?                                                                                
                                                                                                                                
     A key  is, first  look at  the rate  of return.  If you                                                                    
     look just  at the rate  of return, which two  would you                                                                    
     do?  A and  C. Sum  up the  net present  value and  see                                                                    
     which two combinations yield  the highest present value                                                                    
     for the  shareholders - are worth  to the shareholders.                                                                    
     [Indisc.]  Again  it's  A  and C.  You  add  those  two                                                                    
     together and you get $11  million [indisc.] for some of                                                                    
     the big  projects. Now which one  doesn't get approved?                                                                    
     B. Is it  commercial? Yes, it is a very  good project -                                                                    
     13  percent  rate of  return  but  it never  makes  the                                                                    
     capital  allocation.  It  is   commercial.  It  is  not                                                                    
     competitive. That's  the distinction and  companies and                                                                    
     shareholders demand that it be competitive.                                                                                
                                                                                                                                
     Would 14 percent  make - you have a  couple of choices.                                                                    
     You can  defer that project  to future years  or what's                                                                    
     another  choice that  sometimes an  ARCO might  use for                                                                    
     certain  projects? There  are a  lot of  companies that                                                                    
     would love  to have  a 14  percent return  project that                                                                    
     maybe have  some capital. But  you know what? If  I can                                                                    
     hold  on to  B forever,  what am  I going  to do?  I'll                                                                    
     wait.                                                                                                                      
                                                                                                                                
     Another  big factor  in  just the  last  point I  made,                                                                    
     boards    also   talk    about   is    this   a    non-                                                                    
     discretionary/discretionary.  We  often  had  to  break                                                                    
     down our  capital requests into  those two  buckets and                                                                    
     then it  made it  to the discussion  on those  kinds of                                                                    
     criteria  -  discretionary, non-discretionary.  I  will                                                                    
     tell you, I've got that  clock from the prime ministers                                                                    
     of Malaysia and Thailand. We  had a deadline to get the                                                                    
     field on-stream  or lose and  turn it over  to somebody                                                                    
     else  to   develop.  Why  did   it  make   our  capital                                                                    
     allocation?  Actually, it  was  a pretty  good rate  of                                                                    
     return because  of profit sharing  and they  took risk.                                                                    
     So it  wasn't a rate of  return issue but we  also knew                                                                    
     that we  faced a deadline  and maybe it was  18 months.                                                                    
     That's  a  good  one  that the  federal  government  is                                                                    
     saying,  for  example.  This also  matters  -  if  it's                                                                    
     discretionary, you can  hold it and wait  until it fits                                                                    
     your portfolio  in the  future or  let someone  else do                                                                    
     it.                                                                                                                        
                                                                                                                                
     Now  this  is  an  interesting thing.  This  is  a  big                                                                    
     decision.  Let's get  to [indisc.].  How  does the  gas                                                                    
     pipeline  project equity  capital  fit  in the  majors'                                                                    
     capital portfolios?  And if there's  one thing  we need                                                                    
     to  think about,  is the  way that  you spread  risk is                                                                    
     taking  a   lot  of  partners.  It's   very  common  in                                                                    
     industry. Does Exxon have to  spend $20 billion on this                                                                    
     pipeline  project? Is  it a  $20  billion decision  for                                                                    
     them? Is it for TransCanada? No.  Is it for BP? And you                                                                    
     hear the words $20 billion. It  is not. It is not a $20                                                                    
     billion decision  for any of  these companies.  In fact                                                                    
     if we  look, they're going to  put us at project  - I'm                                                                    
     wrong   now,  they   did   this   before  the   federal                                                                    
     government.  They're going  to  project  finance at  70                                                                    
     percent, $14  billion debt. That's not  wrong. We'll be                                                                    
     able to  have more  because the 80  percent -  and then                                                                    
     equity  capital   -  if  you   just  took   70  percent                                                                    
     financing, the capital needed is  $6 billion. Three big                                                                    
     companies -  how much capital  do you have to  lay out?                                                                    
     Equity.  From the  capital  allocation budgeting  tool,                                                                    
     how much  capital do  they really have  to lay  out? $2                                                                    
     billion each - a lot of  money. But the $2 billion each                                                                    
     is over  4 years of  construction so it's  basically on                                                                    
     the -  yea, if you look  at it per year,  and then this                                                                    
     is the  total capital  spent last  year by  Exxon Mobil                                                                    
     $15 billion,  BP spent  12.4, ConocoPhillips  spent 6.2                                                                    
     and the  equity capital needed  for the line  shows you                                                                    
     how  much  each  would  spend and  that  would  mean  3                                                                    
     percent, 4 percent, 8 percent of their capital budget.                                                                     
                                                                                                                                
     But a  big problem is  - remember the other  graph that                                                                    
     shows you  could fit this  capital in but  remember you                                                                    
     only  have  10 percent  in  your  company allocated  to                                                                    
     midstream-downstream  because  you're  not  a  pipeline                                                                    
     company.   People  want   you  -   investors  and   the                                                                    
     stockholders  want  you  to   invest  in  oil  and  gas                                                                    
     development and  so that's an  important thing  to look                                                                    
     at.  By the  way, another  factor  - look  at the  ROCE                                                                    
     [Return  on  Capital  Employed]  that  these  companies                                                                    
     actually  made -  18 percent  overall  for Exxon  Mobil                                                                    
     last year. That's  a composite of all  the projects and                                                                    
     assets deployed. Sixteen percent  in the Phillips - 16.                                                                    
     Does a  12 percent project  excite those folks?  No. In                                                                    
     fact, 14  percent is pretty  tough. It's time  to share                                                                    
     risk if we want this on their capital allocation.                                                                          
                                                                                                                                
     Now has  the debt  worsened? This is  interesting. This                                                                    
     might  explain  some  behavior. Here's  the  debt  they                                                                    
     would  each take.  All of  them  would have  to have  a                                                                    
     debt. Divide the debt by  three and this shows the debt                                                                    
     each one would have to take.  Now this is how much debt                                                                    
     they have. This is amazing  - $9 billion debt, although                                                                    
     Exxon has very little ratio  of debt to equity. Now BP,                                                                    
     ConocoPhillips has a little higher  debt. In fact, if I                                                                    
     was  Jim Mahaney  I might  want an  extra incentive  or                                                                    
     two. If  I were Exxon,  I wouldn't even care  about the                                                                    
     federal legislation. I might just  write a check for my                                                                    
     investment when the time comes.                                                                                            
                                                                                                                                
     So,  you hear  ExxonMobil  not  asking for  incentives.                                                                    
     They  just  want the  federal  government  to pass  the                                                                    
     expedited permitting.  BP wanted  the other  things but                                                                    
     notice  Exxon  and BP  don't  want  the commodity  risk                                                                    
     provision  but ConocoPhillips  does. I  might too  if I                                                                    
     had  a little  higher  debt ratio.  I  might want  some                                                                    
     extra assurance  on downsides. On the  other hand, this                                                                    
     is still very safe. All  of these companies - these are                                                                    
     extremely good  financial situations  for all  three of                                                                    
     these.                                                                                                                     
                                                                                                                                
     Now  though, a  big  home run  for all  of  us was  the                                                                    
     federal  government guaranteeing  the  debt. That  debt                                                                    
     you see  there will not  go on the balance  sheets more                                                                    
     than  likely. They'll  have to  footnote  it after  the                                                                    
     Enron  fiasco  but  the  debt  will  be  owned  by  the                                                                    
     pipeline company itself more  than likely, and that has                                                                    
     to  be verified  by  the project  financing terms.  But                                                                    
     these  companies   would  report   this  debt   in  the                                                                    
     footnotes  of  their   financial  statements  and  some                                                                    
     investors would look at total  debt that you see there,                                                                    
     and  a bit  more  of an  impact  on ConocoPhillips  and                                                                    
     Exxon Mobil, but still very, very financeable.                                                                             
                                                                                                                                
     And then  let me try  to wrap up  here in the  next few                                                                    
     minutes. You know, you don't just  - when you go to the                                                                    
     board - when I've  presented big projects within Alaska                                                                    
     to the board  of directors of ARCO, I just  didn't - we                                                                    
     ran the projects  at current oil and gas  prices but we                                                                    
     always had a  sensitivity analysis after so  many of us                                                                    
     having  lived through  the down  cycles of  low prices.                                                                    
     All of our projects had to  make a 12 percent return at                                                                    
     a  low side  oil  price. At  that time  we  used $12  a                                                                    
     barrel.   That's    a   sensitivity    analysis.   Most                                                                    
     corporations do  that. We do  that at  Alaska Airlines,                                                                    
     Coeur   D'Alene    Mines   Corporation    -   different                                                                    
     sensitivity. The  project had to  be 12 percent  at $12                                                                    
     oil.  BP's CEO,  John Brown,  in a  speech to  investor                                                                    
     analysts  in New  York last  April,  mentioned that  BP                                                                    
     test  all projects  at a  downside price  now of  $20 a                                                                    
     barrel.  That's very  common in  many of  the companies                                                                    
     now,  and  many  companies  run  gas  projects  with  a                                                                    
     downside of $3.50 per MCF.                                                                                                 
                                                                                                                                
     Remember  when we  did  that example  where  we had  to                                                                    
     choose and we left out one  project and we did two? You                                                                    
     then  run, if  those are  your two,  you then  run your                                                                    
     whole  company  financials,  if   you  made  that  your                                                                    
     capital pot, what your corporation  looked like and you                                                                    
     looked  at  the effect  upon  cash  flows, the  company                                                                    
     value, the debt equity mix  in the future, and then the                                                                    
     final portfolio is decided  by executive management and                                                                    
     the board of directors.                                                                                                    
                                                                                                                                
     The CEO  is the  most leveraging  single person  in the                                                                    
     decision with  the board. When  you have  projects that                                                                    
     are  tough  and you  have  to  make some  tough  calls,                                                                    
     that's  very important.  And it's  not  only the  local                                                                    
     folks of  companies. I think  they argue very  hard for                                                                    
     Alaska. It is  the CEOs that can finally  get this over                                                                    
     to that phase that we need it to finally be decided.                                                                       
                                                                                                                                
     You look  at a  lot of  risk in  the upstream-midstream                                                                    
     projects. These are some of  the risks. I think Ron did                                                                    
     a  great job  describing pipeline  risk and,  you know,                                                                    
     for   upstream   and   midstream  projects   you   have                                                                    
     forecasting  risk   of  production,   the  exploration-                                                                    
     geologic  risk, political  risk,  permitting, and  what                                                                    
     have you.  Projects must be  resilient to  those risks.                                                                    
     That's why  when you  heard the  Governor and  when you                                                                    
     heard Pedro  Van Meurs yesterday, whom  I highly regard                                                                    
     - now I don't agree with  Pedro on one thing, that this                                                                    
     capital level  could make these  people go  bankrupt or                                                                    
     put  them  into dire  straights.  $20  billion for  one                                                                    
     company -  he's right,  but I don't  agree with  him on                                                                    
     when you split it up  among three or four companies and                                                                    
     spread the  risk that way,  it is  not as a  percent of                                                                    
     their  capital spending  each year  a big  risk. And  a                                                                    
     downside might  be not  a zero return,  it might  be if                                                                    
     things  collapsed, very  high  cost  overruns and  what                                                                    
     have you,  you could have  impact but I would  bet even                                                                    
     then  your return  is 6  to  8 percent,  not like  with                                                                    
     exploration.  I've  drilled  several dry  holes  in  my                                                                    
     life.  That's a  pretty negative  return. I  had a  few                                                                    
     successes too.  That's the only  thing I  disagree with                                                                    
     him [about].                                                                                                               
                                                                                                                                
     I do  agree with  him that risk  mitigation now,  if we                                                                    
     want  to  get  that  project  to  get  in  the  capital                                                                    
     allocation  of  these  companies  that make  16  to  18                                                                    
     percent  return on  capital employed,  then we  have to                                                                    
     take part  of the risk and  I think part of  it is that                                                                    
     equity  ownership, and  then  consideration  - I  don't                                                                    
     always know  what's going on  behind the scenes  in the                                                                    
     profit  sharing, but  it's something  that needs  to be                                                                    
     considered. All  the deals I  did with  other countries                                                                    
     in my  last two  years at ARCO  had those  two factors.                                                                    
     They  participated  in  the equity  and  they  had  the                                                                    
     profit sharing.                                                                                                            
                                                                                                                                
     This is just  an educational slide [18] for  all of us.                                                                    
     Commercial  means this:  the  investor  rate of  return                                                                    
     exceeds  the cost  of capital.  I  believe it  was -  I                                                                    
     can't  recall  if  it  was  UBS or  if  it  was  Lehman                                                                    
     Brothers yesterday. You take a  company that had to pay                                                                    
     7.5 percent on their  debt, and then their shareholders                                                                    
     are  running  at  12  percent  return  on  their  stock                                                                    
     appreciation every  year. The cost of  capital would be                                                                    
     9.75 for  that company  when you  weighted it.  In most                                                                    
     companies there's a  premium that you put  on that. So,                                                                    
     an investor  rate of return  to be commercial  for many                                                                    
     companies here  is 12, is commercial.  Competitive? For                                                                    
     an Exxon Mobil, for  their upstream projects last year,                                                                    
     their  return on  capital  employed  was 30.6  percent.                                                                    
     They have some awesome  projects. So, competitive, when                                                                    
     you  hear  that,  I believe  the  Alaska  gas  pipeline                                                                    
     project   today,    especially   after    the   federal                                                                    
     legislation  passed, is  commercial  today  and no  one                                                                    
     would convince  me that it's  not commercial  today. It                                                                    
     does  exceed  the cost  of  capital  on return.  Is  it                                                                    
     competitive   to   get   in  the   capital   allocation                                                                    
     portfolio?  No. That's  the distinction.  Keep in  mind                                                                    
     that last point.                                                                                                           
                                                                                                                                
     Corporations differ  in IRR  [Internal Rate  of Return]                                                                    
     hurdle  rates.  Return  on  capital  employed  of  many                                                                    
     pipeline companies is far less  than producers and they                                                                    
     allocate  a  larger  percentage of  their  capital  for                                                                    
     pipelines and  those kinds of  companies might  be very                                                                    
     interested in 12 to 14 percent.                                                                                            
                                                                                                                                
     So here  [are] the conclusions. [Slide  19] Getting the                                                                    
     Alaska  pipeline  project  into  the  major  companies'                                                                    
     portfolios is  challenging. I  believe the  project may                                                                    
     be  commercial  today,  especially  after  the  federal                                                                    
     legislation,  but   it  is   not  competitive.   It  is                                                                    
     discretionary versus  non-discretionary, although  I do                                                                    
     like the federal government's point  of trying to nudge                                                                    
     it and  in visiting with the  undersecretary of energy,                                                                    
     trying  to nudge  a  little  bit of  it  to being  non-                                                                    
     discretionary within  18 months.  It would be  nice for                                                                    
     the State of Alaska to do the same I think.                                                                                
                                                                                                                                
     Investors who  desire a commercial  rate of  return are                                                                    
     important  to  consider  as investment  partners.  I'll                                                                    
     talk later about  Pacific Star Energy. I  will tell you                                                                    
     this is  our number one  project. It is the  only thing                                                                    
     in our global portfolio and we  would love to have a 12                                                                    
     percent return  for Alaskans and our  multiple partners                                                                    
     can mitigate risk  on any one firm. That's  the way you                                                                    
     spread risk. If somebody says  this is too much capital                                                                    
     to  risk, get  10  players in.  That's  very common  in                                                                    
     exploration to have  three or four instead  of just one                                                                    
     or two.                                                                                                                    
                                                                                                                                
     Government assurance of  fiscal certainty is essential.                                                                    
     I could  not take  this to  the board -  I had  a slide                                                                    
     each year when I presented  in Santa Barbara in January                                                                    
     to  the board  of  directors. It  was called  political                                                                    
     climate in  Alaska and I  would talk to  political risk                                                                    
     and  what everybody  was doing  in the  legislature and                                                                    
     with the administration  and what was the  risk for the                                                                    
     next outlook.  I was fortunate  that often  the outlook                                                                    
     was  very  positive,   certainly  for  exploration  and                                                                    
     production and I think a  lot of the things that you've                                                                    
     done in the  last few years has helped  that segment of                                                                    
     the  business.  Now it's  time  to  address the  fiscal                                                                    
     certainty  on the  downstream side,  midstream side  of                                                                    
     the  gas pipeline.  That's the  next big  thing. Canada                                                                    
     has  to  do the  same  and  I  know the  producers  and                                                                    
     pipeline companies are working on cost reductions.                                                                         
                                                                                                                                
     Sharing  of risk  by government  is  essential. I  will                                                                    
     tell you I believe, and  I'd recommend, you do the 12.5                                                                    
     percent.  Now  I  will  tell you  in  my  own  personal                                                                    
     opinion, UBS  yesterday gave an example  of 25 percent.                                                                    
     I  wish  they  hadn't  done  that. I  found  it  a  bit                                                                    
     confusing because  the 12.5 percent  - you  already own                                                                    
     the supply  - your royalty gas,  so that is not  a risk                                                                    
     for  you.  And  then  I   believe  you  can  find  good                                                                    
     customers and  the state  ought to  be working  on good                                                                    
     customers right  now. 25  percent though,  you're going                                                                    
     to have to make deals  with producers on the supply and                                                                    
     that could  be a  bit more  riskier. 12.5  percent yes.                                                                    
     The other  you have to  think about long and  hard, not                                                                    
     to rule out.                                                                                                               
                                                                                                                                
     And then local  ownership I'll talk about  later in the                                                                    
     second   presentation.   Local   ownership   does   add                                                                    
     incremental  value. We  have a  report consultants  say                                                                    
     that  shows  for  the   first  time  quantitatively  if                                                                    
     profits off the  gas pipeline are left  here in Alaska,                                                                    
     how many more jobs and  how much incremental benefit it                                                                    
     does to the  economy and it's the first  time it's ever                                                                    
     been quantified  to my  knowledge as  far as  a private                                                                    
     company owning part of the  gas pipeline. It could mean                                                                    
     an  additional  20,000 jobs  and  $1.3  billion to  the                                                                    
     economy  over a  period of  time  if you  do that,  and                                                                    
     we'll talk about that later.                                                                                               
                                                                                                                                
SENATOR  ELTON  asked if  it  is  fair to  say  that  it is  more                                                               
essential that the  state take an equity position  in the natural                                                               
gas  pipeline  if  the  pipeline  is  producer  owned,  and  less                                                               
essential if the pipeline is owned by pipeline builders.                                                                        
                                                                                                                                
MR. THOMPSON  said he would  advise the  state to take  an equity                                                               
position  of at  least 12.5  percent regardless  of who  owns the                                                               
pipeline.  He added  that  is based  on  his intuitive  judgment,                                                               
having seen country after country  benefit by getting the profits                                                               
of  moving and  selling  their  own gas.  He  indicated that  the                                                               
equity  would amount  to about  $50 million  each year,  which he                                                               
would elaborate on later.                                                                                                       
                                                                                                                                
SENATOR ELTON asked,  in the context of taking  a shipper's risk,                                                               
if it  is less essential for  the state to have  equity ownership                                                               
if a pipeline company is doing the pipeline.                                                                                    
                                                                                                                                
MR. THOMPSON replied:                                                                                                           
                                                                                                                                
     In either  case, if I were  the state when you  had the                                                                    
     equity ownership and  then with your gas,  I would also                                                                    
     look at  what could  be customers on  the other  end of                                                                    
     the pipeline  that would  be willing  to buy  your gas,                                                                    
     including we  figure out all  of the instate  use. I'll                                                                    
     talk about that more  later in the second presentation,                                                                    
     and that  those firms  are taking  the shipping  risk -                                                                    
     the  utilities  that  buy  your  gas  are  taking  your                                                                    
     shipping risk, as well as  maybe firms within the State                                                                    
     of Alaska that  [are] buying Alaska gas  could take the                                                                    
     shipping risk. It may be,  when you talk with customers                                                                    
     that the state  has to share in that  shipping risk and                                                                    
     you won't  know until you  go to the customers  and the                                                                    
     deals.  But   certain  customers,  even   for  pipeline                                                                    
     companies you  heard, will take that  shipping risk and                                                                    
     I think they  will too for your share of  royalty gas -                                                                    
     for part of it anyway.                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  asked  why  everyone  who  speaks  to  the                                                               
committee  is  encouraging  the  state  to  be  an  investor.  He                                                               
questioned  whether   the  reason   is  that  the   speakers  are                                                               
charitable people  and want to see  the state do well  or whether                                                               
there is some inherent advantage to their positions.                                                                            
                                                                                                                                
MR. THOMPSON  said he is saying  that as an Alaskan  advising the                                                               
state on  matters to consider.  He said  if one looks  at whether                                                               
the state  should have  invested in TAPS,  the answer  would have                                                               
been no due to the cost  overruns on construction but TAPS is the                                                               
best operated  pipeline in the world.  He noted that a  tariff of                                                               
$3 per barrel  amounts to $1 billion per year  in revenue and the                                                               
amount was  $2 billion  during its heyday.  He said  members will                                                               
see later the economic benefit if  more of those profits are kept                                                               
instate to  be redeployed, versus  the pipeline tariffs  going to                                                               
Houston or London.  He then said he feels blessed  to have worked                                                               
in Alaska  and then  moved to  other countries  for his  last two                                                               
years with ARCO  to see what the other countries  have done to be                                                               
highly successful  in the natural  gas industry.  That experience                                                               
motivated him to tell the state to do the same thing.                                                                           
                                                                                                                                
CO-CHAIR  SAMUELS  asked  if  it  makes  sense  to  separate  the                                                               
capacity from  the investment in  the pipeline itself and  take a                                                               
percentage of one  and a percentage of another so  that the state                                                               
could  be an  investor in  the construction  of the  pipeline but                                                               
still only  take the 12.5  percent royalty share in  the capacity                                                               
itself.                                                                                                                         
                                                                                                                                
MR. THOMPSON said that financial calculations have to be made.                                                                  
                                                                                                                                
TAPE 04-33, SIDE A                                                                                                            
                                                                                                                                
MR. THOMPSON indicated that making  those decisions boils down to                                                               
running the  economic cases  so it is  hard to  determine without                                                               
seeing all  of the numbers. He  said hopefully Mr. Van  Meurs and                                                               
his team are doing that.                                                                                                        
                                                                                                                                
SENATOR  FRENCH   asked  for  some   examples  of   places  where                                                               
collaborations between  governments and  pipeline owners  did not                                                               
work out.                                                                                                                       
                                                                                                                                
MR.  THOMPSON said  he has  seen some  examples of  collaborative                                                               
exploration  that   were  unsuccessful   because  you   can  lose                                                               
everything.  Some countries,  because they  want a  stake in  the                                                               
production, will take the stake  in exploration and lose when the                                                               
holes are dry. He said the  pipeline cases that he worked on were                                                               
good  for both  the companies  and  the governments  and did  not                                                               
require a lot  of risk. He deferred  to Mr. Van Meurs  for a more                                                               
detailed answer.                                                                                                                
                                                                                                                                
CO-CHAIR SAMUELS  thanked Mr. Thompson  for his  presentation and                                                               
asked Mr. Marushack to present to the committee.                                                                                
                                                                                                                                
REPRESENTATIVE BUD FATE interjected to  thank Mr. Thompson who he                                                               
has had lengthy discussions with.  He urged members to partake of                                                               
Mr. Thompson's knowledge of corporate inner workings.                                                                           
                                                                                                                                
MR.  JOE  MARUSHACK,  Vice  President   of  Gas  Development  for                                                               
ConocoPhillips  Alaska,   informed  members  he  would   also  be                                                               
speaking on  behalf of BP and  Exxon Mobil. He noted  he would be                                                               
speaking on the ConocoPhillips  decision-making process. He added                                                               
that he  would generalize about  the decision-making  process and                                                               
then talk about Alaska gas in  that context because Alaska gas is                                                               
different and strategic. He would  then make sure he answered all                                                               
questions in  the [September 27] letter.  [Mr. Marushack's dialog                                                               
accompanied his PowerPoint  presentation. A copy can  be found in                                                               
the committee file.]                                                                                                            
                                                                                                                                
     For major oil  companies, projects, opportunities arise                                                                    
     in  many  ways.   There's  outside  proposals,  there's                                                                    
     grassroots initiatives,  there's management directives.                                                                    
     Regardless  of  the  size and  the  complexity  of  the                                                                    
     projects,  the  initial   approach  to  the  evaluation                                                                    
     follows the  same path. However,  the rigor  with which                                                                    
     you might  go through the  process could be  very, very                                                                    
     different.                                                                                                                 
                                                                                                                                
     All  projects are  evaluated in  terms  of their  value                                                                    
     drivers.  The value  drivers  primarily are  technical,                                                                    
     commercial  and  political  and,  in the  case  of  the                                                                    
     Alaska gas pipeline, each of  those are pretty extreme.                                                                    
     Companies expect to earn  returns commensurate with the                                                                    
     project  risks  and  the project  risk  in  the  Alaska                                                                    
     pipeline  is pretty  significant.  Models are  created.                                                                    
     Discount rates  are assumed. We've got  various ways of                                                                    
     analyzing  projects  there  that  we'll  talk  about  a                                                                    
     little  bit  -  discounted  cash flow,  Monte  Carlo  -                                                                    
     basically Monte  Carlo would be  a form  of probability                                                                    
     analysis,  decision analysis,  and  then that  analysis                                                                    
     goes into  your corporate overlay where  you're looking                                                                    
     at the financial strength  of your project, shareholder                                                                    
     expectations  - and  you're going  to hear  me talk  an                                                                    
     awful  lot about  management  judgment  because, in  my                                                                    
     view,  the Alaska  gas project  is an  awful lot  about                                                                    
     management judgment.                                                                                                       
                                                                                                                                
     The process  we use  in the key  drivers -  there [are]                                                                    
     four or five major items there  that you look at from a                                                                    
     larger  mega-project basis.  Clearly [on]  all projects                                                                    
     we  do analytical  data and  I'm going  to talk  to you                                                                    
     about some  of the  analytical and metrics  we do  in a                                                                    
     case there.  The only  difference between  this project                                                                    
     and other  projects is the  size of the models,  if you                                                                    
     will. The models on the  Alaska gas projects are multi-                                                                    
     megs.  Some  of  them,  a simple  project  could  be  a                                                                    
     spreadsheet, some you just do over and over again.                                                                         
                                                                                                                                
     Commercial arrangements  - those can be  hard or tough,                                                                    
     not necessarily  depending on the size  of the project.                                                                    
     A lot  of times, the commercial  arrangements are based                                                                    
     on the  relationships you've got in  the country you're                                                                    
     dealing  with, as  well as  the prior  history of  that                                                                    
     area. I  would expect  commercial arrangements  on this                                                                    
     project  would  be  very significant  -  the  financing                                                                    
     issues very  significant, a lot of  detail analysis and                                                                    
     a lot of detail arrangements.                                                                                              
                                                                                                                                
     Project management  - Ken Thompson talked  a little bit                                                                    
     about that and  I'm going to talk about it  in a little                                                                    
     different context  because project management,  once we                                                                    
     get  through  the  federal legislation  and  the  state                                                                    
     legislation  and the  state contract,  this project  is                                                                    
     all going  to be about project  management and managing                                                                    
     that - managing costs and managing risk.                                                                                   
                                                                                                                                
     The risk  mitigation plans  - what  you've seen  on the                                                                    
     Alaska gas  project are pretty much  unprecedented risk                                                                    
     mitigation  plans.  We've  asked for  several  acts  of                                                                    
     Congress.  We've  been  fortunate that  we've  achieved                                                                    
     now, assuming the President signs,  many of those. When                                                                    
     it comes to  the state, we've got the  Stranded Gas Act                                                                    
     application.  These are  pretty  much unprecedented  in                                                                    
     the U.S.  to need  this kind of  legislation and  to be                                                                    
     fortunate enough to be making progress on them.                                                                            
                                                                                                                                
     And  then  alignment  of   the  parties  is  important.                                                                    
     Alignment of  the parties  - one of  the things  that -                                                                    
     the question  was asked  a little  bit about  what does                                                                    
     state ownership  do? State ownership,  in my  view, the                                                                    
     single biggest thing  it does is it  aligns the parties                                                                    
     and we'll talk in more detail about that.                                                                                  
                                                                                                                                
     Once  you add  all  that together,  you  bring in  your                                                                    
     unique  analysis.  You  looked at  this  gated  process                                                                    
     we're going  to talk  about and your  senior management                                                                    
     input.  I can  tell you  that on  this project,  senior                                                                    
     management  input  happens  every single  month,  every                                                                    
     single  week, sometimes  every single  day.  This is  a                                                                    
     very, very important project to our senior managers.                                                                       
                                                                                                                                
     Typical   value    drivers   -   what    we're   really                                                                    
     concentrating  on here  is  maximizing value.  Revenue,                                                                    
     expense,   capital  and   schedule   are  the   primary                                                                    
     components of that. If you  break that - the right-hand                                                                    
     side are issues  we're working on right  now. The left-                                                                    
     hand  side are  issues  that we're  trying to  mitigate                                                                    
     where we  can, but basically  we take what's  left over                                                                    
     from  that. In  terms of  the revenue  side, we're  all                                                                    
     price takers, not price makers  and so the revenue will                                                                    
     be  what  it  is.  Clearly  we're  looking  at  various                                                                    
     scenarios but the revenue will be what it is.                                                                              
                                                                                                                                
     On  the   expense  side,  once  we   get  this  project                                                                    
     engineered  we're  going to  know  what  the fixed  and                                                                    
     variable  costs are  fairly  reasonably. And  actually,                                                                    
     what we're  doing right  now is  working on  taxes with                                                                    
     the state. Those things though,  you're left with after                                                                    
     the project is  up and running. The  right-hand side is                                                                    
     what  we're concentrating  on right  now -  capital and                                                                    
     schedule.  We're  trying  to control  capital  and,  in                                                                    
     terms  of  schedule,  we're   looking  at  the  project                                                                    
     management  process in  order to  control that  capital                                                                    
     and put in there a timeframe that actually works.                                                                          
                                                                                                                                
     You  notice the  value drivers  here from  the producer                                                                    
     perspective, financing  is not  on that sheet.  The way                                                                    
     we look at the projects, we  look at projects to try to                                                                    
     get  a  fundamentally  good project.  Once  we  have  a                                                                    
     fundamentally good  project, a viable project,  then we                                                                    
     figure out  the optimum  way of financing  the project.                                                                    
     Now we  haven't completely discarded  financing because                                                                    
     we  did draft  the  loan guarantee  language. The  loan                                                                    
     guarantee  language is  actually  something that  helps                                                                    
     after we've moved  to those next steps, so  it helps in                                                                    
     the financing process  but it's not a  key value driver                                                                    
     at   this  stage   of  the   game  from   the  producer                                                                    
     perspective.                                                                                                               
                                                                                                                                
     We think alignment with the  state and the producers is                                                                    
     something that  really is addressed pretty  well in the                                                                    
     key drivers here.  What we're really trying to  do - we                                                                    
     want the wellhead  value to be as high  as possible. We                                                                    
     don't control  the price  so we  are trying  to control                                                                    
     the cost. The costs  of processing and transportation -                                                                    
     that is  essentially the capital  costs of  the project                                                                    
     and how  you're going to  pay the capital costs  of the                                                                    
     project. Now  why are the producers  interested in this                                                                    
     project  from  an  upstream standpoint?  Because  those                                                                    
     costs affect  our upstream,  our wellhead  value. We're                                                                    
     trying to  control the  costs, if  you will.  The whole                                                                    
     project  from some  liquid hub  up, in  my view,  is an                                                                    
     upstream  project  and  I understand  why  it's  a  big                                                                    
     pipeline and  a midstream  asset and people  talk about                                                                    
     that but the project from  Alberta north is an upstream                                                                    
     project.                                                                                                                   
                                                                                                                                
     Talking about some  of those tools, and this  is just a                                                                    
     very, very simplified measure of  the tools that we use                                                                    
     there,  this is  a decision  tree analysis.  A decision                                                                    
     tree analysis  can go out,  page after page  after page                                                                    
     on  the  right-hand  side, given  all  of  the  various                                                                    
     things you're  looking at but  what we're trying  to do                                                                    
     here  is  we're  looking at  various  scenarios.  We're                                                                    
     looking at  you'll see P10,  P90, P50 there.  You might                                                                    
     consider some of those to  be price. We look at various                                                                    
     price scenarios. You might consider  some of them to be                                                                    
     cost  -  P90,  P10,  P50  are  costs.  There  might  be                                                                    
     reserves. There might be  exploration. These things can                                                                    
     go out a long, long ways.  What I'm trying to show here                                                                    
     though is  what the  decision tree does  for you  is it                                                                    
     tells us  where are the  key items that we  really need                                                                    
     to concentrate on. What are  the key risk elements that                                                                    
     we've  got out  there? It  does  not give  us a  single                                                                    
     answer. No  place in  here will we  get a  single magic                                                                    
     bullet  answer  that  tells  us  we're  ready  to  move                                                                    
     forward with  the project. You've  got to  add together                                                                    
     all  the   various  issues,  including   the  strategic                                                                    
     implications to be able to move forward.                                                                                   
                                                                                                                                
     What measures do  we use? We use  the standard economic                                                                    
     measures. We use  after tax cash flow.  We use discount                                                                    
     rates. We  use payout.  We use profitability  index. We                                                                    
     use  rates of  return and  we can  describe what  those                                                                    
     items are  and how they're calculated.  The bottom line                                                                    
     is no  single one of  them is  magic. No single  one of                                                                    
     them counts necessarily more than  any other one. A lot                                                                    
     of times folks will ask us  what are the numbers or the                                                                    
     hurdle  rates.  First  of  all,  there  are  no  single                                                                    
     numbers because  risk for  every project  is different.                                                                    
     Second  of  all, the  strategic  value  of the  project                                                                    
     requires  different numbers  in different  areas. Third                                                                    
     of all,  even though if  there were some  cutoffs, some                                                                    
     general cutoffs, we don't share  those things. We don't                                                                    
     share them with  Exxon Mobil. We don't  share them with                                                                    
     BP. We don't share them  with the public. That would be                                                                    
     a competitive disadvantage.                                                                                                
                                                                                                                                
     How  do we  communicate  then how  we're  able to  talk                                                                    
     among  others  given when  we  don't  share prices,  we                                                                    
     don't share  discount rates?  Well, we  come up  with a                                                                    
     third  party  price forecast,  if  you  will. We  bring                                                                    
     those  into our  model  so  we can  speak  on the  same                                                                    
     basis.                                                                                                                     
                                                                                                                                
CO-CHAIR SAMUELS asked  where the economic risk would  fit in the                                                               
decision  matrix  of a  scenario  in  which ConocoPhillips  might                                                               
invest all  of its money in  a project in the  Congo, which could                                                               
then suddenly nationalize the project afterward.                                                                                
                                                                                                                                
MR. MARUSHACK replied:                                                                                                          
                                                                                                                                
     You  try. We  may have  -  when we  go way  out to  the                                                                    
     right-hand  side  here  with  various  other  elements,                                                                    
     there we may consider the  cost of - the probability of                                                                    
     getting nationalized.  We may consider  the probability                                                                    
     of new taxes.  Clearly, in Alaska, we  have to consider                                                                    
     that  because   that's  what   our  Stranded   Gas  Act                                                                    
     negotiations are  about. Let's  agree on what  the take                                                                    
     is and  let's agree on  it for  a long period  of time.                                                                    
     But it's  not that simple, Representative  Samuels, and                                                                    
     actually  this   is  where  you  get   into  management                                                                    
     judgment and strategic value.  Many times we'll develop                                                                    
     contracts  and  those  contracts   will  have  lots  of                                                                    
     elements  in order  to protect  ourselves. But  we have                                                                    
     experience with being nationalized.  In the '70s we got                                                                    
     nationalized   in   Venezuela.   Now  we're   back   in                                                                    
     Venezuela.  ConocoPhillips   is  probably   the  single                                                                    
     biggest investor in  Venezuela, based on relationships,                                                                    
     based  on  opportunities,  and based  on  risk  reward.                                                                    
     Obviously,  if you're  going into  a country  where you                                                                    
     think you're  nationalized, you're going to  want to be                                                                    
     rewarded for that  and you're going to  want to protect                                                                    
     yourself as  much as possible.  It's also tied  in with                                                                    
     the  relationship and  the alignment  issues and  maybe                                                                    
     this  is one  of the  more important  issues. A  lot of                                                                    
     times what we've done in  order to protect ourselves is                                                                    
     we  do a  deal in  the foreign  country on  that asset,                                                                    
     then we do a  deal in the market, then we  do a deal in                                                                    
     the  midstream,   so  we're   all  tied   together.  So                                                                    
     nationalizing  any one  part  affects  the other  parts                                                                    
     here. Again,  it's an alignment  issue. You try  to get                                                                    
     yourself  aligned. The  more you  can get  aligned, the                                                                    
     better off all the parties are.                                                                                            
                                                                                                                                
CO-CHAIR SAMUELS announced that Senator Hoffman, Representative                                                                 
McGuire and Representative Berkowitz had joined the committee.                                                                  
                                                                                                                                
MR. MARUSHACK then said he would speak about the project                                                                        
management process:                                                                                                             
                                                                                                                                
     This is  part of a  gated decision making  process. The                                                                    
     detailed  project reviews  include analysis  and review                                                                    
     of  the  project at  all  stages  here and  the  stages                                                                    
     change. The  process is designed  to mitigate  risk and                                                                    
     exposure  to  the  corporation.  This  slide  [8]  that                                                                    
     you've  got  right  there  is  physically  part  of  an                                                                    
     internal     project    management     process.    It's                                                                    
     ConocoPhillips'  version.  Again,  Exxon Mobil  and  BP                                                                    
     have  similar processes  although everyone  calls their                                                                    
     process a little different.                                                                                                
                                                                                                                                
     In  stage  one  or  the  appraisal  process,  there  is                                                                    
     actually an  area probably outside  of this but  we can                                                                    
     consider  all   in  the  appraisal  process.   In  that                                                                    
     process, you're  identifying and framing  the concepts.                                                                    
     You're  evaluating those  concepts. One  of the  things                                                                    
     that ConocoPhillips  did in this  process is  we didn't                                                                    
     look just  at the pipeline,  we looked at  GTL [gas-to-                                                                    
     liquids] and  we looked  at LNG. LNG  and GTL  came off                                                                    
     the  table fairly  - well  I  was going  to say  fairly                                                                    
     quickly  after  about $14  million  that  came off  the                                                                    
     table.  We identified  the pipeline  project as  having                                                                    
     the  best single  opportunity out  there.  Then we  got                                                                    
     together with BP  and Exxon Mobil. We  formed a project                                                                    
     team. We  spent $125 million on  the appraisal process.                                                                    
     What the  appraisal process does  to me is it  tells me                                                                    
     what I don't know. It tells  me where my risks are so I                                                                    
     can start  mitigating risks. Out  of that then  you saw                                                                    
     all   the   risk   mitigation   measures   that   we've                                                                    
     implemented over the last three years since then.                                                                          
                                                                                                                                
     The next  two stages would  be the optimize  and define                                                                    
     phases.  Further  refinement  and project  -  it  moves                                                                    
     toward a single design. It  occurs in these phases. Key                                                                    
     commercial agreements  are entered into,  detailed cost                                                                    
     estimates  and  plans.  The work  done  in  this  stage                                                                    
     should  narrow  the range  of  uncertainty  to allow  a                                                                    
     final decision to  be made on the project.  For the gas                                                                    
     project, this  will take about  $1 billion in  order to                                                                    
     get through these next two  phases. Now the reason I've                                                                    
     broken up that  bottom line you'll see  into dashes, is                                                                    
     because  we  will  not  commit   $1  billion,  I  don't                                                                    
     believe. That's  not normally how it  works. We usually                                                                    
     work  in phases  and so  you'll commit  some amount  of                                                                    
     dollars to  do the first thing  that you need to  do to                                                                    
     see how that  affects the process. Then  you'll go back                                                                    
     and get some  more money. Finally you'll  be up through                                                                    
     - but  it will  take you about  $1 billion,  maybe more                                                                    
     than  $1 billion  to get  to the  stage of  the AFE  or                                                                    
     authority for expenditure - the decision point.                                                                            
                                                                                                                                
     Once you've got  to that point there,  then you're into                                                                    
     the execute and operate  position there. The execute is                                                                    
     where we'll  spend somewhere  between $18  billion, $19                                                                    
     billion. If  you don't  have to  go from  Canada south,                                                                    
     you'll spend something like $15  billion. A key element                                                                    
     on here is a natural  tension that we see between those                                                                    
     of us who have to implement  this and those who want to                                                                    
     see the project move faster  and faster. This must be a                                                                    
     very disciplined  process. Where  you see  projects get                                                                    
     off track and  you go back and you do  analysis of what                                                                    
     happened  is  they  took  shortcuts  on  their  project                                                                    
     management  process. When  you take  shortcuts on  your                                                                    
     project  management process,  you're  clearly going  to                                                                    
     have cost overruns.                                                                                                        
                                                                                                                                
     The next  slide [9] hopefully  gives a summary  view of                                                                    
     how  that  happens.   During  concept  and  feasibility                                                                    
     phase, those are  the stages where we  have the ability                                                                    
     to  make material  changes -  material design  changes,                                                                    
     consider  the risk  opportunities and  how to  mitigate                                                                    
     those. The  cost of  doing those  is fairly  low. We've                                                                    
     spent $125  million, not $1  billion. As  you're moving                                                                    
     into design  and execute though,  every stage  you move                                                                    
     into, the  cost of making  changes gets higher  and the                                                                    
     opportunity to influence how you  make those changes is                                                                    
     less.  Finally, when  you're in  the execute  stage, if                                                                    
     you've found  that you short-circuited the  process and                                                                    
     you've got  train wrecks that  should have  been picked                                                                    
     up in  either concept or feasibility,  you can't change                                                                    
     all  that much  and the  cost of  change is  very, very                                                                    
     expensive.  An  example  might  be  TAPS.  Through  the                                                                    
     execute phase,  you saw the  project go from what  - $1                                                                    
     billion  to $8  billion,  $9 billion  - something  like                                                                    
     that, and the  problem with that is  not everything was                                                                    
     done  in  order  on   concept,  feasibility  phases  of                                                                    
     analysis.                                                                                                                  
                                                                                                                                
     In terms of  the critical elements -  we've completed a                                                                    
     $125  million study.  The study  concluded the  project                                                                    
     was technically feasible but  had significant risks. We                                                                    
     identified  where  governments  could  play  roles  and                                                                    
     we've been working to address  those risks. Where we're                                                                    
     at  on this  right now  is the  State of  Alaska fiscal                                                                    
     certainty right at  the very top. That has  to get done                                                                    
     in  order  to  move  forward. That's  the  single  most                                                                    
     important issue out  there right now and  it's also one                                                                    
     that between the producers,  the administration and the                                                                    
     legislature, we control that process.                                                                                      
                                                                                                                                
     We've got  passage of the  federal legislation  - very,                                                                    
     very positive  series of events there.  The predictable                                                                    
     Canadian regulatory process -  we're not saying we need                                                                    
     new laws. We're not saying  we need new regulations but                                                                    
     we  do, as  we're  getting progress  on  the first  two                                                                    
     items,  need  a process  to  make  sure about  how  the                                                                    
     regulatory  process in  Canada will  work, how  it will                                                                    
     work  with  aboriginals  - and  a  long-term  favorable                                                                    
     market outlook.                                                                                                            
                                                                                                                                
     This project -  one of the questions you  asked is what                                                                    
     gets  shared with  your  board. I'm  going  to go  back                                                                    
     through  all those  questions here  in  a minute  here.                                                                    
     This  was actually  something that's  been shared  with                                                                    
     our senior  management and our  chairman. I  don't know                                                                    
     if it  made it  to the  board or not  but I  suspect it                                                                    
     did. What  this tells  us right  here, this  project is                                                                    
     absolutely unique.  It's not  like anything  else we've                                                                    
     ever done. I  think Pedro may have  mentioned that this                                                                    
     is the biggest project in  our portfolio - I believe he                                                                    
     said that  - clearly  for ConocoPhillips.  He's exactly                                                                    
     right. When we've been doing  planning, when we've been                                                                    
     doing  logistics,  there are  no  models  that cover  a                                                                    
     project  as big  as  this.  Hence you  go  back to  the                                                                    
     project management process and  you really have to have                                                                    
     that well understood.                                                                                                      
                                                                                                                                
     One  of the  key elements  that we've  talked about  is                                                                    
     this assessed  timeline on here.  This was  included in                                                                    
     our application but I thought  it was important to talk                                                                    
     about  where we're  at, where  we're  going. Right  now                                                                    
     we're working  on government frameworks.  We had  a big                                                                    
     success this week. We're making,  I feel, progress with                                                                    
     the state.  I think  the things  you've heard  from the                                                                    
     Governor and Pedro yesterday were  very positive. A key                                                                    
     element,  again, on  that government  framework is  the                                                                    
     fiscal contract.                                                                                                           
                                                                                                                                
     As we  move to the  next stages, the next  stages would                                                                    
     be  to  begin  environmental   work  for  the  FERC/NEB                                                                    
     application, detailed  technical work to  be completed,                                                                    
     so  that  those  committees  of  an  open  season  have                                                                    
     sufficient  assurance  that  the project  design,  cost                                                                    
     estimates are  accurate so that  they can  make binding                                                                    
     precedent  agreements.  We  hold  an  open  season.  If                                                                    
     sufficient gas is committed, we  finalize the design on                                                                    
     whatever gas  has been committed  and at that  point in                                                                    
     time,  then  we're  looking at  trying  to  define  the                                                                    
     right-of-way and finalize that.                                                                                            
                                                                                                                                
     Finally, we get  to a record decision after  we get all                                                                    
     permits back.  Once you're in  the record  of decision,                                                                    
     then you're  starting to  spend very,  very significant                                                                    
     dollars on procurement and on construction.                                                                                
                                                                                                                                
     Procurement  and construction  will take  - what  we're                                                                    
     talking about is, again,  pretty much unprecedented. GE                                                                    
     [indisc.]  compressors are  the largest  compressors on                                                                    
     earth. Those are  actually backlogged compressors right                                                                    
     now.  Steel that's  48  or  52 inch,  inch  and a  half                                                                    
     thick, X-80, X-100,  not rolled right now  in any place                                                                    
     in  the  world.  Clearly  we need  40  percent  of  the                                                                    
     ability  of the  world to  make that  over a  very long                                                                    
     period  of time.  So when  folks talk  about trying  to                                                                    
     streamline or fast track this  process, we've got a lot                                                                    
     of people  - a lot  of people who've done  big projects                                                                    
     think this  is a  pretty aggressive schedule.  In fact,                                                                    
     if you  had one  of the engineers  here talking  to you                                                                    
     rather than the commercial  people, you'd have a little                                                                    
     different spin on how aggressive this was.                                                                                 
                                                                                                                                
     We  think first  gas about  9 or  10 years  after we're                                                                    
     into  project planning  is  very  aggressive and  we're                                                                    
     pretty excited. It's a good opportunity.                                                                                   
                                                                                                                                
     Before I  conclude, I wanted  to go back  through what,                                                                    
     Representative  Samuels, the  letter  you  sent us  and                                                                    
     make sure I at least made  an attempt to answer all the                                                                    
     questions.  Frequency  of decision-making  and  whether                                                                    
     annual or otherwise? We do  annual budgets. Our budgets                                                                    
     are  approved on  an annual  basis. Major  projects and                                                                    
     major  opportunities  are   reviewed  on  a  quarterly,                                                                    
     monthly basis. On  this project, we get a  lot of input                                                                    
     on  this  on a  very,  very  regular basis.  We're  not                                                                    
     talking, I  don't believe, in  this project when  we go                                                                    
     to  the  board  of  saying commit  $20  billion  or  $6                                                                    
     billion or whatever the number  is. We're talking about                                                                    
     a  phased approach.  Clearly  what we  would  do is  we                                                                    
     would lay out an  approximate timeline with approximate                                                                    
     costs  in  it and  get  that  approved but  we're  only                                                                    
     approving this on a phased basis.                                                                                          
                                                                                                                                
     Percentage of  equity and debt assumed  for purposes of                                                                    
     comparing  costs of  projects? We  assume all  projects                                                                    
     must  pass  the  hurdle  rates  if  we're  putting  100                                                                    
     percent of our own money  into it - 100 percent equity.                                                                    
     Actually,  a capital  budget is  an equity  budget. How                                                                    
     you  finance  out of  that  capital  budget is  then  a                                                                    
     separate  series of  issues.  Clearly  on this  project                                                                    
     once  we move  forward into  these phases  where you're                                                                    
     investing  serious  money,  billions  and  billions  of                                                                    
     dollars,  we'll  be looking  at  how  to finance  that,                                                                    
     we'll  be looking  at how  the federal  loan guarantees                                                                    
     work. The  federal loan guarantees,  though, are  not a                                                                    
     panacea because  you still have to  work through either                                                                    
     the project or the  corporations. What the federal loan                                                                    
     guarantees really  did -  going out  and trying  to get                                                                    
     $16  billion in  capital is,  again, unprecedented.  We                                                                    
     thought the loan guarantee there  would help make going                                                                    
     out and getting  the financing a little  bit easier and                                                                    
     we hope through the loan  guarantee we also could get a                                                                    
     little  reduction in  the interest  rate  that you  pay                                                                    
     because you have the federal  government way behind all                                                                    
     of  the project  there,  which may  reduce  the toll  a                                                                    
     little bit also.                                                                                                           
                                                                                                                                
     Net  present value  rate of  return, hurdle  rates -  I                                                                    
     think I've  discussed them.   Limitations  on available                                                                    
     capital?   Again,  this   project  is   really,  really                                                                    
     different in  that regard. This project  is a strategic                                                                    
     project. When you hear  Phillips' executives talk about                                                                    
     this  project, you  hear them  talk about  Alaska as  a                                                                    
     legacy project,  a legacy  asset. Including  the Alaska                                                                    
     gas project for  us is our biggest  opportunity. It has                                                                    
     the  ability  to  book substantial  reserves.  This  is                                                                    
     being reviewed  as a project  that needs to  get funded                                                                    
     in the  capital -  when we've got  the risk  and reward                                                                    
     balanced right.                                                                                                            
                                                                                                                                
     P50,  P90 sensitivities  - we've  talked about  those a                                                                    
     little  bit.  Risk  of   the  pipeline  project  versus                                                                    
     exploration  -  I'm not  exactly  sure  what was  meant                                                                    
     here. Exploration  is a whole  different concept  in my                                                                    
     view where you  know that the money  you're risking has                                                                    
     a very high probability of  zero return so that's built                                                                    
     into your  corporate portfolio. The Alaska  gas project                                                                    
     is  very  different.  You're not  going  to  invest  $6                                                                    
     billion, $20 billion on a  gross basis unless you think                                                                    
     that this is a project that makes sense for you.                                                                           
                                                                                                                                
     Diversifiable  risk  versus  non-diversifiable  risk  -                                                                    
     again, I  assume this is a  question that is -  are the                                                                    
     oil companies  in the business  of taking risk  or not?                                                                    
     We're in the  business of taking prudent risk  and so a                                                                    
     lot  of what  we've done  is trying  to address  how we                                                                    
     limit that risk  and how we minimize the  risk and make                                                                    
     this a good project for our shareholders.                                                                                  
                                                                                                                                
     Factoring  the  consequences   of  failure  to  invest?                                                                    
     Again,  this may  be  code for  reserves  tax and  I'll                                                                    
     assume  it is  because  by adding  additional costs  or                                                                    
     burdens  to the  project  does nothing  to improve  the                                                                    
     viability of the project.                                                                                                  
                                                                                                                                
     Imposing  a gas  reserve  tax sends  a strong  negative                                                                    
     message to the  same folks that we're trying  to get to                                                                    
     make a strong strategic decision  to invest up here. It                                                                    
     increases the perception of project  risk and it really                                                                    
     moves my  team for  how to get  this project  done into                                                                    
     how to fight off a reserves  tax that we don't think is                                                                    
     justified so it takes time and sets back the project.                                                                      
                                                                                                                                
     Ranking potential projects?  Clearly there's ranking of                                                                    
     potential projects.  Alaska and the Alaska  gas project                                                                    
     is  very, very  different.  When you  see companies  do                                                                    
     these big  strategic deals - LUKoil,  things like that,                                                                    
     sometimes they're in the  budget, sometimes they're not                                                                    
     in the budget. They're  strategic decisions though that                                                                    
     aren't  probably  part  of  the  normal  way  that  you                                                                    
     allocate  capital  and  I would  view  the  Alaska  gas                                                                    
     project as having many of those characteristics.                                                                           
                                                                                                                                
     Materials available  to and in  the role  of management                                                                    
     committee and  board of directors? Our  chairman is our                                                                    
     decision board on  this project. He knows  an awful lot                                                                    
     about  this  project.  He's  very  interested  in  this                                                                    
     project. He will,  as I think as Ken  Thompson said, be                                                                    
     highly  influential about  what goes  to the  board and                                                                    
     what  the  board  approves. I  feel  pretty  good  that                                                                    
     through  a  process like  this  you  get to  know  your                                                                    
     decision  makers pretty  easy,  you  know what  they're                                                                    
     looking for.  Clearly it's my  job to take him  all the                                                                    
     information  -  take  them   the  decision  trees,  the                                                                    
     political aspects. It's his job  then to say have I got                                                                    
     the risk and reward balance  right and make the call on                                                                    
     the money.                                                                                                                 
                                                                                                                                
     So, in conclusion...                                                                                                       
                                                                                                                                
CO-CHAIR  SAMUELS interjected  to  say  the consequence  question                                                               
wasn't just aimed at the reserves  tax, it was also aimed at what                                                               
happens if  the window  of opportunity closes  for Alaska  as the                                                               
market shifts to LNG or an entirely new source.                                                                                 
                                                                                                                                
MR. MARUSHACK said he does not actually believe in the window of                                                                
opportunity. He believes in making all projects as economically                                                                 
feasible as possible and moving forward to fund them. He stated:                                                                
                                                                                                                                
     We want  to do every  economic project to  increase the                                                                    
     shareholder value  that we possibly  can. Now  in terms                                                                    
     of gas,  do I worry that  the price of gas  is going to                                                                    
     get too  high and you're  going to get  fuel switching?                                                                    
     Yea, I think that's a  legitimate issue. Do I think LNG                                                                    
     is going  to ever close  the market so that  there will                                                                    
     never be room  for Alaska gas? I don't  believe that at                                                                    
     all. I  think LNG  has finite  permitting problems  - I                                                                    
     mean we're seeing that on  projects we're trying to do.                                                                    
     I think you  need a diversified source  of U.S. energy.                                                                    
     I think  Alaska gas is a  very positive. I think  it is                                                                    
     something  that people  are going  to want  to see  and                                                                    
     it's  just a  question of  if  the market  is going  to                                                                    
     support that or not. The way  I tend to look at this is                                                                    
     I  want  to  bring  these projects  on  as  quickly  as                                                                    
     possible. I do not have  any fear of competing with LNG                                                                    
     projects. I  do have a little  more fear of too  high a                                                                    
     price.                                                                                                                     
                                                                                                                                
MR. MARUSHACK then continued his presentation.                                                                                  
                                                                                                                                
     Okay, in conclusion, I just  wanted to reiterate here -                                                                    
     very  large  project,  largest  infrastructure  project                                                                    
     that we  can find, no  models that really work  in this                                                                    
     case,  no logistics  models, you  know,  we're kind  of                                                                    
     looking  at  military  models. That's  about  the  only                                                                    
     thing  big enough  to make  any  sense to  us. Size  of                                                                    
     scale creates a lot of risk,  a lot of risk when you're                                                                    
     talking about  the amount of  dollars here.  There's no                                                                    
     single   metric  approach   or  criteria.   We  use   a                                                                    
     discipline process  designed to  reduce our  risk. Lots                                                                    
     of  gates  -  when   we're  spending  money,  that's  a                                                                    
     positive case.  Folks always want  to know when  do you                                                                    
     commit the $20  billion. Actually, in no  project do we                                                                    
     commit to  full funding  until we're  actually starting                                                                    
     to  buy steel  and drill  or whatever  it would  be. We                                                                    
     want to  avoid artificial deadlines that  increase cost                                                                    
     and risk.  For the priorities,  we'll try to  develop a                                                                    
     strong  base  project,  follow  a  disciplined  project                                                                    
     management process,  get our  deal done with  the State                                                                    
     of Alaska so we can move on to the next phases.                                                                            
                                                                                                                                
     Representative Samuels,  with that  I'm here  to answer                                                                    
     any questions that you may have.                                                                                           
                                                                                                                                
CO-CHAIR SAMUELS informed members that  he and Mr. Marushack have                                                               
discussed  proprietary information,  which no  one wants  to give                                                               
out  and  the  difficulty  of   attempting  to  speak  for  three                                                               
companies.  He  thanked  Mr.   Marushack  for  providing  generic                                                               
answers to questions, as that is what he asked for.                                                                             
                                                                                                                                
REPRESENTATIVE GARA  asked Mr. Marushack to  address the timeline                                                               
he mentioned of  2014 as the date  gas could be on  line. He also                                                               
asked Mr. Marushack where he stands  as far as seeing the project                                                               
as financially feasible and, if  he sees the project as feasible,                                                               
how soon  he thinks gas  can be  on-line and whether  the state's                                                               
goal of getting that gas to market in 2012 can be met.                                                                          
                                                                                                                                
MR.  MARUSHACK  said,  regarding  getting gas  on-line  by  2012,                                                               
ConocoPhillips  and BP  have operating  experience  on the  North                                                               
Slope. All three  companies have a long history  of investing and                                                               
working on very big projects. He  said he would like to bring the                                                               
project  on in  2012 too  but  when ConocoPhillips  laid out  the                                                               
plan,  it saw  2014  as  the best  possible  case.  He said  fast                                                               
tracking  has  safety  and environmental  implications  and  this                                                               
project is  too big  to take  any such  risks. Regarding  the tax                                                               
mechanism and  financial feasibility, he said  ConocoPhillips and                                                               
BP looked at  how to make this project go  forward and recognized                                                               
that  federal mechanisms  were needed.  Together with  Exxon, the                                                               
three  companies developed  enabling  legislation. The  companies                                                               
still believe the  tax mechanism is very important  but they will                                                               
continue  to  work  on  that  in Washington,  D.C.  while  it  is                                                               
negotiating with the state. When  they complete negotiations with                                                               
the state,  they will look  at where they  are at on  the federal                                                               
side, look  at the market,  and then reassess and  decide whether                                                               
to move forward with the project.                                                                                               
                                                                                                                                
REPRESENTATIVE GARA  asked if he would  be working on the  $2 low                                                               
price guarantee  at the same  time he  works with the  state. And                                                               
then,  assuming that  he  doesn't get  the  low price  guarantee,                                                               
he'll see what he gets from  the state and then decide whether he                                                               
still needs the low price guarantee.                                                                                            
                                                                                                                                
MR.  MARUSHACK said  he would  call it  a tax  credit, not  a low                                                               
price  guarantee. He  explained that  a tax  credit has  not been                                                               
included in any federal legislation  but he believes it still has                                                               
some value. He  plans to work with  the state to get  a deal done                                                               
and then look at the state  deal, any federal legislation at that                                                               
time,  the  market,  technical feasibility  of  the  market,  and                                                               
decide how  to move forward with  the project. He said  if prices                                                               
drop  substantially, that  would  be an  important component.  He                                                               
assured members that he is willing  to move forward as rapidly as                                                               
possible to get the state deal done  so that he can begin to move                                                               
into the next phases.                                                                                                           
                                                                                                                                
REPRESENTATIVE  CROFT asked  if  ConocoPhillips  would commit  to                                                               
build the line if it got the federal tax credit.                                                                                
                                                                                                                                
MR.  MARUSHACK noted  that ConocoPhillips  has said  in the  past                                                               
that if the  legislation out there was enacted and  it had a deal                                                               
with the state, it could move to  the next step. He said the next                                                               
step  is investing  the  $1  billion to  see  if  the project  is                                                               
feasible.  Right  now,  ConocoPhillips  believes  it  has  a  $20                                                               
billion project.  If, after the  design engineering,  the project                                                               
cost is $40 billion, the  state and ConocoPhillips have a serious                                                               
problem.  Therefore  ConocoPhillips  will  invest  a  substantial                                                               
amount of money to move forward if it has the pieces.                                                                           
                                                                                                                                
SENATOR ELTON  said he first  heard about the 18  month provision                                                               
in the federal  legislation that morning and asked  how that will                                                               
affect  the decision  making  process and  the  magnitude of  the                                                               
issues that need to be addressed.                                                                                               
                                                                                                                                
MR. MARUSHACK said it does  not affect him because ConocoPhillips                                                               
and  the producers  want to  get a  deal done  with the  state as                                                               
quickly  as possible  so that  it can  go before  the legislature                                                               
this session.  He noted  the reasons are  high prices,  the state                                                               
wants  the project,  the producers  want  it, and  the timing  is                                                               
right. He  repeated the  18-month window is  not as  important to                                                               
him  because now  that the  federal legislation  was enacted,  he                                                               
wants to get the deal done with the state as soon as possible.                                                                  
                                                                                                                                
CO-CHAIR SAMUELS  thanked Mr. Marushack and  announced a 6-minute                                                               
recess.                                                                                                                         
                                                                                                                                
CO-CHAIR  SAMUELS  reconvened  the  meeting  at  11:30  a.m.  and                                                               
informed  members  that  Mr.  Ken   Thompson  would  address  the                                                               
committee  on the  economic impacts  of Alaskan  ownership of  an                                                               
interest in an Alaska natural gas project.                                                                                      
                                                                                                                                
MR.  KEN  THOMPSON,  Pacific  Star  Energy,  gave  the  following                                                               
presentation.                                                                                                                   
                                                                                                                                
     What  I'd  like to  talk  about  now,  really it  is  a                                                                    
     different hat  - before I  talked about - was  asked to                                                                    
     talk about  the capital  allocation as a  past, retired                                                                    
     executive  of ARCO.  Now  I  just want  to  talk as  an                                                                    
     entrepreneur  in Alaska  and about  a start-up  company                                                                    
     called Pacific Star Energy. What  I really want to show                                                                    
     is the  results of  the first  ever-quantitative socio-                                                                    
     economic  study  of the  impacts  on  Alaska if  Alaska                                                                    
     companies,   whether  it's   Pacific  Star   Energy  or                                                                    
     different  companies,  if  Alaska  companies  can  have                                                                    
     ownership.  If  Alaskans  have the  chance  to  have  a                                                                    
     mechanism  to invest  themselves, what  kind of  impact                                                                    
     would that  mean over  the next  two or  three decades?                                                                    
     ... I'll talk about the  vision of Pacific Star Energy.                                                                    
     I'll talk about  our value added proposition  - what we                                                                    
     think we can bring to  the table working with producers                                                                    
     or  pipeline  companies in  the  state.  And then  most                                                                    
     importantly,  we'll share  the results  of an  economic                                                                    
     impact of  Alaska company ownership in  the natural gas                                                                    
     industry   and  that   was  prepared   by  an   outside                                                                    
     consultant,  Northern  Economics Incorporated  here  in                                                                    
     Anchorage. And  we asked  them to say  what if  that 10                                                                    
     percent was  owned by  a company  in Houston  or London                                                                    
     versus what if  that 10 percent was owned  by a company                                                                    
     here in  Alaska. What is the  difference? Many benefits                                                                    
     accrue   regardless  of   who  invests.   There  is   a                                                                    
     difference if  some ownership stays here  and I'll talk                                                                    
     about the implications of that and recommendations.                                                                        
                                                                                                                                
     A  little  bit about  the  vision  of the  company.  We                                                                    
     started two years  ago and PSE, the way we  look at it,                                                                    
     will  become an  integrated natural  gas consortium  of                                                                    
     Alaska. Our  goal for the next  few years is to  have a                                                                    
     10  percent interest  in any  North Slope  gas pipeline                                                                    
     project  to Alberta  or a  20 percent  interest in  the                                                                    
     North Slope gas  pipeline from the slope  to the Alaska                                                                    
     Canadian border. You heard yesterday,  I believe it was                                                                    
     Lehman  Brothers  or perhaps  it  was  UBS that  talked                                                                    
     about  financial   instruments  in  a   master  limited                                                                    
     partnership  way  of  investing  that  it  may  make  a                                                                    
     difference on the  ownership for us whether  we go into                                                                    
     the Canadian segment or not.                                                                                               
                                                                                                                                
     Importantly though,  we are one  of the  only companies                                                                    
     talking  about what  we'd do  with cash  flow from  the                                                                    
     pipeline. Our  vision would be  - and I used  to manage                                                                    
     these businesses for  ARCO years ago in the  Lower 48 -                                                                    
     we would  take one-half of  our cash flow of  our share                                                                    
     of the gas line and  distribute back to our shareholder                                                                    
     owners,  individual  Alaskans,  Alaska  companies.  The                                                                    
     other half  of the cash  flow, our business  plan calls                                                                    
     for  reinvesting in  the state  and the  different ways                                                                    
     would  be in  hub  gas distribution  centers, one  near                                                                    
     Glenallen,  for example,  and also  we are  interested,                                                                    
     like the  Alaska Natural Gas Development  Authority and                                                                    
     we're working cooperatively with  them, for example, on                                                                    
     spur lines  into Anchorage by  2015 to supply  gas here                                                                    
     as gas declines from the Cook Inlet.                                                                                       
                                                                                                                                
     We  also   are  examining   interest  in   natural  gas                                                                    
     processing.  We  would  see  taking  part  of  the  gas                                                                    
     liquids, like  propane and butane, for  distribution in                                                                    
     Interior communities, as well  as Southeast Alaska. And                                                                    
     we're  not ruling  out  niche  petrochemicals. We  have                                                                    
     done  some work  on that.  That's a  tough one  to make                                                                    
     commercial  in Alaska,  although we  are continuing  to                                                                    
     examine small scale. In other  projects, I've looked at                                                                    
     very  large  scale  and have  not  been  commercial  or                                                                    
     competitive.  We're   taking  a  look  at   just  niche                                                                    
     petrochemicals down  on the Kenai Peninsula  that could                                                                    
     be readily shipped to the West Coast.                                                                                      
                                                                                                                                
REPRESENTATIVE CROFT asked for an example of a niche                                                                            
petrochemical.                                                                                                                  
                                                                                                                                
MR. THOMPSON replied, "Right now  one that we're looking at would                                                               
be - we would spur a  pipeline into Anchorage that would tie into                                                               
the  Enstar  system.  It  would also  allow  for  additional  gas                                                               
distribution  as  the  Cook  Inlet declines  down  to  the  Kenai                                                               
Peninsula.  We  would build  a  small  niche petrochemical  plant                                                               
there   that  would   mainly   manufacture   ethylene  and   then                                                               
polyethylene resin  - it's  a feedstock  for plastics  that could                                                               
then go to other chemical plants  in Asia. Although that's a very                                                               
small  part of  our  business,  it would  be  something into  the                                                               
future.                                                                                                                         
                                                                                                                                
MR. THOMPSON continued his presentation.                                                                                        
                                                                                                                                
     Near term,  a percentage interest ownership  in the gas                                                                    
     pipeline  - in  fact, if  the state  does not  own 12.5                                                                    
     percent  equity ownership,  we  would  gladly take  any                                                                    
     percentage that  you don't take.  So if you  don't take                                                                    
     the 12.5  percent, we will.  At least that  money would                                                                    
     stay  in Alaska.  If you  take 6.25,  we'd be  happy in                                                                    
     pulling  together Alaskan  investors to  invest in  all                                                                    
     6.25.  That's what  we're  essentially  looking at.  We                                                                    
     were  very pleased  to be  brought into  the consortium                                                                    
     with MidAmerican  Energy. MidAmerican Energy  owns just                                                                    
     over 80 percent and we  were pleased to be brought into                                                                    
     their  consortium this  past year  as a  just under  10                                                                    
     percent owner and then CIRI  is also a part owner, just                                                                    
     under 10 percent.                                                                                                          
                                                                                                                                
     We wouldn't  rule out, first  time ever, it might  be a                                                                    
     miracle, but  2017 our vision  calls that on  the North                                                                    
     Slope, could  you imagine for  the first time  ever, an                                                                    
     Alaska company actually owns  gas production. Right now                                                                    
     gas  production  -  there's no  equity  ownership  -  a                                                                    
     couple  of Native  corporations have  royalty ownership                                                                    
     in the oil and gas  but not one Alaska independent owns                                                                    
     in  that  so we  have  maybe  fully integrated  in  the                                                                    
     future through cash  flow from the pipeline  to plow it                                                                    
     back  into  the  North  Slope and  perhaps  acquire  or                                                                    
     explore for natural gas.                                                                                                   
                                                                                                                                
     This is just  a schematic - slide 4 -  of what we'd do.                                                                    
     We would have ownership in the  main gas line down to a                                                                    
     hub near Fairbanks, Delta Junction  and, of course, the                                                                    
     gas line would go on to  the Lower 48. We'd hope for 10                                                                    
     percent  interest in  the yellow  that  you see  there.                                                                    
     Then  we would  own  a  majority interest,  potentially                                                                    
     even  operate the  hub.  Hubs are  very  common in  the                                                                    
     Lower 48.  They're more trading  hubs while  this would                                                                    
     be, to  some degree, a trading  hub but much more  of a                                                                    
     mechanical hub  to then get  gas moved into  spur lines                                                                    
     to  Fairbanks and  on to  Anchorage.  We're looking  at                                                                    
     supplying utilities  for power  generation and  then if                                                                    
     entrepreneurs  feel like  an LNG  project of  a smaller                                                                    
     scale can  be commercial out  of Valdez in  the future,                                                                    
     we  certainly would  want to  look at  participating in                                                                    
     any spur line that went to Valdez.                                                                                         
                                                                                                                                
     Here's where  we stand as  far as funding and  the game                                                                    
     plan we can afford. We do  see it as an opportunity for                                                                    
     any interested Alaskan and that's  one unique thing. In                                                                    
     the past  couple of years  I've talked to  the regional                                                                    
     corporations -  the Alaska  Native Regional...  [END OF                                                                    
     SIDE A]                                                                                                                    
                                                                                                                                
TAPE 04-33, SIDE B                                                                                                            
                                                                                                                                
MR. THOMPSON continued.                                                                                                         
                                                                                                                                
     ...large   companies,   individuals   that   might   be                                                                    
     interested at one point.                                                                                                   
                                                                                                                                
     Seed  funding  -  I'm  pleased  to  say  that  we  have                                                                    
     successfully obtained  all of our seed  funding through                                                                    
     the end  of next  year. We were  seeking that  from the                                                                    
     Native corporations. They have  decided to do their own                                                                    
     thing from their  own consortium and within  a month of                                                                    
     that, and  within a  month of  that being  announced, I                                                                    
     did  obtain  another  investor that  fully  funded  our                                                                    
     company  through  the  end  of   next  year.  We  would                                                                    
     approach  additional   investors,  companies   here  in                                                                    
     Alaska,  individuals that  are accredited,  for funding                                                                    
     to  then   get  positioned  so  that   if  the  federal                                                                    
     government 18 month  deal does come into  effect at the                                                                    
     end of next  year and if the state  fiscal package also                                                                    
     had  that  same  time constraint,  hopefully  everybody                                                                    
     involved -  producers, pipeline  companies, go  to that                                                                    
     next phase  that we call the  business evaluation phase                                                                    
     and, as Joe  talked about, there [are] a  lot of things                                                                    
     involved in  that - the  detail project  engineering to                                                                    
     get  final estimates,  permitting the  right-of-way, we                                                                    
     would need  substantially more money by  that timeframe                                                                    
     of  2006  to 8  and  so  we're looking  for  additional                                                                    
     investors this year and next.                                                                                              
                                                                                                                                
     I would say that's a  risky phase because, as you know,                                                                    
     that could  be -  that's the business  evaluation phase                                                                    
     for a couple  of years. During that  phase, there could                                                                    
     be a  decision made not to  go ahead with the  line for                                                                    
     different reasons.  If that were  to be made,  that's a                                                                    
     risky investment. So for the  next phase of funding, we                                                                    
     really  are approaching  companies  or accredited  high                                                                    
     net  worth  individuals.   However,  when  construction                                                                    
     starts,  we  envision  and  are  looking  at  ways  and                                                                    
     talking to  different investment banking firms  on ways                                                                    
     for a  financial instrument for any  interest in Alaska                                                                    
     to invest.  So, if an  Alaska family of three  wants to                                                                    
     invest one  of their permanent fund  dividend checks in                                                                    
     2009 and own  a piece of the pipe, this  could be a way                                                                    
     to do it.  This would also be  an alternative mechanism                                                                    
     that  the  federal  government talked  about  in  their                                                                    
     legislation, at least for a percentage of the line.                                                                        
                                                                                                                                
     When the line is underway,  we see the risk as moderate                                                                    
     or  certainly lower  because once  construction starts,                                                                    
     you  do  know the  terms  from  the federal  and  state                                                                    
     governments.  By that  time  of  construction you  will                                                                    
     have  made gas  contracts with  customers on  the other                                                                    
     end.  Hopefully you  would have  secured gas  supply by                                                                    
     that  point. We  would  be very  interested in  helping                                                                    
     transport part of the state's  royalty gas for example.                                                                    
     And then  we're looking  at the  financial instruments,                                                                    
     investment  trusts, innovative  mutual fund  ideas, and                                                                    
     actually  we  have also  screened  and  are looking  at                                                                    
     master limited  partnerships that you had  heard talked                                                                    
     about  yesterday  by  Lehman Brothers.  Warren  Buffett                                                                    
     used master limited partnerships  on pipelines over the                                                                    
     last few years  - spent about $2.5  billion, and that's                                                                    
     been  his innovative  financial  instrument and  that's                                                                    
     one that we're also assessing.                                                                                             
                                                                                                                                
     We believe  our company  can bring something  unique in                                                                    
     the gas  line. More profits stay  within Alaska. That's                                                                    
     a healthy state  economy. By the way, this  may be mind                                                                    
     boggling  to some,  perhaps, 10  percent interest  from                                                                    
     the slope to Alberta,  would create the largest revenue                                                                    
     company in Alaska.  And if a 12 percent  return is made                                                                    
     on  that  investment, it  would  also  create the  most                                                                    
     profitable private company in  Alaska. So, a 10 percent                                                                    
     interest may sound small, but  for Alaskan business, it                                                                    
     is very, very significant  and that's what interests us                                                                    
     in this.                                                                                                                   
                                                                                                                                
     Also  you have  a company  where profits  stay here.  I                                                                    
     think  that an  argument  can be  made  that helps  the                                                                    
     state  economy and  I'll  show you  in  a moment.  That                                                                    
     perhaps could  be a very  significant way  of lessening                                                                    
     risk  of producer  tax increases.  We  would pledge  on                                                                    
     part of our cash flow  to build markets, investments in                                                                    
     in-state  gas use  and infrastructure.  We can  help on                                                                    
     permitting, enhancement  of Alaska hire  obviously, and                                                                    
     then  help  in  government relationships  and  then  it                                                                    
     could be that  we could play a role in  helping also in                                                                    
     pulling  together  minor  producers'  gas  volumes  for                                                                    
     marketing or even the state's gas.                                                                                         
                                                                                                                                
     Slide  7 is  an interesting  one. It's  the first  time                                                                    
     that  we've  shown  it  publicly   because  it  is  the                                                                    
     conclusion of  a report  and I've  got a  more detailed                                                                    
     copy of that.  That shows with more  details but bottom                                                                    
     line  we asked  Northern Economics  Incorporated if  an                                                                    
     Alaska  company,  whether  it's  ours or  it  could  be                                                                    
     anybody, say  another group comes forward  and offers a                                                                    
     better  deal to  Alaska investors  - we're  not in  the                                                                    
     picture  but another  one is  - this  could also  be an                                                                    
     example of the  benefits that could be  made with state                                                                    
     owning some  equity ownership in keeping  profits here.                                                                    
     What we looked at, we  asked Northern Economics what if                                                                    
     that 10  percent is owned  by an Alaska  company versus                                                                    
     that  same  10  percent. Obviously,  whoever  owns  any                                                                    
     interest -  there's going to  be a lot of  jobs, you've                                                                    
     heard that,  10s of thousands of  jobs in construction,                                                                    
     permanent  jobs numbering  a few  thousand potentially,                                                                    
     and  then  there's  a   multiplier  effect.  We're  not                                                                    
     looking at that. That's already  been reviewed with you                                                                    
     in  other   testimony.  We're   just  looking   at  the                                                                    
     incremental  additional  benefits  to  Alaska  if  this                                                                    
     time, for  the first time ever,  Alaska's companies had                                                                    
     equity  ownership.   In  TAPS,  Alaska   companies  own                                                                    
     nothing,  nor  on  the  oil. So  this  is  a  different                                                                    
     example of  we actually become and  change the business                                                                    
     model  and Alaska  companies play  this  time. And  the                                                                    
     incremental benefit  is this. Northern  Economics found                                                                    
     that  about over  35 years  actually,  $1.8 billion  in                                                                    
     profits, just  for that 10 percent  ownership, would be                                                                    
     left within the  state. From that would  be over 22,000                                                                    
     incremental,  part-time and  full-time jobs,  about 650                                                                    
     new jobs per  year that otherwise would  not be created                                                                    
     if  the cash  left the  state.  Some of  that, a  small                                                                    
     portion, comes  from the spur pipelines  or natural gas                                                                    
     processing that  our company would  do but  really most                                                                    
     of that comes from the  multiplier effect of cash being                                                                    
     left with Alaskan shareholders  and that's important to                                                                    
     understand that as they spend  their money on different                                                                    
     things.                                                                                                                    
                                                                                                                                
     We're  sharing with  all of  the unions  in Alaska  and                                                                    
     that  could  actually  mean  $830  million  incremental                                                                    
     payments to  labor and that  is significant,  above and                                                                    
     beyond the  normal impacts that would  accrue from just                                                                    
     the  pipeline itself.  Bottom line,  it's $1.3  billion                                                                    
     total value  added to the  state economy over  35 years                                                                    
     and that,  again, is over  and above what a  10 percent                                                                    
     interest owned  by an outside company  provides, is the                                                                    
     way  that they  looked at  it. That's  important for  a                                                                    
     company,  whether it's  ours or  to facilitate  another                                                                    
     Alaskan  company or  series of  companies to  have some                                                                    
     ownership.  The federal  government has  done that  and                                                                    
     I'll talk  about it in a  moment and we'd like  to have                                                                    
     the state legislature consider it as well.                                                                                 
                                                                                                                                
     Exactly what  investment is  needed to  secure -  and I                                                                    
     did this  just because the  state is looking at  a 12.5                                                                    
     percent interest. If our company  did a 12.5 percent or                                                                    
     the state, how  much equity is needed that  needs to be                                                                    
     raised. If you run all the  way from the North Slope to                                                                    
     Alberta, the  cost of that  is $11.6 billion.  Now that                                                                    
     would  save  the  state  -   our  company  doesn't  own                                                                    
     anything  in  the  gas  conditioning  plant,  that's  a                                                                    
     leased  facility  that  will  likely be  owned  by  the                                                                    
     producers, and it doesn't rule  out state ownership but                                                                    
     yet I'm saying  the producers would own  that. And then                                                                    
     the state  or even our  company would own  12.5 percent                                                                    
     from  the  Slope  to Alberta.  There  would  be  equity                                                                    
     capital of  $435 million or  $108 million per  year. So                                                                    
     basically,  we  would  have to  obtain  equity  capital                                                                    
     through our investors for that  amount by the timeframe                                                                    
     of 2009.  And you  see the  share of  debt at  about $1                                                                    
     billion.  Again   that  would   be  debt   secured  and                                                                    
     guaranteed by the federal government  and that debt, in                                                                    
     this case, would be owned by the pipeline company.                                                                         
                                                                                                                                
     From the North  Slope to the border, if  the state only                                                                    
     owned 12.5 percent of that,  you'd have to come up with                                                                    
     net costs  of $750 million.  That was the  capital that                                                                    
     we  would  also have  to  look  at. That  means  equity                                                                    
     capital of $225  million. By the way,  all these assume                                                                    
     30 percent equity, 70 percent  debt so if it's actually                                                                    
     20  percent   equity,  80  percent  debt,   the  equity                                                                    
     amounts, of course, are 'ratioed' down.                                                                                    
                                                                                                                                
     So the  sum means that  we're trying to raise  by about                                                                    
     2009 the  $50 to $100  million per year  from investors                                                                    
     and  through different  financial  instruments, or  the                                                                    
     state, if  you took  the 12.5  percent, these  would be                                                                    
     your numbers to raise by that time frame.                                                                                  
                                                                                                                                
     Bottom   line,   what's  interesting   is   significant                                                                    
     implications   - is if  you look  back on slide  7, the                                                                    
     last from the bottom bullet  says $1.3 billion added to                                                                    
     the state  economy. In  a way,  if the  state did  in a                                                                    
     fiscal package provide  additional incentives, like Joe                                                                    
     mentioned state incentives,  perhaps for commodity risk                                                                    
     protection,  if  the  state were  to  do  that,  you're                                                                    
     giving some  value up. There's  no doubt about  it, you                                                                    
     are. However,  if the state owned  equity participation                                                                    
     or  even  if  an  Alaskan company  like  ours  owned  a                                                                    
     participation   percentage,   through  the   additional                                                                    
     incremental benefits  to the economy, you  can actually                                                                    
     gain back  much, if not  all, of that value  that you'd                                                                    
     have to  give up  to get the  project going.  And these                                                                    
     are the kinds  of things that I'm sure  Pedro Van Meurs                                                                    
     and his team are looking at.                                                                                               
                                                                                                                                
     We would  urge that  similar to our  federal delegation                                                                    
     passing a Sense of  Congress regarding encouragement of                                                                    
     Alaska  company  participation,  if  you  do  a  fiscal                                                                    
     package next year,  as an Alaskan, we  would hope you'd                                                                    
     incorporate identical  intent of the  legislature, just                                                                    
     like  Congress did  for a  Sense of  Congress and  I'll                                                                    
     talk more about that in the closing slide.                                                                                 
                                                                                                                                
     And  the  bottom  line,  we   see  even  a  10  percent                                                                    
     ownership by  Alaskan companies could add  $1.3 billion                                                                    
     to  the  state  economy  and 22,000  new  jobs  but  we                                                                    
     realize  we  have  to bring  additional  value  that  I                                                                    
     already mentioned.                                                                                                         
                                                                                                                                
     So  recommendations  would  be that  the  state  and/or                                                                    
     Alaska companies  and individuals  should own  at least                                                                    
     12.5  percent of  the gas  line from  the Slope  to the                                                                    
     border  or at  least  all  the way  to  Alberta to  the                                                                    
     marketing hub.  And we would  encourage you  to include                                                                    
     intent of  legislature language and,  by the  way, what                                                                    
     I've  included  in  slide  10  comes  out  of  the  new                                                                    
     military  appropriations bill  that Congress  passed in                                                                    
     the  exact   language.  Congress  passed  a   Sense  of                                                                    
     Congress  that  Alaska  Native corporations  and  other                                                                    
     companies   owned   and   operated  by   Alaskans   and                                                                    
     individual Alaskans should have  the opportunity to own                                                                    
     shares  of the  Alaska natural  gas pipeline  in a  way                                                                    
     that  promotes economic  development of  the state  and                                                                    
     then  to  facilitate   economic  development,  sponsors                                                                    
     should  negotiate  in  good   faith  with  any  willing                                                                    
     Alaskan  person.   We  certainly  have   found  willing                                                                    
     Alaskan  persons that  are interested  in investing  in                                                                    
     having  ownership  of the  -  and  change the  business                                                                    
     model from  the old  oil business  model. So  that's my                                                                    
     concluding remarks.  I'd like to also  mention that our                                                                    
     company would  also comply and would  understand and if                                                                    
     you put  an 18  month timetable  on the  fiscal package                                                                    
     and  we  had  to  do  everything we  could  to  make  a                                                                    
     decision to  go to the  next phase and raise  money for                                                                    
     that  phase of  permitting  and  detail engineering  by                                                                    
     2006, we feel  we can. And our business  plan calls for                                                                    
     compressing   the   three   years   of   the   detailed                                                                    
     engineering and  permitting from  three to two  and our                                                                    
     goal is  to start construction  by 2009 and  have first                                                                    
     sales  by the  end of  2012. It's  about a  year longer                                                                    
     than  the MidAmerican  proposal  but about  a year  has                                                                    
     passed since  that proposal.  With that,  Mr. Chairman,                                                                    
     that concludes my prepared comments.                                                                                       
                                                                                                                                
REPRESENTATIVE CROFT asked:                                                                                                     
                                                                                                                                
     Putting together  some of the  things that  we've heard                                                                    
     over  the  last  day  ... Exxon,  BP  and  Conoco  have                                                                    
     limited  capital resources  and  some internal  reasons                                                                    
     not to do it. Lehman  Brothers and UBS talked about the                                                                    
     interest that people have in  investing in this outside                                                                    
     of  Alaska.  You've  talked  about  the  interest  that                                                                    
     Alaskans have  in investing in  this. I  guess, putting                                                                    
     those  all  together,  why  should   we  wait  for  the                                                                    
     producers?  If  non-Alaskans   are  interested,  equity                                                                    
     markets  are interested,  if  there's  reasons why  the                                                                    
     producers might not want to  move as quickly as we want                                                                    
     to and you're interested, why are we waiting?                                                                              
                                                                                                                                
MR. THOMPSON said as a start up company, even raising the 10                                                                    
percent level of capital is a challenge. Pacific Star Energy is                                                                 
fully funded  through next  year with  seed money.  However, when                                                               
the project moves into the  permitting phase, the investment gets                                                               
riskier. The  cost could be  $1 billion over two  years, although                                                               
he estimates  $500 million.  No matter  the amount,  Pacific Star                                                               
Energy's share  will be $50  to $100  million over two  years and                                                               
that is the  riskiest part of the project.  Pacific Star Energy's                                                               
challenge  is to  find that  money by  the end  of next  year. He                                                               
feels confident  that can  be done, knowing  the interest  of the                                                               
financial markets. The  Department of Energy will  be arguing for                                                               
a 14 percent  rate of return. Investors want that.  This would be                                                               
a good  hedge fund investment  not tied  to the stock  market but                                                               
tied to a relatively flat cash  flow and a FERC regulated rate of                                                               
return with loan  guarantees.  He said raising all  of that money                                                               
will require some big capital players.  He added that if even two                                                               
of  the producers  sign on,  Pacific  Star Energy  would get  its                                                               
share  quickly because  that would  bless the  project by  large,                                                               
sophisticated  investors.   He  noted  the  producers   have  the                                                               
capital;  the  issue is  how  that  capital  is allocated  as  an                                                               
upstream  or  downstream  project.  He  pointed  out  that  Exxon                                                               
Mobil's upstream  projects had a  30.6 percent return  on capital                                                               
employed, according to its annual report.   He noted that he does                                                               
not support a  gas reserves tax because the producers  are at the                                                               
table  negotiating   in  good  faith  and   financial  firms  are                                                               
interested in  investing, so  a gas reserves  tax will  cloud the                                                               
water. He  believes the  state needs to  create a  fiscal package                                                               
that will  provide certainty for a  number of years. He  said the                                                               
ball game was  different three years ago when no  one was sitting                                                               
at the table.                                                                                                                   
                                                                                                                                
CO-CHAIR WAGONER  asked if the  state considers taking  an equity                                                               
share in the  project - possibly larger than 12.5  percent - that                                                               
could have a detrimental effect on Pacific Star Energy.                                                                         
                                                                                                                                
MR.  THOMPSON said  that is  correct. He  predicted if  the state                                                               
took  12.5  percent  and the  producers  and  pipeline  companies                                                               
wanted  the rest,  it might  be more  difficult to  allow Pacific                                                               
Star Energy a small percentage. He  said, "I would hope that good                                                               
hearts prevail  and that  they would allow  Alaskans a  chance to                                                               
invest so that men and women on  the street that want to invest -                                                               
but you are right, it could mean  that we would be cut out of the                                                               
picture and that's the way it goes."                                                                                            
                                                                                                                                
CO-CHAIR  WAGONER suggested  the  possibility  that Pacific  Star                                                               
Energy  could  negotiate  a  percentage  off  of  the  state  for                                                               
investment purposes for state residents.                                                                                        
                                                                                                                                
MR. THOMPSON agreed and offered:                                                                                                
                                                                                                                                
     What we  have mentioned  to certain individuals  in the                                                                    
     state  is doing  the  Exxon case  -  like the  Alliance                                                                    
     Pipeline.  If you  remember, they  took a  large equity                                                                    
     percentage in  that large line from  Alberta to Chicago                                                                    
     to get it constructed and  built and then later sold it                                                                    
     off. Enbridge was one of  the buyers. If the state took                                                                    
     an  interest, you'd  get your  payout and  you want  to                                                                    
     hold it  long term, keep it  long term. If you  want to                                                                    
     get some of  your cash back, you could  divest and we'd                                                                    
     certainly be  interested in being  in the  bidding room                                                                    
     to bid and buy back from  the state after that. Then we                                                                    
     would create the Alaska company.                                                                                           
                                                                                                                                
     Plan B, by  the way, is even  if we are cut  out of the                                                                    
     line because  producers don't want  us in or  the state                                                                    
     takes  a  larger  percentage,   our  company  still  is                                                                    
     interested  and  would  pursue Plan  B,  which  is  the                                                                    
     ownership and investment in some  of the spur lines and                                                                    
     even  natural gas  processing. But  that's going  to be                                                                    
     more difficult because the way that  we did in Plan A -                                                                    
     to fund  that stuff, is  the stable cash flow  from the                                                                    
     gas  pipeline percentage  so  we do  a  10 percent,  12                                                                    
     percent  return   project  there,  stable   cash  flow,                                                                    
     redeploy into more risky gas processing.                                                                                   
                                                                                                                                
12:58 p.m.                                                                                                                      
                                                                                                                                
With  no   further  questions,   CO-CHAIR  SAMUELS   thanked  Mr.                                                               
Marushack  and  Mr. Thompson.  He  then  announced the  afternoon                                                               
presentations would  be about manpower requests  and recessed the                                                               
meeting until 1:30 p.m.                                                                                                         
                                                                                                                                
CO-CHAIR  SAMUELS reconvened  the  joint  Legislative Budget  and                                                               
Audit Committee and  Senate Resources Committee at  1:34 p.m. and                                                               
announced that Mr. Tony Palmer  would present to the committee on                                                               
a  topic entitled,  Getting  a Job  on the  Pipeline  - How  Many                                                             
People, With What Skills, and  During Which Phase of Construction                                                             
or Operation?                                                                                                                 
                                                                                                                                
MR.  TONY PALMER,  Vice President,  Alaska Business  Development,                                                               
TransCanada,  gave  the  following   narrative  to  a  PowerPoint                                                               
presentation [copy available in committee file].                                                                                
                                                                                                                                
     Thank you  Mr. Chairman  and members of  the committee.                                                                    
     I'm  pleased to  be in  front of  this committee  again                                                                    
     after  an eventful  day yesterday,  which I  enjoyed. I                                                                    
     didn't get  an opportunity to see  all of it but  I did                                                                    
     get  to  enjoy  most   of  the  presentations  you  saw                                                                    
     yesterday. Today  my presentation  will be short  but I                                                                    
     was  asked   to  speak  to  project   workforce  skills                                                                    
     requirements. I'll  walk that  through for  you quickly                                                                    
     and would  be happy to  try to  respond to any  of your                                                                    
     questions  as we  go  through  or at  the  end at  your                                                                    
     pleasure.                                                                                                                  
                                                                                                                                
     Just a  quick map on the  pipeline - I won't  spend any                                                                    
     time on this  other than to show you  that the existing                                                                    
     prebuild starting from central  Alberta - that's in the                                                                    
     green, from  a location  called Caroline just  north of                                                                    
     Calgary -  it currently exists  down to a point  on the                                                                    
     U.S. border on  the east side called  Monchy. That's on                                                                    
     the  Montana  border.  It connects  with  the  northern                                                                    
     border  and   the  pipeline  going  west   connects  at                                                                    
     Kingsgate  on the  U.S. border  - Idaho  border -  with                                                                    
     PG&E national energy group. That  used to be called PGT                                                                    
     but now it's called GTN.                                                                                                   
                                                                                                                                
     I will  speak today  to primarily the  two -  there are                                                                    
     four  phases  of  the  project.   We're  still  in  the                                                                    
     development  phase.  I  will  speak  primarily  to  the                                                                    
     preconstruction and construction  phases, which are the                                                                    
     highest  labor components  for  this  project and  then                                                                    
     operations as  well, which I  will not speak  to today.                                                                    
     I'll give  you a high  level project schedule  and I'll                                                                    
     speak to labor  details in terms of  types of employees                                                                    
     required  for this  project and  quickly a  contracting                                                                    
     plan  and finally  summarize -  I do  have a  couple of                                                                    
     videos to show you some actual construction.                                                                               
                                                                                                                                
     First  to  address  preconstruction -  this  slide  [4]                                                                    
     shows  you general  categories  of preconstruction  and                                                                    
     construction  phases. Prior  to preconstruction,  there                                                                    
     will  be work  done in  the  field to  gather data  for                                                                    
     project  planning,  engineering, environmental,  socio-                                                                    
     economic,  etcetera, which  will provide  opportunities                                                                    
     for local businesses. The labor  numbers that I'm going                                                                    
     to show  you and  the quantities  are not  included for                                                                    
     events  occurring  before  the  preconstruction  phase.                                                                    
     Just to  indicate for you what  terminology we're using                                                                    
     when  we talk  about  preconstruction,  we mean  gravel                                                                    
     processing,   access  road   construction,  stockpiling                                                                    
     equipment  at sites,  building  camp sites,  compressor                                                                    
     station  sites,  development,  receiving  the  pipe  so                                                                    
     receiving  it  within  the  state,  double  jointing  -                                                                    
     that's connecting  the pipe so  you have two  pieces of                                                                    
     pipe connected  together, coating  the pipe -  it needs                                                                    
     to be coated to protect it  for a long term basis, that                                                                    
     would occur as  well. Haul and stockpile the  pipe - so                                                                    
     haul  it  to locations  along  the  right-of-way to  be                                                                    
     ready  for  construction  and  brush  clearing  on  the                                                                    
     right-of-way.  That's  fundamentally  what we  mean  by                                                                    
     preconstruction.  Sometimes it's  called logistics  but                                                                    
     fundamentally preparing to do the construction phase.                                                                      
                                                                                                                                
     The  construction phase  is truly  pipe construction  -                                                                    
     connecting  the  pipe,  laying it  in  the  trench  and                                                                    
     covering  it, and  compressor  station construction  as                                                                    
     well.                                                                                                                      
                                                                                                                                
     This is  our project schedule  [slide 5], which  we put                                                                    
     in   front  of   the  state   with  our   Stranded  Gas                                                                    
     Development Act  application on June 1.  I've given you                                                                    
     two designations here, both  calendar years starting in                                                                    
     2005, as well as year one  through eight and I can tell                                                                    
     you that, of  course, it's all driven off  of the first                                                                    
     row, which is when  the commercial agreement is struck.                                                                    
     We have  anticipated here a commercial  agreement being                                                                    
     struck by  the middle of  2005. If that  doesn't occur,                                                                    
     the    project    schedule    will    shift    backward                                                                    
     proportionately. So just be aware of that.                                                                                 
                                                                                                                                
CO-CHAIR   SAMUELS  interjected   to  note   that  ConocoPhillips                                                               
testified earlier that such a  schedule would be considered to be                                                               
extremely aggressive. He asked Mr. Palmer to respond.                                                                           
                                                                                                                                
MR.  PALMER  said  if  a commercial  agreement  is  reached  with                                                               
TransCanada by  mid-2005, TransCanada  can achieve  this schedule                                                               
to begin service in 2012.                                                                                                       
                                                                                                                                
CO-CHAIR  SAMUELS asked  if he  is  speaking to  "signing on  the                                                               
dotted line to gas flowing."                                                                                                    
                                                                                                                                
MR.  PALMER said  TransCanada holds  an  existing certificate  in                                                               
Canada and  would not  have to file  for new  certificates, which                                                               
would  give  it  a  timing   advantage.  He  then  continued  his                                                               
presentation.                                                                                                                   
                                                                                                                                
     I won't take you through  the other components. This is                                                                    
     all laid  out but  fundamentally we'd work  through the                                                                    
     engineering  and field  study data  and you'd  be at  a                                                                    
     point   in  2008   where  you'd   have  arranged   your                                                                    
     financing,  starting to  procure  you're equipment,  as                                                                    
     well as steel, then  you'd start preconstruction at the                                                                    
     same time  - the end of  2008. Then we have  a two-year                                                                    
     construction timeframe,  which I can tell  you includes                                                                    
     working  winter and  summer both  in Alaska  and Canada                                                                    
     and   I'll   actually   show  you   the   winter-summer                                                                    
     construction schedule as we walk  through with how many                                                                    
     crews and where they're working.  So I'll show you that                                                                    
     later in the presentation.                                                                                                 
                                                                                                                                
CO-CHAIR SAMUELS asked if regarding gearing up for job                                                                          
opportunities, most of the [employment] will occur between 2009                                                                 
and 2012.                                                                                                                       
                                                                                                                                
MR. PALMER said the bulk of the work will occur beginning in                                                                    
late 2008 and end in late 2011.  He then continued.                                                                             
                                                                                                                                
     So  I'll take  you through  the numbers  by skill  type                                                                    
     during   preconstruction.  This   is  for   the  Alaska                                                                    
     component  of the  project only  and these,  of course,                                                                    
     are preliminary  estimates based on what  we have given                                                                    
     you  before. It's  a 48-inch  pipeline, high  pressure,                                                                    
     moving   4.5    bcf/day   initially.    That's   what's                                                                    
     contemplated here.  If the project changes  and volumes                                                                    
     change, these numbers will change.                                                                                         
                                                                                                                                
     So, just walk through it  - pipefitters and welders, in                                                                    
     fact  I'll show  you a  video shortly  to show  how the                                                                    
     welding process has  changed on high-pressure pipelines                                                                    
     over the  years. Equipment  operators -  modest numbers                                                                    
     there as  well. A large  number of truck drivers  and I                                                                    
     have a  video on  that as well  showing you  how moving                                                                    
     the  pipe  to the  site  is  a very  significant  event                                                                    
     during   preconstruction.   Some    labor   numbers   -                                                                    
     supervisory  and  others  - and  other  is  really  the                                                                    
     catchall  for all  the other  components. Then  you see                                                                    
     totals  in  the 1300  to  1600  individuals hired  just                                                                    
     during that peak time of preconstruction.                                                                                  
                                                                                                                                
     Here are  the construction numbers -  during the actual                                                                    
     two-year construction  timeframe. This is a  peak labor                                                                    
     requirement. You'll see ranges  around this. Once again                                                                    
     you  see larger  numbers for  pipefitters and  welders,                                                                    
     equipment  operators and  truck  drivers  - very  large                                                                    
     numbers  at this  point, as  well  as laborers.  Higher                                                                    
     number,  of course,  for supervisory  and others,  once                                                                    
     again  a catchall,  gives you  numbers in  the 5500  to                                                                    
     7000.                                                                                                                      
                                                                                                                                
     Now  you will  see  that  preconstruction does  overlap                                                                    
     construction  because  this  will be  staged  down  the                                                                    
     right-of-way and,  in fact, I'll  show you here  on the                                                                    
     next slide, which  is a summary because  events will be                                                                    
     occurring simultaneously  in different  locations along                                                                    
     the right-of-way.                                                                                                          
                                                                                                                                
CO-CHAIR SAMUELS asked if Mr. Palmer is estimating 6,000 full-                                                                  
time jobs for three-years.                                                                                                      
                                                                                                                                
MR. PALMER  replied, "No.  What I'm describing  for you  here are                                                               
6,000 at the peak. Now over the  course of that two years, we may                                                               
be at lower numbers at some  point during the two years, but what                                                               
I'm giving  you are the peak  numbers and those jobs  will be for                                                               
most of  the period but  I can't assure  you they're going  to be                                                               
for the full two years." He then continued his presentation.                                                                    
                                                                                                                                
     The next slide [8] is  just a summation of the previous                                                                    
     two to show  you that in terms of  overall peak, you're                                                                    
     looking at numbers in the 1600  to 8600 range so in the                                                                    
     order of 8,000 full time  jobs during that two to three                                                                    
     year timeframe, they will not  necessarily be there for                                                                    
     the  full three  years but  they  will be  there for  a                                                                    
     significant  component of  that  -  a very  significant                                                                    
     project in  terms of establishing manpower,  putting it                                                                    
     in place in these categories.                                                                                              
                                                                                                                                
     This next slide  [9], and I hope it shows  up better in                                                                    
     your  handout  than  it  does   here,  the  next  slide                                                                    
     identifies  for you  contractors  A-B-C and  D so  four                                                                    
     different contractors,  four different spreads,  to use                                                                    
     pipeline  terminology,  would  be  working  winter  and                                                                    
     summer.  And if  I just  looked, starting  from Prudhoe                                                                    
     Bay, at  the orange, the orange  is winter construction                                                                    
     so contractor  A would have winter  construction in our                                                                    
     schedule   starting   from   Prudhoe  Bay   south   and                                                                    
     contractor A  would have  a second  winter construction                                                                    
     from about midway between Prudhoe  down to Atigun Pass.                                                                    
     They would  do the second  part of that. They'd  have a                                                                    
     summer construction south of the  Atigun Pass and so on                                                                    
     as you  work your way  down the right-of-way.  So there                                                                    
     will be simultaneous work  occurring across the project                                                                    
     by contractors A-B-C and D,  winter and summer. And the                                                                    
     same thing  will be occurring  on the Canadian  side so                                                                    
     that you'll have a massive  alignment of individuals on                                                                    
     this project both in Canada  and Alaska at the same two                                                                    
     to three year window.                                                                                                      
                                                                                                                                
[The following testimony accompanied a video MR. PALMER showed.]                                                                
                                                                                                                                
     I would  like to just spend  a moment for those  of you                                                                    
     that  may not  be familiar  with construction.  This is                                                                    
     what we mean by trenching.  This is how the majority of                                                                    
     the pipe trench will be  established. You dig it with a                                                                    
     trencher. When  you go through  the Atigun Pass  and up                                                                    
     through  the Brooks  Range you'll  clearly be  blasting                                                                    
     but a lot  of the digging of the actual  trench is done                                                                    
     with a  piece of equipment  like this. You can  do that                                                                    
     for  a 48-inch  diameter pipeline.  We do  that on  our                                                                    
     systems across  Canada. Just to give  you an indication                                                                    
     as to how  quickly this moves down  the right-of-way is                                                                    
     a very efficient piece of  equipment that allows you to                                                                    
     dig the trench and dispose of your waste material.                                                                         
                                                                                                                                
     One more item I thought I'd  show you - the old version                                                                    
     of moving pipe and this, as  you can see, is some 80 to                                                                    
     90  years  ago.  Here's  why you  need  so  many  truck                                                                    
     drivers.  You can  see this  truck is  transporting big                                                                    
     inch pipe  along a right-of-way.  You can see  a number                                                                    
     of significant  volumes of  pipe already  aligned along                                                                    
     the    right-of-way.   That's    what    I   mean    by                                                                    
     preconstruction. This  will be an assembly.  That's why                                                                    
     you can complete construction on  a project in a couple                                                                    
     of years because you've got things ready to go.                                                                            
                                                                                                                                
     One  more video  - here's  the old  version of  welding                                                                    
     pipe. Once again, from 50 or  75 years ago, if you look                                                                    
     at  this  old truck  on  this  side,  you can  see  how                                                                    
     ancient this  video is  but this  is the  way a  lot of                                                                    
     people think welding  is done on a  pipeline. That's no                                                                    
     longer the case I can  assure you. And you'll hopefully                                                                    
     see  in this  video  here the  new mechanized  welding.                                                                    
     These are trained welders  that operate this electronic                                                                    
     equipment  but  we've  done  significant  technological                                                                    
     advances working  with trade  unions, as well  as steel                                                                    
     manufacturers as to  how this can be done.  And now you                                                                    
     can see  - this case  happens to have a  single welding                                                                    
     torch  head. We're  now doing  it with  tandem multiple                                                                    
     heads on  the welding  torch. It  makes the  project go                                                                    
     faster and it's safer and you get a better weld.                                                                           
                                                                                                                                
SENATOR   BUNDE  asked   if  during   the  construction   of  the                                                               
TransAlaska  Pipeline,   virtually  no  Alaskans   were  pipeline                                                               
welders. He said his impression  is that the pipefitters union is                                                               
very  tight and  headquartered  in the  Lower  48. He  questioned                                                               
whether that is still the case.                                                                                                 
                                                                                                                                
MR. PALMER said he did not  have an answer about the availability                                                               
today but  said that TransCanada  would clearly prefer  to retain                                                               
local residents.  That would be  more efficient for  the project.                                                               
TransCanada  believes that  by identifying  the labor  needs now,                                                               
Alaskans can begin to position themselves for those jobs.                                                                       
                                                                                                                                
SENATOR  BUNDE  commented  that  it  is  not  only  a  matter  of                                                               
training, it would  require the worker to get a  [union] card, so                                                               
that matter needs to be investigated further.                                                                                   
                                                                                                                                
MR. PALMER agreed.                                                                                                              
                                                                                                                                
CO-CHAIR   SAMUELS  asked   if,   regarding   the  design   work,                                                               
TransCanada  would be  doing  that work  in-house  or whether  it                                                               
might hire Alaskan firms.                                                                                                       
                                                                                                                                
MR.  PALMER  explained  that TransCanada  generally  would  do  a                                                               
project of  this scale with  a combination of  in-house engineers                                                               
and  outsourced  engineers,  Alaskan  and  Canadian.  TransCanada                                                               
worked  with VECO  and  Canadian engineering  firms  on its  last                                                               
project. He continued his presentation.                                                                                         
                                                                                                                                
     Just  to   summarize  -  peak  labor   requirements  of                                                                    
     approximately  8,000. These  are direct  labor jobs  on                                                                    
     the pipeline. They do not  include other labor provided                                                                    
     by Alaskan  businesses. No multiplier effects  here. So                                                                    
     they  are not  positions  that  engineering firms  will                                                                    
     have  retained. They're  not support  services. They're                                                                    
     not   materials.   The   labor  force   estimates   are                                                                    
     preliminary until final design.  I've described that to                                                                    
     you. We would argue  that training should commence once                                                                    
     commercial agreements are in  hand. The project phases,                                                                    
     as I  described, one year for  pre-construction and two                                                                    
     years for pipe and  station construction and they cross                                                                    
     over; they're concurrent.                                                                                                  
                                                                                                                                
     That's all I had. Thank you.                                                                                               
                                                                                                                                
SENATOR  ELTON   asked  Mr.  Palmer   if  he  sees   training  as                                                               
TransCanada's role or a role for other entities.                                                                                
                                                                                                                                
MR.  PALMER said  he  generally sees  that as  a  role for  other                                                               
entities,  such  as  community colleges,  industry,  and  unions.                                                               
However, TransCanada  has been involved  in training  programs in                                                               
an  advisory  position  in  the past  and  understands  how  that                                                               
training should occur.                                                                                                          
                                                                                                                                
SENATOR ELTON  asked if TransCanada  has helped to  fund training                                                               
programs in the past.                                                                                                           
                                                                                                                                
MR. PALMER said  it has on occasion. He noted  that federal money                                                               
will be forthcoming to assist Alaska in job training.                                                                           
                                                                                                                                
CO-CHAIR SAMUELS  thanked Mr. Palmer and  asked Commissioner Greg                                                               
O'Claray to address the committee.                                                                                              
                                                                                                                                
COMMISSIONER  GREG  O'CLARAY,  Alaska  Department  of  Labor  and                                                               
Workforce  Development (DOLWD),  gave the  following presentation                                                               
entitled, Training and Hiring Alaskans for a Gas Pipeline.                                                                    
                                                                                                                                
     Yesterday   Governor  Murkowski   addressed  you   with                                                                    
     respect to the  equity involvement of our  state in the                                                                    
     construction of  this particular  project, or  at least                                                                    
     the ownership  of the project. My  role as commissioner                                                                    
     of the  Department of  Labor and  Workforce Development                                                                    
     is   quite  simple.   My  charge   is  to   provide  an                                                                    
     opportunity for  every citizen of  our state  that's an                                                                    
     Alaska  resident to  be employed  in  good paying  jobs                                                                    
     within  the  industries  that   are  fostered  by  this                                                                    
     particular project.                                                                                                        
                                                                                                                                
     The  federal legislation  that  Senator Lisa  Murkowski                                                                    
     brought  back  to us  here  the  other night  when  she                                                                    
     stepped off of the Northwest  flight at the Ted Stevens                                                                    
     International  Airport has  a  proviso in  it that  you                                                                    
     should  be  aware  of.  Many   of  you  have  seen  the                                                                    
     legislation. I  won't quote from  it but I'll  give you                                                                    
     in general  what it says.  It provides for  $20 million                                                                    
     in  tax  dollars  to be  funneled  through  the  Alaska                                                                    
     Workforce  Investment Board,  which  is the  Governor's                                                                    
     workforce   investment   board  under   the   Workforce                                                                    
     Investment  Act.  That  is supported  by  and  actually                                                                    
     directed and  operated through the Department  of Labor                                                                    
     and Workforce Development.  Out  of the $20 million, 15                                                                    
     percent  of that  will be  dedicated toward  a training                                                                    
     facility to  be located in Fairbanks,  specifically for                                                                    
     training pipeliners.                                                                                                       
                                                                                                                                
     Before I get too far in  my remarks, I want to tell you                                                                    
     that I'm  about to  execute signature  on a  grant that                                                                    
     will provide  for training of 100  pipeliners that will                                                                    
     be working  on the  North Slope beginning  this winter.                                                                    
     It's  a  joint  agreement   between  the  Alaska  Works                                                                    
     Partnership  -   the  pipe   trades  unions   from  the                                                                    
     Fairbanks area.  All of those  folks, by the  way, will                                                                    
     be  testifying  after  I've completed  my  remarks  and                                                                    
     various contractors that are going  to be doing work on                                                                    
     the Slope.  Tara Jollie, if  I might Mr.  Chairman, I'd                                                                    
     like to introduce Tara Jollie  who is our administrator                                                                    
     for the  STEP program  - State Training  and Employment                                                                    
     Program....  You don't  mind a  little theater,  do you                                                                    
     Mr. Chairman?                                                                                                              
                                                                                                                                
     I  hereby sign  this  document that  will allocate  the                                                                    
     state's share  of a match  - total grant in  the amount                                                                    
     of $344,063  of STEP funds that  you authorized through                                                                    
     your  good efforts  as  legislators.  The industry  has                                                                    
     come forward.  Mike Andrews, are  you here?  Mike, what                                                                    
     was the amount of match from the industry?                                                                                 
                                                                                                                                
MR. ANDREWS replied $175,000.                                                                                                   
                                                                                                                                
COMMISSIONER O'CLARAY continued.                                                                                                
                                                                                                                                
     So the  industry is  participating with  us on  a joint                                                                    
     basis and  we will  be training  the 21st  Century next                                                                    
     generation  of pipeliners  and I  want to  congratulate                                                                    
     the Alaska Works Partnership,  the contractors, and the                                                                    
     oil  industry-producing  owners  that  participated  in                                                                    
     this particular effort. Thank you.                                                                                         
                                                                                                                                
SENATOR BUNDE asked for a definition of "pipeliner."                                                                            
                                                                                                                                
COMMISSIONER O'CLARAY introduced Mr.  Laiti, the business manager                                                               
of  the pipe  trades  in  Fairbanks, and  told  members  he is  a                                                               
pipeliner.  He said  the description  of a  pipeliner during  the                                                               
construction of  TAPS was anyone  who could get  dispatched, walk                                                               
on two feet,  and chew gum at  the same time. He  pointed out the                                                               
actual job  description could fit  a number of trades  and crafts                                                               
involved in the construction of a pipeline.                                                                                     
                                                                                                                                
SENATOR BUNDE repeated  his concern that Alaskans  can be trained                                                               
for these  jobs but,  as happened  with TAPS,  they might  not be                                                               
able to get  dispatched as pipeline welders. He asked  if that is                                                               
still the case and, if so, what can be done about it.                                                                           
                                                                                                                                
COMMISSIONER  O'CLARAY   said  during  the  TAPS   project,  that                                                               
particular  project labor  agreement  involved the  International                                                               
Presidents  of the  Building [and  Construction]  Trades and  was                                                               
negotiated at  a higher level  than in-state. It did  not involve                                                               
any local  union business  agents. The  signatory party  from the                                                               
Plumbers and  Pipefitters International, Marty Ward,  signed that                                                               
agreement.  Under the  agreement, the  only skilled  pipe welders                                                               
came from Local  798 in Tulsa, Oklahoma. He said  although he may                                                               
ruffle some  feathers, if his  efforts combined with  the efforts                                                               
of partners  who are  working to  train Alaskans  are successful,                                                               
there will be no  need for Local 798 to come  to Alaska. He added                                                               
that  in the  language being  negotiated under  the Stranded  Gas                                                               
Act, the Department  of Labor has a seat at  the bargaining table                                                               
at Governor Murkowski's  request. He said he  cannot disclose the                                                               
exact language  being negotiated, it  will be brought  before the                                                               
legislature for  consideration. That  language will  be stronger,                                                               
more precise, and will make sure  DOLWD is involved every step of                                                               
the way with respect to  training and pipeline employment. He and                                                               
the  Governor   believe  that  a   project  labor   agreement  is                                                               
applicable to this project, just as  it was with TAPS. His charge                                                               
is  to ensure  strong  enough language  that  Alaskans will  come                                                               
first in every case.                                                                                                            
                                                                                                                                
SENATOR BUNDE said he is glad to hear that.                                                                                     
                                                                                                                                
REPRESENTATIVE CHENAULT  asked whether  the labor  agreement will                                                               
be part of  the proposal brought to the  legislature for approval                                                               
or something done at a later date.                                                                                              
                                                                                                                                
COMMISSIONER O'CLARAY said  it is his desire that  it be included                                                               
in the agreement. He furthered:                                                                                                 
                                                                                                                                
     The  appropriateness  of   putting  the  project  labor                                                                    
     agreement  requirement in  the Stranded  Gas Agreement,                                                                    
     or  the agreement  negotiated  under  the Stranded  Gas                                                                    
     Act, is debatable. When the  contract could or would be                                                                    
     signed, in  my view,  should be negotiated  between the                                                                    
     parties  - that  is the  contractors slash  owners that                                                                    
     will  be involved  and organized  labor. Again,  let me                                                                    
     restate.  I believe  the only  way to  guarantee Alaska                                                                    
     hire that's supportable  in the courts -  let me repeat                                                                    
     that -  that's supportable in the  courts by precedent,                                                                    
     is  to  have a  project  labor  agreement in  place.  I                                                                    
     believe that those discussions should  begin as soon as                                                                    
     possible,  as soon  as an  interested party  that comes                                                                    
     forth  with a  viable  proposal to  build  the line  is                                                                    
        identified, I think those discussions should be                                                                         
     undertaken.                                                                                                                
                                                                                                                                
REPRESENTATIVE  GARA  asked   Commissioner  O'Claray  what  other                                                               
options DOLWD is pursuing to make  sure that the court rules that                                                               
prohibit a  certain level of  Alaska hire  don't get in  the way.                                                               
He  asked if  there might  be  an advantage  to involving  Native                                                               
corporations that may have a right to hire local residents.                                                                     
                                                                                                                                
COMMISSIONER  O'CLARAY said  some things  can be  done to  ensure                                                               
that rural residents participate in  building the line. He said a                                                               
specific  section of  the TAPS  agreement required  Alaska Native                                                               
hire.                                                                                                                           
                                                                                                                                
TAPE 04-34, SIDE A                                                                                                            
                                                                                                                                
COMMISSIONER O'CLARAY  said the  state has  gained from  its TAPS                                                               
experience and he believes there should  and will be an effort on                                                               
the Administration's  part to make  certain that  rural residents                                                               
have a  preference. He added that  of the 100 people  who will be                                                               
trained as pipeliners beginning in  November, over 40 percent are                                                               
rural  residents.  The  Alaska   Works  Partnership  has  done  a                                                               
marvelous job of recruiting  people interested in apprenticeships                                                               
in  the building  trades from  Bush Alaska.  Recruitment entailed                                                               
traveling  to  villages  and  reaching  agreements  with  several                                                               
tribal governments.  He recognized  the efforts of  Mike Andrews,                                                               
who was the  original executive director of  ERIC, which preceded                                                               
the Alaska  Workforce Investment Board. Mr.  Andrews put together                                                               
an aggressive group  of recruiters. He then said  he believes any                                                               
agreement  should   contain  a  provision  that   identifies  the                                                               
demographics  of  Alaska  so  that   rural  residents  will  have                                                               
priority  for training  and employment.  He suggested  asking Mr.                                                               
Palmer  how TransCanada  handled its  project labor  agreement in                                                               
Canada.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  GARA  asked  Commissioner O'Claray  if  he  could                                                               
share the legal  memo with the legislators so that  they can feel                                                               
assured that  everything possible  is being  done to  hire Alaska                                                               
labor.                                                                                                                          
                                                                                                                                
COMMISSIONER  O'CLARAY said  he could  share the  legal memoranda                                                               
and the court rulings but he  was unable to share draft documents                                                               
associated  with the  Stranded Gas  Act negotiations.  He pointed                                                               
out  that several  legal  precedents deal  with  the legality  of                                                               
project labor agreements.                                                                                                       
                                                                                                                                
REPRESENTATIVE JOULE  said, regarding the 100  pipeliner jobs, it                                                               
sounds like  a lot has  already been  done in terms  of selection                                                               
and advertising.                                                                                                                
                                                                                                                                
COMMISSIONER O'CLARAY said  a lot remains to be done.  He said no                                                               
one should be deluded into thinking  that the state can train and                                                               
staff all of the jobs with Alaskans. He explained:                                                                              
                                                                                                                                
     And  let  me tell  you  why.  We  can't afford  to  ...                                                                    
     because at  the peak numbers  that were shown,  what do                                                                    
     we do  with those  folks when  the pipeline  project is                                                                    
     over  with? Certainly  some of  them  will have  skills                                                                    
     that will  transfer to maintenance and  operations, but                                                                    
     perhaps the  producers that own the  Alyeska line would                                                                    
     be  willing  to  replace  some  of  their  non-resident                                                                    
     workers with  those folks. I  would hope that  would be                                                                    
     the case  but no  one, at  least in  my department  - I                                                                    
     don't believe  anyone in organized  labor or  the state                                                                    
     really believes that  we'll be able to  train that many                                                                    
     skilled people and provide  them with sustainable work,                                                                    
     but we will try.                                                                                                           
                                                                                                                                
REPRESENTATIVE JOULE  asked how  an interested person  would "get                                                               
their foot in  the door" for the training program  that begins in                                                               
November.                                                                                                                       
                                                                                                                                
COMMISSIONER O'CLARAY  said one  way is to  visit or  get on-line                                                               
with  one of  the Alaska  job centers,  administered by  DOLWD. A                                                               
person could  also contact one  of the  pipe trade groups  or the                                                               
Alaska  Works Partnership  Outreach Program.  He emphasized  that                                                               
the  Stranded   Gas  Act  proposal  will   also  include  another                                                               
provision  dealing with  Alaska vendors  and Alaskans  in general                                                               
because the  economic benefit of  this project is not  limited to                                                               
the construction  jobs. It also  includes use of  local companies                                                               
and  vendors who  will provide  services and  materials. He  said                                                               
Alaska has  sold itself short over  the long haul by  not putting                                                               
teeth in  its procurement  law so that  public entities  must pay                                                               
attention to the local economy when  contracting - that is part 2                                                               
of Alaska hire.                                                                                                                 
                                                                                                                                
REPRESENTATIVE JOULE  noted that Commissioner O'Claray  said that                                                               
40 percent of the 100 recruits were from Bush Alaska.                                                                           
                                                                                                                                
MR.  MIKE ANDREWS,  Director of  Alaska  Works Partnership,  told                                                               
members  that   under  the  training   proposal  signed   by  the                                                               
Commissioner today, an  estimated 100 people will  be involved in                                                               
a  two-week  pipeline  training program  in  Fairbanks  to  start                                                               
around November 8.  About 60 of those workers will  come from the                                                               
Fairbanks North Star Borough and  40 will come from the Northwest                                                               
Arctic and the North Slope.  The training provides an opportunity                                                               
to  work  as   a  team  among  the  four   pipeline  crafts:  the                                                               
pipefitters, the  operating engineers,  the skilled  laborers and                                                               
the  teamsters. They  construct as  a team,  so the  program will                                                               
individually  train journey  persons who  need upgrade  skills on                                                               
new equipment.  No training  has taken place  for five  years and                                                               
equipment has  changed. Additionally, the other  trainees will be                                                               
apprentices who  will be  learning pipeline  trades. He  said the                                                               
Alaska  Works Partnership  has budgeted  to recruit  at least  40                                                               
persons from  the Northwest  area who  will be  recruited through                                                               
the apprenticeship programs.  The work will start  in January and                                                               
is tied to  a ConocoPhillips project at West Sac.  The idea is to                                                               
demonstrate  the skills  as  a  team during  the  second week  of                                                               
training in Fairbanks, where participants  will construct a 2,000                                                               
foot  8  inch  pipe.  He  added  that  it  will  primarily  be  a                                                               
demonstration of the team's skills  for H.C. Price and Norcon and                                                               
will act as a model or a test.                                                                                                  
                                                                                                                                
REPRESENTATIVE  JOULE asked  Mr.  Andrews if  he feels  confident                                                               
that the  Alaska Works Partnership  will not repeat  the mistakes                                                               
made during the construction of TAPS.                                                                                           
                                                                                                                                
MR.  ANDREWS said  Alaska Works  Partnership  was formed  several                                                               
years ago by the building  trades unions and their apprenticeship                                                               
programs to reach  out to rural Alaska to  provide open programs,                                                               
union or non-union,  to get people into  the construction trades.                                                               
It takes several years to train  each worker. Its funding came at                                                               
the request  of Senator Ted  Stevens through the  U.S. Department                                                               
of Labor. The Alaska Works  Partnership has been piloting for the                                                               
department  the creation  of a  system  that reaches  out to  the                                                               
village levels. The  Partnership has served 60  villages in rural                                                               
Alaska and  has brought  on average 60  new apprentices  into the                                                               
trades  each year.  In addition,  it has  recruited 150  building                                                               
maintenance repair  apprentices to build houses  in rural Alaska.                                                               
This system will have a statewide  impact. It was put together to                                                               
show  how  quickly  labor  and   employers  can  respond  to  the                                                               
opportunity of new jobs on the North Slope.                                                                                     
                                                                                                                                
SENATOR  ELTON noted,  in response  to Representative  Chenault's                                                               
question, that  Commissioner O'Claray said a  labor agreement may                                                               
not be ready when the package  comes to the legislature. He asked                                                               
Commissioner O'Claray  if he  would consider  putting contingency                                                               
language  in the  agreement saying  the agreement  was contingent                                                               
upon signing a project labor agreement.                                                                                         
                                                                                                                                
COMMISSIONER O'CLARAY  said he  is not  empowered to  discuss the                                                               
provisions  being debated  but urged  members to  articulate that                                                               
concern to the Governor and  negotiators of the Stranded Gas Act.                                                               
Those  negotiators are  the commissioners  of  the Department  of                                                               
Revenue, Natural Resources, and the attorney general.                                                                           
                                                                                                                                
REPRESENTATIVE  McGUIRE  asked  what   is  being  done  regarding                                                               
training in  the Southcentral region  of Alaska. She  pointed out                                                               
that a  lot of people have  moved to Anchorage from  rural Alaska                                                               
who are looking for a trade.                                                                                                    
                                                                                                                                
MR. ANDREWS  said the Alaska Works  Partnership's grant resources                                                               
have  been  for the  primary  purpose  of recruiting  from  rural                                                               
areas. He  acknowledged that he  is working with DOLWD  right now                                                               
to provide ways  for people to get access  to individual training                                                               
at  job  service  centers.  The   Alaska  Works  Partnership  and                                                               
Associated  General Contractors  have also  spent a  lot of  time                                                               
working with  high schools in  Anchorage, Fairbanks and  Delta to                                                               
create a  construction trades program  that would  allow students                                                               
direct entry  into the  trades from high  school. They  have also                                                               
been  working with  rural school  districts in  an effort  to get                                                               
more applied  learning in  those areas.  He said  the Partnership                                                               
would like  to do  more in  the urban areas  but is  working with                                                               
limited resources.                                                                                                              
                                                                                                                                
REPRESENTATIVE   McGUIRE   asked    Mr.   Andrews   to   approach                                                               
Southcentral  area  lawmakers  about  this  subject  because  the                                                               
perception that Anchorage has a lot  of jobs for people simply is                                                               
not true. Many young people want  to stay or return home but need                                                               
a good paying job to do that.                                                                                                   
                                                                                                                                
MR. ANDREWS  informed members that  the Alaska  Works Partnership                                                               
recently entered  into a memorandum  of agreement to do  work for                                                               
the Cook Inlet  Regional Housing Association so it  has created a                                                               
pathway there.                                                                                                                  
                                                                                                                                
SENATOR ELTON asked about rural communities in Southeast Alaska.                                                                
                                                                                                                                
MR. ANDREWS said  the Alaska Works Partnership has  had an office                                                               
in Juneau for  over a year and has been  active with Klukwan, the                                                               
Tlingit and  Haida Housing Authority,  and the  vocational center                                                               
in Juneau, but  he admitted the training has been  focused on the                                                               
needs of employers  and projects so employers must  be willing to                                                               
commit the trainees.                                                                                                            
                                                                                                                                
CO-CHAIR SAMUELS noted the arrival of Senator Cowdery.                                                                          
                                                                                                                                
COMMISSIONER O'CLARAY  introduced Andy Baker from  Baker Aviation                                                               
in  Kotzebue and  asked that  he address  the committee  on local                                                               
hire in  Kotzebue. He  told members that  Mr. Baker  was recently                                                               
elected  as  chair  of  the  Alaska  Workforce  Investment  Board                                                               
(AWIB). Under the federal legislation,  the $20 million minus the                                                               
15 percent for construction of  the Fairbanks facility will go to                                                               
the AWIB. He  also introduced Ramona McAleese,  the new executive                                                               
director of the Alaska Workforce Investment Board.                                                                              
                                                                                                                                
MR. ANDY BAKER,  Chairman of AWIB, said that  fitting training to                                                               
available  jobs is  an  exciting approach.  He  looks forward  to                                                               
working on the government side putting Alaskans to work.                                                                        
                                                                                                                                
MS. RAMONA  McALEESE, Executive Director of  AWIB, explained that                                                               
AWIB is basically  the old Job Training  Partnership Act program.                                                               
AWIB is  responsible for allocating all  Workforce Investment Act                                                               
funding that comes to the  state. Last year, those funds amounted                                                               
to $18  million. AWIB is  also responsible for the  STEP program.                                                               
AWIB  has commitments  and measurements  to allocate  funding for                                                               
rural areas;  right now 60  percent is allocated to  rural areas.                                                               
She  said the  AWIB is  committed to  the Governor's  Alaska hire                                                               
initiative.                                                                                                                     
                                                                                                                                
SENATOR BUNDE  asked if half of  the $20 million will  be used to                                                               
build a training facility in Fairbanks.                                                                                         
                                                                                                                                
COMMISSIONER  O'CLARAY  clarified  that  15 percent  of  the  $20                                                               
million, or $3 million, will be used for the facility.                                                                          
                                                                                                                                
MR. JIM  SAMPSON, Alaska President, AFL-CIO,  thanked members for                                                               
the opportunity  to address the  committee and noted this  is the                                                               
first time  the AFL-CIO has  received an invitation to  address a                                                               
legislative   committee.   He   said  he   was   accompanied   by                                                               
representatives of four  Alaska unions, all of who  have at least                                                               
30  years  in  pipeline   construction  representing  workers  in                                                               
Alaska.  These four  unions have  built about  98 percent  of all                                                               
pipelines in Alaska. He gave the following presentation.                                                                        
                                                                                                                                
     While  any Alaska  natural gas  line project  will have                                                                    
     major  associated building  trade work,  such as  a gas                                                                    
     conditioning plant  on the Slope,  compressor stations,                                                                    
     or LNG facilities in the  case of an LNG project, these                                                                    
     representatives  also  have  a  good  understanding  of                                                                    
     training requirements  for these  types of  projects as                                                                    
     well.                                                                                                                      
                                                                                                                                
     If I may,  if I could just introduce  for the committee                                                                    
     those  who are  here  -  Jim Laiti  is  here.  He is  a                                                                    
     business manager of the  Plumbers and Pipefitters Local                                                                    
     375 in Fairbanks. Along with  him is John Kanabe, their                                                                    
     training director. We  have district representative Bob                                                                    
     Mahaney  of  the  Operating Engineers  Local  302,  and                                                                    
     Click  Bishop, who  is the  training  director for  the                                                                    
     state,  is with  us as  well.... We  have two  business                                                                    
     managers with the  responsibility of providing laborers                                                                    
     on pipeline work in the  state. One business manager is                                                                    
     out of  Fairbanks. His jurisdiction  is all  work north                                                                    
     of the 63rd  parallel. We have one here  today with the                                                                    
     responsibility  for Anchorage  and Valdez.  He's really                                                                    
     our LNG guy.  [They are] Tim Sharp  and Mike Gallagher,                                                                    
     originally from  Valdez and they're  here as  well. Joe                                                                    
     Mahaney  isn't  here.  It's  probably  a  communication                                                                    
     goof-up on my part and I  apologize for him but we will                                                                    
     hopefully do  the best we  can to answer  any questions                                                                    
     regarding  trucking. If  we really  need  some help  we                                                                    
     have  Barbara Huff  here in  the audience  and she's  a                                                                    
     trucker with the Teamsters.                                                                                                
                                                                                                                                
     What  I  hope to  do  is  just  give  you a  couple  of                                                                    
     thoughts on how we view  the project and then ask these                                                                    
     folks to  give you four  or five minutes apiece  and be                                                                    
     prepared to answer any questions.                                                                                          
                                                                                                                                
     The building of an Alaska  gas line project will be the                                                                    
     largest construction  project in  the history  of North                                                                    
     America.   It   will   require   thousands   of   field                                                                    
     construction workers  not only  for the  Alaska portion                                                                    
     of the  project, but an  even larger workforce  for the                                                                    
     Canadian  piece to  the hub  in Alberta  and on  to the                                                                    
     Midwest. The  project cannot be  built on  the American                                                                    
     or  Canadian side  of the  border without  an agreement                                                                    
     with  labor.   In response  to the  Alaska natural  gas                                                                    
     line  project agreement  Sense of  the Senate  language                                                                    
     recently  included  in  federal legislation,  labor  is                                                                    
     prepared  to negotiate  a  project  agreement with  the                                                                    
     sponsors  of  the  project similar  to  the  terms  and                                                                    
     conditions  of the  agreement used  in the  building of                                                                    
     the  TransAlaska Pipeline.  This means  any discussions                                                                    
     with  labor  will  include the  National  Building  and                                                                    
     Construction  Trades  Department  of  the  AFL-CIO  and                                                                    
     international  union representatives,  which I  believe                                                                    
     will be in  Alaska's best interest and  the interest of                                                                    
     gas  line  sponsors,   as  these  international  unions                                                                    
     represent both workers in Canada  and Alaska across the                                                                    
     border.                                                                                                                    
                                                                                                                                
     We anticipate  the pipe  for the  project will  move on                                                                    
     American ships manned by  maritime crews represented by                                                                    
     the  AFL-CIO.  We  anticipate AFL-CIO  longshoremen  in                                                                    
     Alaska  will unload  the ships  and, once  unloaded, we                                                                    
     believe the pipe will be  moved by the Alaska Railroad,                                                                    
     represented  by railroad  unions of  the AFL-CIO  or by                                                                    
     trucks driven  by Teamsters.  We anticipate  the Alaska                                                                    
     Laborers  to coat  the pipe,  members of  the Operating                                                                    
     Engineers to do the trenching  and the dirt work and UA                                                                    
     welders to weld the pipe.  We also anticipate the other                                                                    
     Alaska building  trades to be involved  in construction                                                                    
     of compressor  stations and the gas  conditioning plant                                                                    
     on the North Slope.                                                                                                        
                                                                                                                                
     We  believe it's  extremely  important  to Alaska  that                                                                    
     efforts  be  made  early  on   to  prepare  the  Alaska                                                                    
     workforce for the  project, and those of  us here today                                                                    
     from  labor thank  the committee  for your  interest in                                                                    
     this area.  All of  us, the  state, labor  and pipeline                                                                    
     sponsors  need to  look  at the  past  and improve  our                                                                    
     efforts  to  give  qualified  Alaskans,  regardless  of                                                                    
     where they live,  whether it be urban  or rural Alaska,                                                                    
     an  opportunity  to work  on  the  project before  non-                                                                    
     Alaskans.                                                                                                                  
                                                                                                                                
     Our  efforts  to  prepare  for   the  project  will  be                                                                    
     determined by the amount of  work in the market between                                                                    
     now and the start of  any natural gas pipeline project.                                                                    
     As  legislators  what  you   do  today  will  determine                                                                    
     whether Alaskans work on the  project or not. Under the                                                                    
     Stranded  Gas   Act,  you  approve  any   contract  the                                                                    
     administration  negotiates with  gas line  sponsors and                                                                    
     we believe our legislators  must do everything they can                                                                    
     to assure  that whatever  they can do  be done  to give                                                                    
     Alaskans    and,   just    as   importantly,    Alaskan                                                                    
     contractors, the opportunity to work on the project.                                                                       
                                                                                                                                
     Yesterday  you  spent  considerable time  on  risk  and                                                                    
     reward.  Labor  costs  are  a   big  component  of  any                                                                    
     pipeline  project, especially  one  of  this size.  The                                                                    
     state and sponsors need to  understand the labor costs.                                                                    
     They  need to  know that  they will  be able  to secure                                                                    
     qualified  workers.  They  need   to  ensure  that  the                                                                    
     project is  built without any interruption  of work and                                                                    
     we  need  to  have appropriate  labor  protections  for                                                                    
     Alaska workers. We can do  this by working together now                                                                    
     to  ensure that  these  protections are  put in  place.                                                                    
     Labor  is  prepared to  work  with  the state  and  the                                                                    
     sponsors to do this.                                                                                                       
                                                                                                                                
     We  have been  working closely  with our  congressional                                                                    
     delegation  over the  last couple  years to  ensure the                                                                    
     availability of  federal funding for  training Alaskans                                                                    
     for  our project.  We  encouraged  Senator Stevens  and                                                                    
     Senator  Murkowski to  include  training  funds in  the                                                                    
     federal  legislation.  In   the  military  construction                                                                    
     appropriations  report  passed  earlier this  week,  as                                                                    
     other speakers  have said, there's $20  million and I'm                                                                    
     sure  there's  a lot  of  people  looking at  that  $20                                                                    
     million.  Labor  also  requested   funds.  It  was  our                                                                    
     request for $3 million up  to 15 percent, to expand our                                                                    
     training  facilities  in  Fairbanks.  We  believe  that                                                                    
     Fairbanks,  the  Interior,  will   be  central  to  any                                                                    
     project, whether it's an all  Alaska project or whether                                                                    
     it's an LNG project. Our  request that those funds will                                                                    
     be  included  in federal  legislation  was  to help  us                                                                    
     expand   and  augment   and  supplement   our  existing                                                                    
     training program  that we have  in Alaska. Our  hope is                                                                    
     that that  facility will be  built primarily -  it will                                                                    
     be built to be used  by pipeline unions and contractors                                                                    
     and it  will have a  residential addition on  there for                                                                    
     the purpose  of bringing  in workers from  rural Alaska                                                                    
     to house them  so we can train rural  Alaska workers in                                                                    
     some of the more complicated  aspects of training - the                                                                    
     training that we can't deliver out to rural Alaska.                                                                        
                                                                                                                                
     The  skilled  construction  workforce that  Alaska  has                                                                    
     today is  directly tied to  the commitment  of Alaska's                                                                    
     construction  industry led  by  the Associated  General                                                                    
     Contractors,  the  National Electric  Contractors,  the                                                                    
     Mechanical  Contractors,  the   trucking  industry  and                                                                    
     others.   Labor  in   the  industry   has  29   jointly                                                                    
     administered  apprenticeship  programs  that  exist  in                                                                    
     Alaska  at this  time  and these  programs account  for                                                                    
     about   85   percent   of   all   actively   registered                                                                    
     apprentices in  the state and  about 95 percent  of all                                                                    
     construction  apprentices in  the  state.   We have  15                                                                    
     jointly managed training facilities  in the state, with                                                                    
     a  combined  value  of  $25 to  $30  million.  We  have                                                                    
     training  instructors  and   training  facilities  that                                                                    
     employ 90  people full-time  and 60  part-time contract                                                                    
     instructors.  All of  these  facilities,  for the  most                                                                    
     part,  are funded  by  private  contributions from  our                                                                    
     contractors.                                                                                                               
                                                                                                                                
     Last  year we  brought  in about  350 new  construction                                                                    
     apprentices.  Teamsters 959,  even  though they're  not                                                                    
     here  today,  is  prepared to  offer  opportunities  in                                                                    
     training to Alaskans in preparation  of a gas pipeline,                                                                    
     as  well as  the three  pipeline unions  that are  here                                                                    
     today. Recently Teamsters 959  director of training for                                                                    
     Alaska, Mark Johnson, was appointed  to be the director                                                                    
     of training for the Teamsters  nationwide. His 40 or 50                                                                    
     years  in Alaska  and his  commitment to  the state,  I                                                                    
     think,  is   going  to  be  beneficial   for  [indisc.]                                                                    
     sponsors and  Alaskans in the training  of Teamsters on                                                                    
     that project.                                                                                                              
                                                                                                                                
     There was a discussion of  the Stranded Gas Act and the                                                                    
     AFL-CIO's  position   on  that.  I  will   provide  the                                                                    
     committee with  a copy of  a letter I sent  to Governor                                                                    
     Murkowski  on March  4th, which  contains  some of  our                                                                    
     recommendations    for   contract    negotiations   for                                                                    
     [indisc.]  sponsors,  including   the  inclusion  of  a                                                                    
     project labor  agreement. So with that,  that concludes                                                                    
     my remarks.                                                                                                                
                                                                                                                                
CO-CHAIR  SAMUELS asked,  when it  comes to  international rules,                                                               
whether  Alaskans will  be  able  to work  in  Canada or  whether                                                               
Canada must address its own citizens first.                                                                                     
                                                                                                                                
MR. SAMPSON  said he is not  an expert on immigration  but he has                                                               
found,  in his  experience, that  it is  easier for  Canadians to                                                               
work  in  Alaska  than  vice   versa.  He  noted  interest  among                                                               
[indisc.]  sponsors   about  worker  movement  between   the  two                                                               
countries. A  lot depends  on how the  Canadians would  build the                                                               
line and where the spreads would  begin and end. He said from the                                                               
view of labor, the project  will take thousands of skilled people                                                               
so  if all  pipeline spreads  fire up  at one  time, manning  the                                                               
spreads will  be very problematic.  He said  a lot of  piping has                                                               
already  been done  in Canada  but a  lot of  work remains  to be                                                               
done. In  one case, extra help  was needed on a  British Columbia                                                               
project  so   workers  were  imported  from   the  Northwest.  He                                                               
explained that  Mano Frey  is the regional  vice president  of an                                                               
international  pipeline union.  He  is responsible  for seven  or                                                               
eight  western  states and  four  or  five provinces  in  Canada,                                                               
including Alberta, British Columbia  and the Yukon. He represents                                                               
pipeline laborers  in those  areas. He  felt if  Canadians needed                                                               
help, Alaskans would be willing to go whenever called.                                                                          
                                                                                                                                
CO-CHAIR  SAMUELS asked  Mr. Sampson  to comment  on Commissioner                                                               
O'Claray's statement  that during  the construction of  TAPS, all                                                               
of  the  welders came  from  outside  of  Alaska because  of  the                                                               
agreement.                                                                                                                      
                                                                                                                                
MR.  SAMPSON  deferred  to the  representative  of  the  welders'                                                               
association  for an  answer  but  stated that  all  of the  union                                                               
representatives present were involved in  TAPS and there are many                                                               
opinions on how that project worked out.                                                                                        
                                                                                                                                
SENATOR  BUNDE expressed  concern that  the international  unions                                                               
were not  friendly to Alaskans  during the construction  of TAPS.                                                               
He cautioned  Mr. Sampson not  to follow the same  procedure used                                                               
then.                                                                                                                           
                                                                                                                                
MR. SAMPSON said he is very  familiar with the TAPS agreement and                                                               
what support  Alaskans got. He  believes that Alaskan  labor will                                                               
be  leading  at the  table  in  these negotiations.  The  Alaskan                                                               
unions have a  relationship with the national  building trades in                                                               
Washington.  He  said he  does  not  believe  a president  of  an                                                               
international union would  say that Lower 48  workers should have                                                               
a work  priority over qualified  Alaskans. He said  Alaskan union                                                               
representatives are prepared to  make big commitments to Alaskans                                                               
in a negotiated contract.                                                                                                       
                                                                                                                                
SENATOR  BUNDE  said he  was  not  casting aspersions  about  Mr.                                                               
Sampson's good  will but was  just cautioning him that  Alaska is                                                               
sometimes a small fish in a big pond.                                                                                           
                                                                                                                                
SENATOR COWDERY  said his  understanding is that  the pipe  to be                                                               
transported is  very heavy so  that even if overload  permits are                                                               
obtained, many of the bridges cannot handle those loads.                                                                        
                                                                                                                                
MR.  SAMPSON  said  the  size  of  the  pipe  differs  among  the                                                               
proposals so that  is yet to be determined.  He suggested several                                                               
transportation scenarios  but said he  is sure the  industry will                                                               
ask for waivers on road to  weight and that those problems can be                                                               
addressed relatively easily.                                                                                                    
                                                                                                                                
SENATOR  COWDERY  said  he  is  hoping his  bill  to  extend  the                                                               
railroad through Canada will come about.                                                                                        
                                                                                                                                
MR. SAMPSON agreed, but said the pipe can also be trucked if                                                                    
need be and jested that the unions are willing to build roads,                                                                  
bridges, dams or any other project that might be required.                                                                      
                                                                                                                                
MR.  JIM  LAITI, Business  Manager  with  Pipefitters Local  375,                                                               
Fairbanks,   introduced  Mr.   John   Kanabe,  retired   training                                                               
coordinator,  who was  instrumental in  implementing some  of the                                                               
corrections  to the  lessons  learned during  TAPS.  He read  the                                                               
following prepared statement.                                                                                                   
                                                                                                                                
     Thanks, Mr.  Chairman, and committee members,  for this                                                                    
     opportunity.  I appreciate  that.  As I  said, I'm  the                                                                    
     business manager of the  United Association of Plumbers                                                                    
     and Pipefitters,  Local 375,  in Fairbanks. We  are one                                                                    
     of three  pipefitter locals  in the  state and  we were                                                                    
     chartered in  1946. My  personal experience  began with                                                                    
     my  apprenticeship  in  Local 375,  beginning  late  in                                                                    
     1969.  Back  in those  days  you  could still  join  an                                                                    
     apprenticeship program  if you  were under 18  and many                                                                    
     of  us, while  we were  still in  high school,  started                                                                    
     then.                                                                                                                      
                                                                                                                                
     My  timing was  very  fortunate. It  was  right in  the                                                                    
     middle  of the  construction boom  we witnessed  in the                                                                    
     1970s. I gained a  tremendous amount of experience that                                                                    
     many  others  weren't able  to  gather  prior to  those                                                                    
     times  here in  Alaska. I  also experienced  first hand                                                                    
     the decline that we saw following that boom.                                                                               
                                                                                                                                
     Regarding  the issue  of maximizing  Alaska's workforce                                                                    
     involvement  in a  gas  project, the  best  way, in  my                                                                    
     opinion,  to prepare  Alaskans for  this project  is to                                                                    
     utilize   the   existing   programs,   facilities   and                                                                    
     instructors  already  in  place.  These  apprenticeship                                                                    
     programs have  evolved tremendously,  like I  said with                                                                    
     ours, but  I think ours is  a good example of  most all                                                                    
     of them  from the  lessons that  we learned  from TAPS.                                                                    
     Prior to  that time there  wasn't a project  similar to                                                                    
     that, not just in our area but probably in the world.                                                                      
                                                                                                                                
     The Local 375  apprenticeship program is representative                                                                    
     of  many  others  in   the  building  and  construction                                                                    
     trades.  In  order  to   produce  journey  level  craft                                                                    
     persons,  the   pipefitters  5-year   program  requires                                                                    
     completion of nearly 2,000 hours  of shop and classroom                                                                    
     training and 8,000  hours, approximately, of on-the-job                                                                    
     mentoring  type  training   under  the  supervision  of                                                                    
     qualified craftsmen to turn out  each journeyman at the                                                                    
     end of  the typically  5-year period.  I'd like  to re-                                                                    
     emphasize that  training by itself  will not  create an                                                                    
     effective  workforce. There's  got to  be a  linkage to                                                                    
     on-the-job   experience.  An   analogy  would   be  you                                                                    
     wouldn't build  a competitive  football team  solely on                                                                    
     play  books  and  videos  and   there's  got  to  be  a                                                                    
     translation into field experience.  You can't beat that                                                                    
     on-the-job  experience and,  as  an  example, you  know                                                                    
     pipeline level of welders,  because of the productivity                                                                    
     and the  quality requirements, those guys  need to work                                                                    
     most   of  the   year-round.   I   mean  their   skills                                                                    
     deteriorate and they're capable  of being employed full                                                                    
     time. If there's not a project here in-state...                                                                            
                                                                                                                                
CO-CHAIR SAMUELS  interjected to  ask if  the unions  factor into                                                               
their  decisions  about  training  the  downside  risk  that  the                                                               
trainees will  have no  marketable skills  after the  pipeline is                                                               
completed.                                                                                                                      
                                                                                                                                
MR. LAITI  said these large projects  create a bell curve  as far                                                               
as employment  goes for  skilled craftsmen  but Alaska  will need                                                               
more  skilled  craftsmen  after  the  project  is  completed  for                                                               
maintenance  and  operations and  the  unions  can estimate  that                                                               
amount.  He noted  the pipefitters'  union tries  to keep  people                                                               
working while  they are in  the apprentice program and  is pretty                                                               
successful. It is also market driven.                                                                                           
                                                                                                                                
SENATOR  ELTON said  Mr.  Laiti's play  book  analogy suggests  a                                                               
potential problem in  that if training begins  now, a presumption                                                               
must be  made that once that  training is done, projects  will be                                                               
available for possibly 5,000 hours of on-the-job training.                                                                      
                                                                                                                                
MR. LAITI  said that  is correct. He  acknowledged there  will be                                                               
some conjecture  that will  have to be  made about  the timeframe                                                               
between project approval and when it  starts. He said some of the                                                               
skilled workers  will have to  be imported  since it will  not be                                                               
beneficial to  have 1,000 pipeline  workers unemployed  in Alaska                                                               
after the  project is finished.   He noted that he  was forced to                                                               
leave Alaska to work in 1979 and 1980.                                                                                          
                                                                                                                                
MR. JOHN  KANABE said many  workers can  be trained to  a certain                                                               
level  and then  "polishing" them  would take  a short  period of                                                               
time.                                                                                                                           
                                                                                                                                
SENATOR  ELTON said  if unions  begin training  Alaskans now  for                                                               
Alaskan  jobs,  they  may  not  be able  to  get  the  on-the-job                                                               
training necessary  for them to  become welders; they may  end up                                                               
as welders' assistants.                                                                                                         
                                                                                                                                
MR. LAITI said these folks  will need continuous employment until                                                               
the project starts to maintain their skills. [END OF SIDE A]                                                                    
                                                                                                                                
TAPE 04-34, SIDE B                                                                                                            
                                                                                                                                
MR. LAITI continued his prepared statement.                                                                                     
                                                                                                                                
     ...   into  the   construction   industry  is   without                                                                    
     comparison.   According  to   statistics  compiled   by                                                                    
     Information Insights  in their  May 2004  report, labor                                                                    
     and  management  JATCs  in   Alaska  accounted  for  84                                                                    
     percent of  nearly 1400 active  registered apprentices.                                                                    
     These  apprentices benefit  directly  from the  culture                                                                    
     that we've  seen developed in  the oil industry  in the                                                                    
     last probably 10-12 years.                                                                                                 
                                                                                                                                
     Attention  to  safety  - a  safe  workplace,  workforce                                                                    
     productivity, producing a  quality product with careful                                                                    
     consideration for  our environment  - I mean  these are                                                                    
     all refinements and changes we've  seen probably in the                                                                    
     last, as  I said, 10  or 12  years and that's  good for                                                                    
     the  state,  good  for  our  workforce,  good  for  the                                                                    
     product  that we  build. We've  come a  long way  since                                                                    
     TAPS. Let's make the most  of our collective experience                                                                    
     using language for a project  labor agreement that will                                                                    
     ensure utilization of our proven apprentice programs.                                                                      
                                                                                                                                
MR. KANABE  added that  the pipefitters  union has  been training                                                               
continuously since 1951.  The union is market  driven, meaning it                                                               
can only  train for the  jobs that are  out there. He  noted that                                                               
the  union has  hundreds  of trainers,  all  of them  journeymen.                                                               
Classroom  training  is  only one  component  and  most  learning                                                               
occurs in  the field. He  said journeymen have a  vested interest                                                               
in training new workers.                                                                                                        
                                                                                                                                
CO-CHAIR WAGONER  asked how  many people  will be  trained during                                                               
the project during the next year on the Slope.                                                                                  
                                                                                                                                
MR. LAITI clarified that that  project consists of about 24 miles                                                               
of  pipe  and he  expects  that  everyone  who goes  through  the                                                               
pipefitters union  pipeline orientation will have  an opportunity                                                               
to work  on that, but not  at the journeyman level.  He explained                                                               
that the  four pipeline crafts  have gotten together in  the past                                                               
to   provide  training   at   different   levels.  Everyone   who                                                               
participates as  a pipefitter  is at  the welder's  helper level,                                                               
apprentice  level   or  lower.  Some   of  them  will   have  the                                                               
opportunity to work as journeymen  prior to the pipeline project.                                                               
He said there  has been interest in dictating  total Alaska hire.                                                               
The  Plumbers and  Pipefitters Union  national pipeline  director                                                               
has  visited Alaska  and is  very  sensitive to  the Alaska  hire                                                               
issue. Its general president has  also visited a number of times,                                                               
which did not happen when the TAPS was underway.                                                                                
                                                                                                                                
CO-CHAIR  WAGONER said  he  wants  to hire  as  many Alaskans  as                                                               
possible,  but questioned  how many  certified  pipe welders  are                                                               
available in Alaska today.                                                                                                      
                                                                                                                                
MR.  LAITI  estimated  200  to  250, depending  on  the  type  of                                                               
certification.  He said  the Local  798 union  began to  train to                                                               
that standard in  the early 1980s and helped  [Local 375] welders                                                               
to  learn to  perform to  the non-destructive  testing standards,                                                               
which are almost to nuclear standards.                                                                                          
                                                                                                                                
CO-CHAIR WAGONER  surmised that  many of  those welders  will not                                                               
leave their current jobs to work on the pipeline.                                                                               
                                                                                                                                
MR. LAITI said some will, some won't.                                                                                           
                                                                                                                                
CO-CHAIR SAMUELS called Mr. Bishop to testify.                                                                                  
                                                                                                                                
MR.  CLICK BISHOP,  Apprenticeship and  Training Coordinator  for                                                               
the   Operating   Engineers   Local  302,   introduced   district                                                               
representative Bob  Morigeau from Anchorage, and  thanked members                                                               
for the  opportunity to speak. He  told members he has  been with                                                               
the  operating  engineers   for  30  years  and   worked  on  the                                                               
TransAlaska Pipeline  right after completing high  school. He has                                                               
also  worked  on civil,  heavy  and  highway  work and  spent  17                                                               
winters working in Prudhoe Bay.  He began his current position in                                                               
1991, at  which time  he had  17 apprentices.  Today he  has more                                                               
than  120. He  said technology  has  changed so  that today,  the                                                               
project  will rely  on hydraulic  excavators with  GPS technology                                                               
and  trenching machines.  This new  equipment requires  much more                                                               
training than was required 30 years ago.                                                                                        
                                                                                                                                
CO-CHAIR SAMUELS asked  if the new technology  will require fewer                                                               
people.                                                                                                                         
                                                                                                                                
MR. BISHOP said the peak  manpower numbers provided by Mr. Palmer                                                               
showed  the need  for a  lot fewer  operating engineers  than the                                                               
1974 project required. He noted  that as the pipeline crafts came                                                               
together in  1997 and 1998 with  the industry, labor and  the oil                                                               
companies, it did some training for  North Slope work. Out of the                                                               
28 students  that were  trained in his  craft, 25  were employed.                                                               
His apprenticeship program  is designed to only  train the number                                                               
of  people  that can  be  actively  employed.  He works  hard  to                                                               
recruit  from rural  Alaska.  Apprenticeship  numbers for  Alaska                                                               
Natives  depend upon  timing but  run from  30 to  40 percent  of                                                               
participants. He  said the  unions can  collectively do  a better                                                               
job to  assure training for this  project than they did  in 1974.                                                               
He commented that the Pebble Mine  project may be starting at the                                                               
same  time as  the  gas line  and that  could  create a  manpower                                                               
problem. He  offered his services  to the committee for  any help                                                               
it may need.                                                                                                                    
                                                                                                                                
MR.  BOB MORIGEAU,  District Representative,  Operating Engineers                                                               
302, told  members that he traveled  to Alaska 30 years  ago from                                                               
Montana and  remained here.  He explained that  most of  the work                                                               
done by the  Operating Engineers is heavy highway work;  7 out of                                                               
10 of  its projects have  no mandated training  or apprenticeship                                                               
hours. This  project would be  a perfect vehicle to  increase its                                                               
numbers  because many  contractors  will not  employ trainees  on                                                               
their own unless  mandated in the job specifications.  Close to 7                                                               
out  of 10  Department  of Transportation  and Public  Facilities                                                               
projects  have no  training hour  mandates.  If projects  contain                                                               
such mandates,  the union could  increase its number  of trainees                                                               
from 15 or 25 per year to 50  or 60. That would provide a perfect                                                               
vehicle to ramp up for the pipeline project.                                                                                    
                                                                                                                                
REPRESENTATIVE JOULE  said one  disadvantage of  union membership                                                               
for rural  Alaskans is that if  there is no work  in their areas,                                                               
the chance of being called for a  job is remote. He asked if they                                                               
are  called regardless  of where  the work  site is  located once                                                               
they are in an apprenticeship program.                                                                                          
                                                                                                                                
MR.  BISHOP said  the fact  that apprentices  leave the  villages                                                               
because steady  work is not available  in the villages is  one of                                                               
the things that  he gets "beat up"  on by elders when  he goes to                                                               
the villages.  He explains to  the elders  that at some  point in                                                               
time, the  workers will  be able  to retire  in the  villages. He                                                               
lamented that  is a  tough issue and  said they  keep apprentices                                                               
actively employed and work hard with rural students.                                                                            
                                                                                                                                
MR.  MORIGEAU commented  that the  hiring  hall recognizes  local                                                               
hire  issues  and gives  preference  to  rural workers  who  live                                                               
within the vicinity  of a job, regardless of  where that person's                                                               
name sits on  the out-of-work list. Hiring is  done via telephone                                                               
so, if a  person is on the out-of-work list,  they get called and                                                               
offered a job no matter where it is.                                                                                            
                                                                                                                                
MR.  MIKE GALLAGHER,  Business Manager  of  Laborers' Local  341,                                                               
Anchorage,  said he  is responsible  for the  geographic area  of                                                               
Southcentral Alaska.  His counterpart, Tim Sharp,  is responsible                                                               
for the geographic  area up North. The  Alaska Laborers' Training                                                               
School  is  jointly managed  with  contractors  appointed by  the                                                               
Alaska  General   Contractors  (AGC).  They  have   two  training                                                               
facilities in Anchorage and Fairbanks.  Trainees from other areas                                                               
are  provided  with  room  and  board.  He  noted  in  2003,  the                                                               
laborers' union trained over 2000  people at those facilities. It                                                               
also  does satellite  training in  Kenai, Kodiak,  and Southeast.                                                               
Training  consists of  pipe  laying for  water  and sewer  lines,                                                               
grade   checking,  building   construction,  concrete,   pipeline                                                               
construction, road building  construction, drilling and blasting,                                                               
and  upgrade  training for  certification.  The  union spends  an                                                               
average  of $1.3  million  per  year on  training  of the  Alaska                                                               
workforce and has spent over $2.5 million on training assets.                                                                   
                                                                                                                                
MR.  TIM   SHARP,  Business  Manager  of   Laborers'  Local  942,                                                               
Fairbanks,  told members  he represents  1100 members  from above                                                               
the 63rd  parallel and in  Southeast Alaska. He said  his members                                                               
can be likened to the "Marines"  of the industry and would do the                                                               
drilling and  blasting on  the right-of-way  for a  pipeline job.                                                               
They  also   do  pipe  coating,  carpentry,   sheet  metal  work,                                                               
insulation, and  load and unload  trucks. He said  the consistent                                                               
themes he  heard during  the last two  days are  risk management,                                                               
maximizing value, rate  of return and best policies.  He said his                                                               
programs tie into those themes well.  He explained:                                                                             
                                                                                                                                
     I saw  a lot of  heads nodding here yesterday  that the                                                                    
     Legislature, along  with the people of  Alaska, decided                                                                    
     on a  southern route  and they  did that  for a  lot of                                                                    
     reasons  but  I think  the  main  driver was  jobs  and                                                                    
     opportunities for  Alaskans. I  think the  issue before                                                                    
     us and  the thing that  we help  bring to the  table is                                                                    
     how do  you develop that integrated  approach to manage                                                                    
     the risk  or maximize the  value out of these  jobs and                                                                    
     opportunities. Those  are our  programs. Those  are all                                                                    
     the  trade programs  because they're  the  best in  the                                                                    
     industry - I mean they're  just recognized as the best.                                                                    
     They  have that  track record,  and even  had we  never                                                                    
     testified,  it's just  the accepted  fact  that no  one                                                                    
     does it better than the unions.  We can turn on a dime.                                                                    
     We can  train for  any new  particular skills  that the                                                                    
     contractors  bring before  us. If  there's new  cutting                                                                    
     edge stuff we're right there  for them. We just need to                                                                    
     know which way we're going and we go there.                                                                                
                                                                                                                                
     It's been  covered before that we're  market driven. We                                                                    
     don't  train  for  the sake  of  training.  There's  an                                                                    
     outcome for our training programs.  There's a job or we                                                                    
     don't do it.  We deliver a seamless  career package for                                                                    
     Alaskans.  We get  them right  to  work at  the end  of                                                                    
     these programs. We - and Mike  covered it - and I think                                                                    
     this is key and I would  like it to be maybe noted that                                                                    
     all of our training  programs are administered jointly.                                                                    
     There  are  contractors  on  the   other  end  of  this                                                                    
     equation. We don't  just go do what we think  is a good                                                                    
     idea.  There's  a  check  and  balance  and  it's  well                                                                    
     thought out.                                                                                                               
                                                                                                                                
     I  guess the  other thing,  in terms  of what  makes us                                                                    
     different, is  whatever projects we do,  whether it was                                                                    
     the TransAlaska Pipeline  up to today, we  leave in our                                                                    
     wake residual benefits. We're not  a drain on the local                                                                    
     economy.  We  nurture  the local  economy  with  health                                                                    
     benefits. We  pay our  own way.  We have  pensions that                                                                    
     are created as  a result of our jobs  and projects that                                                                    
     we  are  involved  in, leaving  Alaskans  a  chance  to                                                                    
     retire here.  We help feed  the equation here  in terms                                                                    
     of local  economy. Because we're  market driven,  and I                                                                    
     think the representative  from TransCanada mentioned it                                                                    
     earlier, the  need to get  going. You can't  train, for                                                                    
     instance,  a journeyman  pipefitter in  a year.  No one                                                                    
     has  a crystal  ball but  we don't  have the  luxury of                                                                    
     waiting for  all the  certainty that  we might  need to                                                                    
     get going  on this but I'll  tell you right now,  if we                                                                    
     don't  get going,  we will  be  - and  [Representative]                                                                    
     Joule  mentioned  it,  how  do we  not  make  the  same                                                                    
     mistakes  we made  the  first time.  Well  this is  the                                                                    
     whole key. If you have  the project labor agreement, if                                                                    
     you have  the glue that  kicks this all into  gear, you                                                                    
     have the  certainty that gives  the trades a  target to                                                                    
     know  how many  people  to prepare  for,  when this  is                                                                    
     going  to happen,  what the  needs  of the  contractors                                                                    
     are, it  guarantees results as  opposed to some  of the                                                                    
     other  language   we've  seen   in  past   bills.  It's                                                                    
     enforceable   language  as   opposed   to  words   like                                                                    
     'endeavor,' or 'may,' or 'we  should strive for Alaskan                                                                    
     hire' - we can get Alaskan hire this way.                                                                                  
                                                                                                                                
     I guess  I'll try to  keep it short because  there were                                                                    
     four  people  before  me  that  might  have  given  you                                                                    
     everything else.                                                                                                           
                                                                                                                                
CO-CHAIR SAMUELS thanked Mr. Sharp.                                                                                             
                                                                                                                                
REPRESENTATIVE  JOULE  asked Mr.  Gallagher  how  well his  local                                                               
union  is  doing recruiting  people  who  have moved  from  rural                                                               
Alaska to Southcentral.                                                                                                         
                                                                                                                                
MR.  GALLAGHER said  he believes  they are  doing well.  About 27                                                               
percent of their  apprentices are from rural  Alaska. One problem                                                               
is that  people come  from rural  Alaska on  an interim  basis so                                                               
housing  is problematic.  The AGC  and organized  labor discussed                                                               
that  issue this  year and  devised a  mechanism to  resolve that                                                               
problem in which workers will  be provided with either housing or                                                               
per diem.                                                                                                                       
                                                                                                                                
MR. SHARP  invited all members  to the pipeline  demonstration in                                                               
Fairbanks in November.                                                                                                          
                                                                                                                                
CO-CHAIR   SAMUELS  thanked   Mr.  Sampson   for  attending   and                                                               
apologized to  the non-union  groups that  wanted to  testify. He                                                               
explained that he  set the agenda and did not  intend to omit any                                                               
point of view but the number  of people who wanted to testify was                                                               
overwhelming.  He said  he would  try to  invite those  people to                                                               
speak  at the  next  hearing.  He then  called  Mr. Cattanach  to                                                               
testify.                                                                                                                        
                                                                                                                                
MR.  DICK  CATTANACH,   Executive  Director,  Associated  General                                                               
Contractors, told members he would  share his perspective on some                                                               
of the comments made earlier. He stated:                                                                                        
                                                                                                                                
     You need  to understand what the  construction industry                                                                    
     is and how big it is.  We talk about 8,600 employees at                                                                    
     the peak.  You have  to recognize  that in  2004, we're                                                                    
     expecting an average  construction employment of 17,400                                                                    
     workers.  So we're  looking to  grow by  50 percent  if                                                                    
     these   projections  are   correct.   And  that's   all                                                                    
     construction    workers.   That's    laborers,   that's                                                                    
     operators, that's Teamsters,  that's carpenters, that's                                                                    
     bricklayers, that's  a lot of  people who  aren't going                                                                    
     to be  involved in this. So  if you look at  the impact                                                                    
     on the trades, you're going  to see that we're probably                                                                    
     going to  increase the impact  to trades  by two-thirds                                                                    
     or more. We'll double them in some cases.                                                                                  
                                                                                                                                
     To  think  that we  can  hire  everybody locally  is  a                                                                    
     fool's errand.  I mean it's  not going to happen  and I                                                                    
     think  we need  to  understand  that. The  commissioner                                                                    
     pointed out some  very good reasons why  we couldn't do                                                                    
     that.  Some of  the other  gentlemen have  talked about                                                                    
     what happens  after and  if you were  here in  the late                                                                    
     '70s,  you  saw  all   those  construction  people  and                                                                    
     unemployment lines.  There was  no work for  them. What                                                                    
     we need to do is be concerned about that as well.                                                                          
                                                                                                                                
     Some of  the things that  I think are important  for us                                                                    
     to  think  about  - our  construction  ranges  from  an                                                                    
     average in  2004 of about  13,700 in  January. January,                                                                    
     if you  look at  the graphs,  is traditionally  the low                                                                    
     time  of the  year for  construction employees  - to  a                                                                    
     high of  about 22,000,  which will  be in  August. That                                                                    
     difference  is  about  8,300  employees.  If  we  could                                                                    
     construct the pipeline  in the winter, we  could have a                                                                    
     relatively even  transition from  people that  would be                                                                    
     laid off  normally into the  pipeline. But when  we add                                                                    
     it  on top  of summer  construction, those  are 80-some                                                                    
     hundred  more  people that  are  going  to have  to  be                                                                    
     trained and come into the industry.                                                                                        
                                                                                                                                
     We  also need  to  remember, and  it  was pointed  out,                                                                    
     training   is  not   homogeneous.  You   don't  provide                                                                    
     training and then you have  somebody that can go and do                                                                    
     everything. A  carpenter that's been  trained is  not a                                                                    
     finish  carpenter when  he's gone  through his  minimum                                                                    
     training. That takes  time. That takes an  awful lot of                                                                    
     time. So  what you're going to  have is a lot  of entry                                                                    
     level  jobs that  you've prepared  people for.  They're                                                                    
     not going  to be doing  the skilled labor  jobs. Those,                                                                    
     unfortunately, are  going to  come out of  our existing                                                                    
     workforce.  When I  say  'unfortunately,'  you have  to                                                                    
     recognize what  happens. They're  going to come  out of                                                                    
     the workforce  but they've  got to  be replaced  so the                                                                    
     roads  that  are  built in  Southcentral  and  northern                                                                    
     Alaska -  all over Alaska,  are going to be  built with                                                                    
     people  that  don't  have any  experience  because  the                                                                    
     experienced  people  are going  to  be  working on  the                                                                    
     pipeline  and who  would deny  them the  opportunity to                                                                    
     work 12 hours a day, 7  days a week and take home those                                                                    
     huge checks, rather than  work highway construction for                                                                    
     40  hours a  week.  You're going  to  see that.  You're                                                                    
     going  to   see  the  skilled  labor   moving  to  this                                                                    
     pipeline.  That's  going  to  have  a  huge  impact  on                                                                    
     construction, as we  commonly know it. So  if you think                                                                    
     you've got  delays right  now driving  around Anchorage                                                                    
     or other  places, imagine  what it's  going to  be like                                                                    
     when  you  take  the   skilled  workforce  and  they're                                                                    
     building the  pipeline. It's a  problem we're  going to                                                                    
     have  to learn  to live  with and  it's a  problem that                                                                    
     it's actually nice  to know in advance so  we can start                                                                    
     doing some planning.                                                                                                       
                                                                                                                                
     One of  the things  that was pointed  out is  that what                                                                    
     you  see  in  construction  is  we  have  a  very  good                                                                    
     construction  labor  force.  It's there  because  of  a                                                                    
     relationship  developed  between management  and  labor                                                                    
     many years  ago. An apprenticeship program  paid for by                                                                    
     the private  sector through negotiated  agreements with                                                                    
     labor unions  - they  provide 86  percent, a  comment I                                                                    
     heard,  of the  trained  workers  in construction.  The                                                                    
     government doesn't  play a  role in  this. So  if we're                                                                    
     going to  get the government involved  in training when                                                                    
     they're  not   involved  in   the  job   placement  and                                                                    
     everything else  with that, we  need to make  sure that                                                                    
     we all  understand what  that role  is so  they're just                                                                    
     not  training  people  that  end   up  standing  in  an                                                                    
     unemployment line  because nobody's  looked at  the job                                                                    
     opportunities.   There  needs  to be  a better  thought                                                                    
     process going  into what the role  of government should                                                                    
     be. They have  to be part of it. They've  got money but                                                                    
     what  should their  role be?  I really  don't have  the                                                                    
     answer.                                                                                                                    
                                                                                                                                
     We've heard  discussions today about local  hire. We're                                                                    
     all  in  favor  of  local hire.  I  haven't  heard  one                                                                    
     mention about  maintaining local contractors.  When the                                                                    
     pipeline   was   built,  principal   contractors   were                                                                    
     Bechtel, Fleur,  Parsons - these are  outside companies                                                                  
     that owe nothing to Alaska.  They contribute nothing to                                                                    
     Alaska. They  leave nothing when they  leave except, if                                                                    
     we  look  at the  missile  defense  system, some  broke                                                                    
     contractors, broke subs who have  to work with them and                                                                    
     end up going  broke. I would like, when  we think about                                                                    
     local employment,  to extend that  to try to  get local                                                                    
     contractors  involved  and you  say  do  we have  local                                                                    
     contractors.  You   have  VECO.   You  have   AIC.  Who                                                                    
     mentioned  AIC  or,  actually,  one  of  the  gentlemen                                                                    
     mentioned AIC. You  have Kewitt - Peter  Kewitt, one of                                                                    
     the  largest companies  in the  world. You  have Wilder                                                                    
     who is  owned by Granite Construction.  You have Alasko                                                                    
     (ph)  -  Alaska Quality,  owned  by  a French  company.                                                                    
     These  are   Alaskan  companies.  They   can  certainly                                                                    
     provide some of the expertise we need.                                                                                     
                                                                                                                                
     What I  fear is  we're going to  see Bechtel  and Fleur                                                                    
     and these people who owe  nothing to the state, have no                                                                    
     allegiance  to  the state,  you'll  never  see them  in                                                                    
     Juneau saying  we've got some  laws we need  to change,                                                                    
     we've got  some conditions we need  to address. Instead                                                                    
     they'll  come, they'll  take  their  money and  they'll                                                                    
     leave  the   state  and   that's  of   concern.  That's                                                                    
     something that  my membership is very  concerned about.                                                                    
     And with that, my remarks are concluded.                                                                                   
                                                                                                                                
SENATOR BUNDE  said when he thinks  of Alaska hire, he  thinks of                                                               
the  people who  do the  hiring, as  well as  the people  who get                                                               
hired. He then  asked if recruiting young people  into the trades                                                               
has been challenging.                                                                                                           
                                                                                                                                
MR.  CATTANACH said  the  construction industry  has  to grow  by                                                               
about  1,250 workers  each year  right  now just  to replace  the                                                               
growth  predicted by  the Department  of Labor  and turnover.  He                                                               
said according to  statistics, the state has  had no in-migration                                                               
since 1990  so that demand  is not going  to be met  by importing                                                               
workers.  The demand  must be  met  by high  school graduates  or                                                               
unemployed workers  yet Anchorage's  unemployment level  is below                                                               
the national  average. Alaska high  schools graduate  about 7,000                                                               
workers  per year,  of which  an estimated  one-third will  go to                                                               
college,  therefore, the  construction  industry  has to  attract                                                               
about 20 percent  of those graduates to meet its  needs.  He said                                                               
that schools  are doing an  abysmal job at training.  Students do                                                               
not graduate ready  to go to work.  They do not know  how to show                                                               
up for work  every morning. Counselors are  not advising students                                                               
to go into the blue-collar trades.   He noted that labor is doing                                                               
what  it can  to improve  the  image of  blue-collar workers  and                                                               
money is what attracts those graduates.                                                                                         
                                                                                                                                
SENATOR BUNDE said enticing people  to get trained should be part                                                               
of the legislature's discussion.                                                                                                
                                                                                                                                
CO-CHAIR WAGONER  said he  left the  community college  system in                                                               
1986 when the university system  and legislature decided to merge                                                               
the  two. That  merger  has been  very  unsuccessful because  the                                                               
community   college   mission   got    lost.   He   believes   in                                                               
reconstituting  the community  college  system  because they  are                                                               
strong in vocational  training and thinks something  will be done                                                               
about that  in the  next few  years. He said  it is  important to                                                               
increase awareness  among high school  students and  students who                                                               
do  not  complete high  school.  They  can  be enticed  into  the                                                               
community college system for further training.                                                                                  
                                                                                                                                
MR. CATTANACH said  students must be proficient in  math to enter                                                               
the construction trades.                                                                                                        
                                                                                                                                
CO-CHAIR  WAGONER agreed  but said  math can  be taught  using an                                                               
applied method rather than with a theoretical method.                                                                           
                                                                                                                                
SENATOR ELTON asked Mr. Cattanach  if he has any suggested course                                                               
of action  to protect Alaska  contractors or whether he  has been                                                               
working with the administration on that issue.                                                                                  
                                                                                                                                
MR. CATTANACH said  the AGC has been shut out  of that discussion                                                               
so he raises his voice about it  whenever he can. He said the AGC                                                               
got shut out during the oil  pipeline construction. He said he is                                                               
bothered by  the fact  that the trained  workforce in  Alaska was                                                               
trained  by  the  contractors  who  are  here  and  have  made  a                                                               
commitment to  the state, yet they  get left out. He  said he has                                                               
carried that  message to  the administration but  he is  not sure                                                               
how well it resonates.                                                                                                          
                                                                                                                                
SENATOR  ELTON  said it  would  be  helpful  for both  labor  and                                                               
management to come forward with ideas that would work.                                                                          
                                                                                                                                
REPRESENTATIVE JOULE  said he  is glad  Mr. Cattanach  raised the                                                               
issue of  Alaska contractors. Regarding vocational  education and                                                               
whether  students  are   prepared,  he  sees  that   as  a  great                                                               
opportunity  but   certain  things  must  be   fixed  first.  Our                                                               
secondary  school  system does  not  offer  much  in the  way  of                                                               
vocational education because of  the [foundation] formula so that                                                               
is  a change  the  legislature  would have  to  address. He  said                                                               
Representative McGuire mentioned the  King Career Center earlier.                                                               
His belief is that because the  economies of rural Alaska and the                                                               
rest of  Alaska are joined at  the hip, the legislature  needs to                                                               
figure  out how  to make  those  kinds of  partnerships that  can                                                               
reach across  Alaska to get  students to take advantage  of those                                                               
systems. Some  school districts  are talking  about the  need for                                                               
boarding schools  in Anchorage  to allow  rural students  to take                                                               
advantage of  those opportunities. He said  the legislature needs                                                               
to look down that road as these discussions take place.                                                                         
                                                                                                                                
TAPE 04-35, SIDE A                                                                                                            
                                                                                                                                
CO-CHAIR SAMUELS announced  that the committee would  take up its                                                               
roundtable  discussion. He  started by  explaining the  procedure                                                               
for ratifying a contract. He  told members the [Stranded Gas] Act                                                               
provides  the   Administration  with  the  authority   to  accept                                                               
applications  from   entities  interested   in  building   a  gas                                                               
pipeline, shipping gas  through the pipeline, or  doing both. The                                                               
Administration can negotiate with  applicants on royalty, tax and                                                               
other terms  subject to certain limitations  contained within the                                                               
act  itself.   When  and   if  the   Administration  successfully                                                               
concludes  negotiations with  an applicant,  it is  to prepare  a                                                               
best  interest finding  in favor  of the  proposed contract.  The                                                               
Administration  will  then  release the  proposed  contract,  the                                                               
preliminary best  interest finding, the financial,  technical and                                                               
market data supporting the contract,  as well as the work papers,                                                               
analysis and recommendations of  any independent contractors used                                                               
by  the  Administration.  The  Legislature  has  been  guaranteed                                                               
access  to   a  lot   of  the   information  that   is  currently                                                               
confidential, as soon as the negotiations have been completed.                                                                  
                                                                                                                                
CO-CHAIR  SAMUELS  further  explained   that  when  the  proposed                                                               
contracts,   findings   and   data  are   first   released,   the                                                               
administration must provide  a minimum of 30 days  for public and                                                               
legislative  comment. The  administration  must  offer to  appear                                                               
before the Legislative Budget and  Audit Committee for discussion                                                               
of   and  questions   on  the   proposed   contracts  and   other                                                               
documentation. The  administration can provide more  than 30 days                                                               
for  public  and legislative  comment.  When  the comment  period                                                               
closes,  the administration  must prepare  a final  best interest                                                               
finding within 30  days if it plans to proceed  with the proposed                                                               
contract.  The  final  best interest  finding  must  discuss  all                                                               
comments  formally  registered  during the  comment  period.  The                                                               
comment period  is the Legislature's first  formal opportunity to                                                               
express its  opinion on contract  terms and on any  amendments to                                                               
the proposed contract that  it considers appropriate. Legislators                                                               
can  comment individually  by  committee, as  the  House, as  the                                                               
Senate  or however  they choose  during this  period and  no vote                                                               
will  be required.  After the  30  day comment  period, which  by                                                               
statute  is the  Legislature's  "first bite  of  the apple,"  the                                                               
proposed contract goes back to  the administration for 30 days to                                                               
prepare  its final  finding and  any proposed  amendments to  the                                                               
contract. The  Legislature will  then get a  second "bite  of the                                                               
apple" when the contract comes before  it for a vote. There is no                                                               
deadline for  a legislative vote;  the Legislature will  have the                                                               
opportunity to  hold more  hearings in  any committees  before it                                                               
votes. The  Legislature can also  take whatever time it  needs to                                                               
review supporting documentation and consult with legal counsel.                                                                 
                                                                                                                                
CO-CHAIR SAMUELS  commented that  because of the  short timeframe                                                               
before  the  legislative  branch,  the Legislature  has  been  in                                                               
contact with various entities, including  experts of FERC and the                                                               
NEB. He acknowledged that it has  been difficult at times to find                                                               
people  who are  not already  employed by  the administration,  a                                                               
pipeline company  or the producers  and would have a  conflict of                                                               
interest.  He noted  that  some  want to  work  quickly to  avoid                                                               
delaying the project. The purpose  of the joint hearings has been                                                               
to  "get up  to  speed"  because of  the  difference between  the                                                               
Legislature's legal  right to take all  of the time it  wants and                                                               
the practical reality of having to work relatively quickly.                                                                     
                                                                                                                                
CO-CHAIR SAMUELS  informed members  that he  has been  advised by                                                               
legal  counsel that  the Legislature  can  approve the  contract,                                                               
reject it unless  certain conditions have been met,  or reject it                                                               
outright. If  the Legislature rejects  the contract  with certain                                                               
parameters,  it   takes  the  risk  of   rejecting  the  contract                                                               
completely. He  summarized that  the role  of the  Legislature in                                                               
this contract is to put one  entity in charge of the negotiations                                                               
so that  all 60 legislators  are not  "picking it to  pieces." He                                                               
pointed out the Stranded Gas Act  is silent on some issues; those                                                               
issues will have to be decided upon when the time comes.                                                                        
                                                                                                                                
SENATOR ELTON  suggested that Chair  Samuels circulate  copies of                                                               
the description he provided to all legislators.                                                                                 
                                                                                                                                
SENATOR  BUNDE reflected  on the  Governor's  opening remarks  in                                                               
which  he said  he  wanted  a signal  from  the Legislature.  His                                                               
personal view is that this  portion of two legislative committees                                                               
cannot   speak  for   the  entire   Legislature  and   that  this                                                               
Legislature cannot speak for the  legislature that is sworn in in                                                               
January. He furthered:                                                                                                          
                                                                                                                                
     I  don't know  how we  can  give the  Governor what  he                                                                    
     wants   other  than   personal   opinion  or   personal                                                                    
     preference  and  I'm  certainly  willing  to  do  that.                                                                    
     Personally  I'm  not opposed  to  some  sort of  equity                                                                    
     position if  - if, and that's  a really big if  for me,                                                                    
     appropriate  firewalls  can  be  instituted  that  will                                                                    
     protect any  future pipeline management  from political                                                                    
     pressures  from both  the administration  and from  the                                                                    
     Legislature. Representative  Croft and  I had  a little                                                                    
     brief written  conversation earlier and he  pointed out                                                                    
     that  we've  done that  very  well  with the  Permanent                                                                    
     Fund, however,  at that time,  there wasn't  any direct                                                                    
     payback  to the  public  from the  Permanent Fund.  The                                                                    
     dividend didn't come  in for seven more  years. At this                                                                    
     juncture  and when  we make  these  decisions, I  think                                                                    
     there will  be some direct financial  influence for the                                                                    
     public,  whether low  gas  prices or  high  wages or  a                                                                    
     combination  thereof,   and  I'm  concerned   that  the                                                                    
     state's  best long  term interest  may  not be  aligned                                                                    
     with some individual's short term interests.                                                                               
                                                                                                                                
     So, with  that proviso that  there has to be  some very                                                                    
     impenetrable firewalls,  then I could  possibly support                                                                    
     an  equity  position but,  as  I  think has  been  said                                                                    
     several times here,  the devil will be  in the details.                                                                    
     So, I  can't make a  commitment for the  Legislature. I                                                                    
     can make  a minor,  sort of,  little bit  of commitment                                                                    
     for me.                                                                                                                    
                                                                                                                                
CO-CHAIR  SAMUELS  said  he  didn't  want to  put  words  in  the                                                               
administration's  mouth  but he  believes  one  of the  goals  of                                                               
having  the hearing  at  such an  awkward time  so  close to  the                                                               
election, was to get the conversation  out to the public arena so                                                               
that  people can  give the  matter consideration.  He agreed  the                                                               
"devil is  in the  details" and  that legislators  cannot provide                                                               
answers until it sees the proposal.                                                                                             
                                                                                                                                
CO-CHAIR SAMUELS  then told members  he is interested  in getting                                                               
more information about the international workforce question.                                                                    
                                                                                                                                
REPRESENTATIVE  DAHLSTROM informed  members that  she attended  a                                                               
public meeting the  previous evening sponsored by  the Friends of                                                               
the NRA,  during which she  talked about  yesterday's legislative                                                               
meeting. The overall  response of the group  was excitement about                                                               
progress being  made on the  natural gas pipeline. No  one seemed                                                               
to be  concerned about state  ownership of the gas  line, however                                                               
people needed time to think  about how to finance that ownership.                                                               
She  said she  personally  likes  the idea  of  investing in  the                                                               
pipeline with  their Permanent Fund  dividends and  believes many                                                               
people would  like that  choice. She  said her  constituents will                                                               
not  be  happy  if  the  Legislature uses  $1  billion  from  the                                                               
Permanent Fund.  She emphasized the  need to get more  details to                                                               
make an educated decision.                                                                                                      
                                                                                                                                
REPRESENTATIVE CHENAULT commented that  investing in the pipeline                                                               
with dividends might be an option  as early as next year. He then                                                               
noted that Mr. Cattanach commented  that the Legislature needs to                                                               
be involved  in training  plans for this  project, whether  it is                                                               
with the contractors or different  unions or whoever ends up with                                                               
this project. His  personal view is that he  questions how deeply                                                               
the Legislature or state government  should fund the whole thing.                                                               
He thinks contractors  and the companies can work  that issue out                                                               
amongst themselves.                                                                                                             
                                                                                                                                
REPRESENTATIVE FATE  asked that  the questions  about royalty-in-                                                               
kind  and  the percentage  of  equity  the  state might  have  be                                                               
pursued.  He said  it should  be  clarified that  at the  present                                                               
time, the 12.5  percent royalty can be taken in  value or in-kind                                                               
and that the  in-kind royalty should be separate  from any equity                                                               
amount the state holds unless  the two are combined. He cautioned                                                               
that if the two are combined, the  state might not be able to use                                                               
the royalty-in-kind  for the benefit  of people in the  state, as                                                               
suggested by Ken Thompson.                                                                                                      
                                                                                                                                
REPRESENTATIVE FATE said  his second concern is  that the problem                                                               
of the  inadequacy of  our present  transportation infrastructure                                                               
needs  further  consideration.  He  noted the  Haul  Road  is  in                                                               
deplorable condition  and has been  almost ignored for  24 years,                                                               
even  though it  is  the lifeline  of the  State  of Alaska.  The                                                               
problem is  even more  severe south of  Fairbanks to  the border.                                                               
The current transportation system  simply will not facilitate the                                                               
weight  of  the pipe.  He  said  the  Legislature must  begin  to                                                               
consider  that  issue  now  so that  any  improvements  on  those                                                               
highways will be  completed before the targeted  date of pipeline                                                               
construction. He cautioned that could create a bottleneck.                                                                      
                                                                                                                                
CO-CHAIR WAGONER said, in  response to Representative Dahlstrom's                                                               
concern, that he  does not believe the Legislature  would want to                                                               
take money  out of the  Permanent Fund earnings because  it would                                                               
have  to first  look  at what  it  would have  to  pay in  bonded                                                               
indebtedness  versus  what  those  earnings would  earn.  If  the                                                               
Legislature  can get  the  bonds cheap  enough,  the state  would                                                               
actually  be  making  the  state   money  by  using  its  bonding                                                               
capabilities. He  noted the Permanent  Fund is  currently earning                                                               
16  to 18  percent. He  said many  of his  constituents want  the                                                               
opportunity  to invest  their permanent  fund  dividends to  help                                                               
fund the  gas pipeline for  two reasons. First, they  realize the                                                               
overall importance  of the  gas line to  the state.  Second, they                                                               
want to  invest in something  on a  long-term basis and  have the                                                               
opportunity to  participate in  their own future.  He said  he is                                                               
not  afraid  to say  no  to  every  other  crazy scheme  that  is                                                               
presented to the Legislature.                                                                                                   
                                                                                                                                
SENATOR  GUESS thanked  Chair Samuels  for  the presentations  he                                                               
arranged  for members  and said  one  question that  needs to  be                                                               
answered  sooner rather  than later  is whether  the state  falls                                                               
under the federal  guarantee because the state's risk  is tied to                                                               
that question. She then suggested  spending more time considering                                                               
the range of risk and on how  that risk is being portrayed to the                                                               
Legislature and  to constituents. She  said the overview  of risk                                                               
in general during the past two  days was great, but she feels the                                                               
need to  determine what  that risk  looks like  regarding whether                                                               
the state will not collect any  taxes and whether it will require                                                               
a $300  million line item  in the budget. She  further questioned                                                               
how access  will play  in, given  the federal  legislation, which                                                               
contains  fairly constrained  access  provisions. She  questioned                                                               
whether the state  could leverage its share to  ensure access for                                                               
future exploration and whether it may need to play that role.                                                                   
                                                                                                                                
CO-CHAIR SAMUELS said  he would provide a better  synopsis of the                                                               
Legislature's role and  provide bullet points on  the exact roles                                                               
and procedures of the legislative  branch. He will also provide a                                                               
better synopsis  of what  the federal  legislation does  and does                                                               
not do and  how far reaching it is. He  suggested that if members                                                               
hear  from  people  about state  participation  and  risk,  those                                                               
comments  be  relayed  to Senator  Guess,  Representative  Joule,                                                               
Senator  Wagoner,  or  himself,  since they  are  acting  as  the                                                               
conduits [with the administration].                                                                                             
                                                                                                                                
CO-CHAIR WAGONER suggested  that he and Chair Samuels  send out a                                                               
joint  letter to  every legislator  that contains  a copy  of the                                                               
Governor's   presentation  and   ask  them   to  approach   their                                                               
constituents for input.                                                                                                         
                                                                                                                                
CO-CHAIR SAMUELS jested that the  downside of that is legislators                                                               
who did not  attend these two days of hearings  will be providing                                                               
an explanation.                                                                                                                 
                                                                                                                                
CO-CHAIR  WAGONER said  they could  just  provide the  Governor's                                                               
presentation  and ask  whether the  people of  the state  want to                                                               
look into a  state equity position in the pipeline.  He said many                                                               
people  are already  approaching him  with opinions  as they  are                                                               
already contemplating it.                                                                                                       
                                                                                                                                
SENATOR  ELTON noted  that the  discussion cannot  focus only  on                                                               
risk - it  must also focus on reward if  legislators want to sell                                                               
the idea to  constituents. To do that, legislators  need to fully                                                               
understand the potential rewards.                                                                                               
                                                                                                                                
CO-CHAIR SAMUELS commented  that Dr. Van Meurs said  the risk was                                                               
very small but the hole was very deep.                                                                                          
                                                                                                                                
REPRESENTATIVE  GARA  agreed  with  Senator Elton  and  said  his                                                               
biggest concern is  that the Legislature needs to  be vibrant and                                                               
a vocal participant during the  120-day comment period before the                                                               
federal government about the access  rights. He suggested sending                                                               
a   message  to   the  Governor,   if  appropriate,   saying  the                                                               
Legislature  wants  as much  access  as  possible and  wants  the                                                               
state's  interest  pushed  as  far as  possible  and  to  request                                                               
interim funding  from the Legislature if  necessary. He cautioned                                                               
that the  administration will need sophisticated  negotiators and                                                               
experts  during   a  period   when  companies   with  conflicting                                                               
interests need  the same  personnel to do  the opposite.  He said                                                               
that should be  set up now because it could  radically change the                                                               
prospects of what  the gas line will look like  over the next 120                                                               
days.                                                                                                                           
                                                                                                                                
CO-CHAIR  SAMUELS said  he and  Commissioner  Corbus and  Senator                                                               
Therriault  discussed  access  issues  with  the  Governor's  Gas                                                               
Cabinet but those issues should be further emphasized.                                                                          
                                                                                                                                
SENATOR  GUESS  agreed  with  Representative   Gara  that  it  is                                                               
important to have someone focus  on the federal regulation public                                                               
comment period on behalf of the  state for the next 120 days. She                                                               
said  Dr. Van  Meurs  is busy  trying to  negotiate,  so to  also                                                               
expect him to  stay on top of the regulations  [is not feasible].                                                               
She said if she were one  of the players involved, she would have                                                               
draft regulations submitted to FERC by now.                                                                                     
                                                                                                                                
CO-CHAIR  SAMUELS thanked  everyone for  their participation  and                                                               
adjourned the meeting at 4:00 p.m.                                                                                              

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