Legislature(2015 - 2016)SENATE FINANCE 532

02/12/2015 03:00 PM LEGISLATIVE BUDGET & AUDIT

Audio Topic
03:04:04 PM Start
03:05:18 PM Presentation: Mwh Infrastructure Development, Inc.
03:38:12 PM Presentation: Alaska Industrial Development and Export Authority
05:02:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: TELECONFERENCED
The Interior Energy Projects by AIDEA
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
             LEGISLATIVE BUDGET AND AUDIT COMMITTEE                                                                           
                       February 12, 2015                                                                                        
                           3:04 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Hawker, Chair                                                                                               
Representative Kurt Olson                                                                                                       
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Sam Kito                                                                                                         
                                                                                                                                
Senator Anna MacKinnon, Vice Chair                                                                                              
Senator Cathy Giessel                                                                                                           
Senator Bert Stedman                                                                                                            
Senator Click Bishop                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mark Neuman (alternate)                                                                                          
                                                                                                                                
Senator Lyman Hoffman                                                                                                           
Senator Pete Kelly (alternate)                                                                                                  
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Mike Chenault                                                                                                    
Representative Craig Johnson                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION: MWH INFRASTRUCTURE DEVELOPMENT, INC.                                                                              
PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
RICK ADCOCK, Managing Director                                                                                                  
MWH Infrastructure Development, Inc.                                                                                            
MWH Global                                                                                                                      
Broomfield, Colorado                                                                                                            
POSITION STATEMENT:  Testified during discussion of the Interior                                                              
Energy Project.                                                                                                                 
                                                                                                                                
TED LEONARD, Executive Director                                                                                                 
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Presented  a PowerPoint titled  "Overview of                                                            
Interior Energy  Project and Potential  Purchase of  Pentex Alaska                                                              
Natural  Gas Company,  LLC,"  during  discussion  of the  Interior                                                              
Energy Project.                                                                                                                 
                                                                                                                                
BOB SHEFCHIK, Development Officer                                                                                               
Interior Energy Project (IEP)                                                                                                   
Alaska Industrial Development and Export Authority                                                                              
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Answered   questions  during   the  AIDEA                                                            
PowerPoint presentation on the Interior Energy Project.                                                                         
                                                                                                                                
NICK SZYMONIAK, Development Officer                                                                                             
Energy Infrastructure                                                                                                           
Alaska Industrial Development and Export Authority                                                                              
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Answered  questions  during  the  overview                                                            
presentation by AIDEA.                                                                                                          
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:04:04 PM                                                                                                                    
                                                                                                                                
CHAIR  MIKE  HAWKER  called  the   Legislative  Budget  and  Audit                                                            
Committee meeting  to order at 3:04 p.m.   Representatives Hawker,                                                              
Pruitt,  Thompson,   Olson,  and  Kito  and   Senators  MacKinnon,                                                              
Giessel, Bishop,  and Stedman were  present at the call  to order.                                                              
Also in attendance were Representatives Chenault and Johnson.                                                                   
                                                                                                                                
^PRESENTATION: MWH Infrastructure Development, Inc.                                                                           
       PRESENTATION: MWH Infrastructure Development, Inc.                                                                   
                                                                                                                                
3:05:18 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER announced  that the first order of  business would be                                                              
a  presentation  by  MWH  Infrastructure  Development,  Inc.    He                                                              
relayed that the  hearing was being conducted under  the statutory                                                              
authority granted  the Legislative  Budget and Audit  Committee to                                                              
review  the  expenditure  of state  funds,  and  the  relationship                                                              
between state agency  program accomplishments and  the legislative                                                              
intent.   He spoke  about the  challenges to  reduce the  costs of                                                              
energy  to  Interior Alaska,  specifically  through  the  Interior                                                              
Energy  Project.     He  reported  that,  in   December,  2014,  a                                                              
legislatively approved  project had  been discontinued and  was no                                                              
longer  being pursued.   He  explained  that this  hearing was  to                                                              
review  the facts  and  circumstances surrounding  this  decision,                                                              
and  to  discuss  future direction  with  legislative  desire  and                                                              
intent to facilitate  interior energy cost relief.   He reiterated                                                              
that the committee  would honor the commitment  to Interior Alaska                                                              
to focus  a major legislative  effort on  energy cost relief.   He                                                              
referenced  Senate  Bill 23,  which  had  included the  merger  of                                                              
components  of legislation  and provided  authority to the  Alaska                                                              
Industrial Development  and Export  Authority (AIDEA)  to commence                                                              
work on  a gas trucking operation  relying on North  Slope natural                                                              
gas  for  distribution  in  Fairbanks.    He  reported  that  this                                                              
legislation had  provided authority  for $275 million  in support,                                                              
comprised  of  bonding   for  $150  million  and   potential  cash                                                              
assistance for  another $125 million.   He noted that  Senate Bill                                                              
18, the  capital budget,  had also  appropriated $57.5  million to                                                              
AIDEA  to facilitate  progress on  these investments.   He  stated                                                              
that this  committee meeting would  discuss "what happened  to the                                                              
old plan" and would  then discuss the origins and  direction for a                                                              
new plan.                                                                                                                       
                                                                                                                                
3:10:07 PM                                                                                                                    
                                                                                                                                
RICK ADCOCK,  Managing Director,  MWH Infrastructure  Development,                                                              
Inc.,  MWH Global,  read from  a prepared  statement [Included  in                                                              
members' packets]:                                                                                                              
                                                                                                                                
     Mr. Chairman, Members of the Committee, thank you for                                                                      
     the invitation to speak to you today.                                                                                      
                                                                                                                                
     My name is Rick Adcock, and I am Managing Director of                                                                      
     MWH Infrastructure Development, Inc. MWH Global, our                                                                       
     parent company, is a global engineering and                                                                                
     construction firm.  We have served Alaska for over 35                                                                      
     years, and our Anchorage office has 30 employees                                                                           
     working on infrastructure and other projects                                                                               
     throughout the State.  Just over one year ago, AIDEA                                                                       
     selected MWH as the Concessionaire to the Interior                                                                         
     Energy Project (IEP), to develop and bring private                                                                         
     financing to the Northern Gas Supply Plant (NGSP)                                                                          
     project.                                                                                                                   
                                                                                                                                
     The State's investment in the IEP, through AIDEA, was                                                                      
     intended to attract private-sector partners to finance                                                                     
     and develop the supply and delivery of liquefied                                                                           
     natural gas (LNG) from the North Slope to Interior                                                                         
     Alaska.  The expectation was  that the State funds                                                                         
     would be supplemented by private capital, and that the                                                                     
     private sector would execute  and operate the NGSP                                                                         
     project on the North Slope.                                                                                                
                                                                                                                                
     Over the course of last year,  we made significant                                                                         
     progress toward the goal of  delivering gas to the                                                                         
     Interior in 2016.  I will summarize our                                                                                    
     accomplishments in the next 15 minutes, but what you                                                                       
     will hear is that:  There is a large gas supply under                                                                      
     contract and available to the project through GVEA,                                                                        
     which can meet all expected long-term demand from the                                                                      
     Fairbanks utilities, and which has significant                                                                             
     additional capacity to meet  new demand from other                                                                         
     Interior communities, mines, the military, and other                                                                       
     future Interior economic development activities.                                                                           
                                                                                                                                
3:12:01 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK continued with his presentation:                                                                                     
                                                                                                                                
     A highly-qualified, private-sector team was assembled                                                                      
     to develop, finance, build, and operate the NGSP, in                                                                       
     order to utilize that gas supply to produce LNG for                                                                        
     delivery to Fairbanks.                                                                                                     
                                                                                                                                
     Other elements of the supply chain were under                                                                              
     development in parallel, and most of the commercial                                                                        
     contracts required for the overall project were either                                                                     
     executed, or in advanced stages of development.                                                                            
                                                                                                                                
     The project is real and viable.  MWH remains committed                                                                     
     to this project and we are ready to pick up where we                                                                       
     left off.                                                                                                                  
                                                                                                                                
     As of mid-December, we had assembled the pieces to                                                                         
     meet the goal of delivering gas to Fairbanks in 2016.                                                                      
     In addition to a signed Concession  Agreement with                                                                         
     AIDEA, we had achieved a joint  venture to utilize                                                                         
     GVEA's long-term gas supply agreement; an EPC                                                                              
     contract; an operating and  maintenance agreement;                                                                         
     initial commitments, pending final due diligence, for                                                                      
     over $100 million of capital from institutional                                                                            
     infrastructure fund managers; and nearly final terms                                                                       
     for off-take agreements with GVEA and FNG.                                                                                 
                                                                                                                                
3:13:13 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER asked for a description of the EPC contract.                                                                       
                                                                                                                                
MR. ADCOCK explained that this was an engineering, procurement,                                                                 
and   construction    contract,   which   included    design   and                                                              
construction of the plant.                                                                                                      
                                                                                                                                
3:13:38 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK stated:                                                                                                              
                                                                                                                                
     Despite the progress on the project, it became clear                                                                       
     that we would need an extension of the December 30,                                                                        
     2014 deadline for financial closing, in order to                                                                           
     complete documentation on these arrangements and to                                                                        
     allow our funding partners to complete their due                                                                           
     diligence.  An extension to March 31, 2015 would have                                                                      
     been adequate for these purposes, and the extension                                                                        
     would not have delayed first  gas to Fairbanks in 2016.                                                                    
                                                                                                                                
     On December 22, 2014, AIDEA  informed us by letter that                                                                    
     they were not prepared to extend  the financial closing                                                                    
     deadline under the Concession Agreement unless MWH                                                                         
     agreed to certain new terms  under that agreement.  MWH                                                                    
     and AIDEA did not reach agreement  on these changes and                                                                    
     the CA was terminated in January 5, 2015.                                                                                  
                                                                                                                                
     Now,  I  will turn  to  summarizing  our  private-sector                                                                   
     approach over  the last year  to deliver the  project on                                                                   
     a schedule and  at a cost aligned with the  goals of the                                                                   
     IEP.                                                                                                                       
                                                                                                                                
3:14:31 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK reported:                                                                                                            
                                                                                                                                
     The IEP was originally conceived of as a public-                                                                           
     private partnership, or P3.   In the P3 model, a single                                                                    
     private entity is responsible for bringing together a                                                                      
     team to provide the services needed to design,                                                                             
     construct, finance, and operate  a project.  The public                                                                    
     sponsor may retain certain traditional government                                                                          
     functions like dealing with regulators, but the                                                                            
     general purpose of a P3 is to enable the public sector                                                                     
     to harness the expertise, resources, and efficiencies                                                                      
     that the private sector can bring to the financing and                                                                     
     delivery of projects like the IEP.                                                                                         
                                                                                                                                
     A key feature of any P3 project is the transfer of                                                                         
     much of the risk generally taken by the public sector,                                                                     
     over to the private entity.  This is often                                                                                 
     accomplished through a concession that grants the                                                                          
     private entity the right to perform what is typically                                                                      
     a government function for a specified period.                                                                              
                                                                                                                                
     On September 19, 2014, after seven months of                                                                               
     negotiations, AIDEA and Northern Lights Energy, LLC                                                                        
     (NLE), a subsidiary of MWH, entered into a Concession                                                                      
     Agreement, which granted NLE the exclusive right to                                                                        
     develop the NGSP project.  The Concession Agreement                                                                        
     did not, however, confer ownership of the project to                                                                       
     NLE. Rather, it allowed for the exclusive use of the                                                                       
     assets for 30 years, after which time the assets would                                                                     
     revert to AIDEA control.  Under the Concession                                                                             
     Agreement, NLE agreed to contract for the design and                                                                       
     construction of the plant, the operation and                                                                               
     maintenance of the plant, and to source the private                                                                        
     financing for the project.                                                                                                 
                                                                                                                                
     The Concession  Agreement was  very prescriptive  in how                                                                   
     the  private  financing  could   be  structured.    Even                                                                   
     though the  project required  well over $100,000,000  in                                                                   
     private  capital, the  Concession  Agreement capped  the                                                                   
     amount   of   equity   that   could   be   invested   at                                                                   
     $50,000,000,  thereby creating  the need for  additional                                                                   
     private debt.   Moreover, equity returns were  capped at                                                                   
     12.5% and, in  the event this cap was exceeded,  some of                                                                   
     those  additional returns  would  be used  to lower  the                                                                   
     price of gas to the utilities.                                                                                             
                                                                                                                                
3:16:42 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK explained that any profits over 12.5 percent would be                                                                
used to rebate the utilities to lower the tariffs paid by                                                                       
customers.  He continued:                                                                                                       
                                                                                                                                
     In addition to the capped upside on its equity                                                                             
     participation, NLE was required  to bear considerable                                                                      
     risk under the Concession Agreement.   If the cost to                                                                      
     construct the project exceeded  the available overrun                                                                      
     reserves, NLE would be required to pay the additional                                                                      
     costs associated with completing the project.  Also,                                                                       
     all technical and financial risks of operation were to                                                                     
     be borne by NLE.                                                                                                           
                                                                                                                                
     Although the Concession Agreement granted NLE certain                                                                      
     exclusive rights, it was not a monopoly.  Alternative                                                                      
     gas supplies, hydropower, and other competitive                                                                            
     pressures would have constantly put NLE returns at                                                                         
     risk.  NLE also took financing risk because it would                                                                       
     bear any increase in interest rates or insurance                                                                           
     premiums.  Finally, NLE assumed the credit risk of                                                                         
     off-takers -- AIDEA did not backstop off-taker default                                                                     
     risk, and the SETS subordination provided only limited                                                                     
     protection.                                                                                                                
                                                                                                                                
     So, NLE was willing to take a significant amount of                                                                        
     risk that would normally be borne by AIDEA in a                                                                            
     traditional procurement, including completion risk,                                                                        
     financing risk, operations risk, competition risk, and                                                                     
     credit risk.  However, the project was not without                                                                         
     some risk to AIDEA, including the risk of a State-                                                                         
     sponsored alternative gas supply, the risk of                                                                              
     repayment of the SETs funds by subordinating them to                                                                       
     the equity, permitting risks, and site risks.                                                                              
                                                                                                                                
     In delivering the project, MWH assembled a committed                                                                       
     team of more than 40 professionals to execute the IEP,                                                                     
     including partners and consultants who are recognized                                                                      
     experts in the commercial, legal, financial, and                                                                           
     technical aspects of the project.  In order to                                                                             
     facilitate decision making, throughout the project we                                                                      
     worked very closely with AIDEA management, staff, and                                                                      
     technical advisors by coordinating and collaborating                                                                       
     on project activities on a daily basis.                                                                                    
                                                                                                                                
     Developing   a  successful   project  required   clarity                                                                   
     around,  and   confidence  in,  the  cost  of   a  safe,                                                                   
     efficient,  and  well-constructed   North  Slope  plant.                                                                   
     The   EPC   contractor   activities    associated   with                                                                   
     developing a  cost estimate are typically  a closed-door                                                                   
      process performed in support of competitive or lump-                                                                      
       sum bid proposals, but MWH and AIDEA requested an                                                                        
     open-book approach by our contractor.                                                                                      
                                                                                                                                
3:19:14 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK relayed:                                                                                                             
                                                                                                                                
     In a demonstration of commitment  to the project, our                                                                      
     contractor accepted this higher  level of scrutiny on                                                                      
     their estimating process, opening their doors to                                                                           
     AIDEA, MWH, and their corresponding  technical teams.                                                                      
                                                                                                                                
     During the period from June through December 2014, the                                                                     
     EPC contractor worked diligently with MWH and AIDEA                                                                        
     staff to define and refine the project.  The                                                                               
     construction cost estimate and plant configuration                                                                         
     process included working sessions  to evaluate scope,                                                                      
     demand, project assumptions, technical needs,                                                                              
     logistics, detailed equipment specifications, and                                                                          
     costs.  From the onset of the project, the EPC                                                                             
     contractor hosted weekly coordination calls and                                                                            
     working sessions, which included participants from                                                                         
     AIDEA and their technical advisors, MWH and their                                                                          
     technical advisors, operations specialists, and third-                                                                     
     party estimate reviewers.                                                                                                  
                                                                                                                                
     At the conclusion of this effort,  MWH had confidence                                                                      
     in the configuration of the project and pad, and in                                                                        
     the cost estimate that was developed.  The estimating                                                                      
     process was reviewed by a third-party  entity with 30                                                                      
     years of experience estimating oil and gas projects on                                                                     
     the North Slope.  Their summary report of findings                                                                         
     indicated that the estimate basis utilized by our EPC                                                                      
     contractor was sound.                                                                                                      
                                                                                                                                
     The development of the project site on the North Slope                                                                     
     was included as a scope of work to be executed by the                                                                      
     EPC contractor under a cost-reimbursable  contract to                                                                      
     AIDEA.  The contractor completed pre-work on the North                                                                     
     Slope pad in September 2014.  All permits necessary to                                                                     
     support the pad construction  were obtained by AIDEA.                                                                      
                                                                                                                                
     Engaging,  informing, and securing  commitment from  the                                                                   
     key Fairbanks  off-takers was  another critical  step in                                                                   
     developing  the  project.    Throughout  2014,  MWH  met                                                                   
     regularly  with the  three  Fairbanks  utilities:   FNG,                                                                   
     IGU,  and GVEA.    The Concession  Agreement  identified                                                                   
     those  utilities  as Preferred  Customers,  and  granted                                                                   
     priority of  supply in accordance  with North  Slope LNG                                                                   
     availability.   Frequently,  MWH  scheduled meetings  in                                                                   
     Fairbanks  to apprise  the  utilities  of our  progress,                                                                   
     solicit   input  on   the   project,  discuss   off-take                                                                   
     contract   structures,   review   demand   curves,   and                                                                   
     generally assess  the developing IEP supply  chain.  The                                                                   
     project     required    ongoing    participation     and                                                                   
     contributions from the utilities.                                                                                          
                                                                                                                                
3:21:38 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK explained that:                                                                                                      
                                                                                                                                
     MWH established a collaborative  environment where all                                                                     
     could engage constructively,  even though the utilities                                                                    
     have very different business models.                                                                                       
                                                                                                                                
     MWH developed a real project.  There was, and is, a                                                                        
     deep understanding of the site,  the plant, the market,                                                                    
     and the costs.  We have a project that can deliver                                                                         
     natural gas from the North Slope at a competitive                                                                          
     price, significantly reducing the cost of energy in                                                                        
     the Interior.                                                                                                              
                                                                                                                                
     MWH and GVEA were partners in the development of the                                                                       
     North Slope LNG project.  The terms of our joint                                                                           
     venture agreement provided  for (1) making natural gas                                                                     
     for the NGSP available through GVEA's existing gas                                                                         
     supply agreement with a North  Slope producer, and (2)                                                                     
     ongoing marketing of gas to  the Interior utilities on                                                                     
     a preferred basis, as well  as to other Interior users.                                                                    
                                                                                                                                
     The existing gas supply agreement originally allowed                                                                       
     GVEA to serve as the aggregator of Interior natural                                                                        
     gas demand.  The contract contains  numerous attractive                                                                    
     terms for a utility gas supply,  including the contract                                                                    
     length, an attractive raw gas  price, the security that                                                                    
     comes from an abundant supply of natural gas,                                                                              
     proximity of gas infrastructure  to the LNG plant, and                                                                     
     a large volume available for purchase to meet future                                                                       
     Interior energy demand.  The  contract is a logical and                                                                    
     compelling natural gas source  for the Interior Energy                                                                     
     Project, because it is a secure and adequate gas                                                                           
     supply to cover the requirements of the initial                                                                            
     project, as well as several plant expansions, at an                                                                        
     attractive price.  GVEA had  stated its willingness to                                                                     
     provide gas to the utilities with no markup, other                                                                         
     than to cover general administrative costs, and the                                                                        
     cost of obtaining the original gas contract.  These                                                                        
     costs would amount to a few pennies per Mcf in the                                                                         
     delivered price of gas.                                                                                                    
                                                                                                                                
     As part  of our development  efforts, MWH met  with many                                                                   
     other   potential   off-takers,   including   industrial                                                                   
     entities, mining  companies, institutions,  and military                                                                   
     bases.   Most expressed sincere  interest in  seeing the                                                                   
     project  successfully  completed,  so  that  they  would                                                                   
     have  the  fuel  option  of   natural  gas  in  Interior                                                                   
     Alaska.    Preliminary findings  suggest  a  longer-term                                                                   
     market  for  natural gas  that  far exceeds  the  supply                                                                   
     provided   by  the  initial   6  Bcf  plant   production                                                                   
     capacity.                                                                                                                  
                                                                                                                                
3:23:50 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK mentioned that Bcf was billion cubic feet, and                                                                       
continued with his presentation:                                                                                                
                                                                                                                                
     The NGSP would not only provide energy to these                                                                            
     consumers, but the Concession Agreement required that                                                                      
     a percentage of the profits from these non-utility                                                                         
     sales be used to reduce the cost of LNG sold to the                                                                        
     preferred utilities:  IGU, FNG, and GVEA.                                                                                  
                                                                                                                                
     By mid-December 2014, our team had a high degree of                                                                        
     LNG cost certainty.  We had advanced the NGSP from a                                                                       
     study-level concept and cost estimate, well into the                                                                       
     design phase with site plans, process &                                                                                    
     instrumentation diagrams, and bid quotations on major                                                                      
     pieces of equipment.  These, in turn, led to a cost                                                                        
     estimate and firm construction schedule by the EPC                                                                         
     contractor.  The team had achieved substantial                                                                             
     agreement on the terms and conditions of a guaranteed                                                                      
     maximum-price EPC contract.                                                                                                
                                                                                                                                
     NLE awarded an operations and  maintenance contract for                                                                    
     the NGSP, and executed the  joint development agreement                                                                    
     with our investor partner to  provide over $100 million                                                                    
     of private investment capital for the NGSP.                                                                                
                                                                                                                                
     After several months of discussions, our team                                                                              
     confirmed LNG demand estimates with the Fairbanks                                                                          
     utilities.  We had agreement, in principle, subject to                                                                     
     board approval, for an off-take agreement with GVEA                                                                        
     and, with similar conditions, for an agreement with                                                                        
     FNG that met its forecast demand.                                                                                          
                                                                                                                                
     MWH worked in close collaboration with GVEA, FNG, and                                                                      
     IGU to analyze and assess storage and trucking costs                                                                       
     in an effort to reduce uncertainty around other supply                                                                     
     chain costs.  AIDEA's proposal to provide $10M in                                                                          
     grant funding to a utility trucking consortium helped                                                                      
     to lower those costs further.                                                                                              
                                                                                                                                
     As a result of this effort by our team and partners,                                                                       
     NLE was able to offer agreements to the three                                                                              
     Fairbanks utilities to supply LNG, delivered to                                                                            
     Fairbanks, at a preliminary price in the range of $13                                                                      
     per Mcf.  Though some areas of cost uncertainty                                                                            
     remained, NLE was confident in the numbers presented.                                                                      
                                                                                                                                
3:26:04 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK concluded by stating:                                                                                                
                                                                                                                                
     We continue to maintain our interest in moving forward                                                                     
     with our work on the IEP, and we have indicated this                                                                       
     to AIDEA on several occasions.  We believe that the                                                                        
     work performed over the last year demonstrates that                                                                        
     LNG can be delivered from the North Slope at a price                                                                       
     that can address the Interior's economic challenges                                                                        
     resulting from the high cost of energy.                                                                                    
                                                                                                                                
     Natural gas resources on the North Slope can be                                                                            
     procured at prices that are well below the reported                                                                        
     prices available from other sources.  The total amount                                                                     
     of gas available through the existing North Slope                                                                          
     contract that would supply the NGSP is more than                                                                           
     adequate to meet the Interior's energy needs for years                                                                     
     to come.  Interior utility customers, as well as                                                                           
     industrial users, would have long-term access to                                                                           
     affordable LNG, in quantities sufficient to support                                                                        
     investments in the Interior's economic growth.  And,                                                                       
     the region's air quality would benefit greatly from                                                                        
     substitution of natural gas for the fuels that are                                                                         
     currently used.                                                                                                            
                                                                                                                                
     At  this point,  the North  Slope  option for  supplying                                                                   
     LNG  to  the  Interior  has  been  thoroughly  assessed.                                                                   
     Once    the   Administration    and   the    Legislature                                                                   
     investigate the  other alternatives just  as thoroughly,                                                                   
     if  the North  Slope  option  is found  to  be the  best                                                                   
     option   for  delivering   affordable   energy  to   the                                                                   
       Interior, then the private-sector team led by MWH                                                                        
     stands ready to revive the project.                                                                                        
                                                                                                                                
3:27:24 PM                                                                                                                    
                                                                                                                                
MR.  ADCOCK  added  that  MWH  understood  that  energy  cost  and                                                              
availability was  "really about  Alaskans, their communities,  and                                                              
their  future."   He declared  support for  working together  with                                                              
the government, local  communities and the private  sector for the                                                              
best possible  solution  for energy  costs.   He noted that,  with                                                              
the  Interior  Energy   Project  (IEP),  MWH  had   taken  on  the                                                              
responsibility   to  address  this   problem,  and,   although  no                                                              
solution   was  simple,   there  were   several  proposed   viable                                                              
solutions advanced  for North Slope  gas.  He emphasized  that MWH                                                              
believed  there  were compelling  reasons  to consider  the  North                                                              
Slope  LNG project,  and that  MWH recognized  that the  community                                                              
needed   a  solution   which  worked   technically,   financially,                                                              
economically,  and politically.   He  expressed understanding  for                                                              
the desire  to consider alternatives.   He offered that  MWH would                                                              
like to  continue to contribute  private sector capabilities  in a                                                              
constructive, collaborative, and professional manner.                                                                           
                                                                                                                                
3:28:36 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER  asked to  clarify the  benchmarks for discussion  of                                                              
the cost  for gas delivery, whether  it was cost to  the consumer,                                                              
"the burner  tip," or cost  to the utility,  "the city gate."   He                                                              
asked for  clarification to  the aforementioned preliminary  price                                                              
delivery to Fairbanks of $13 per Mcf.                                                                                           
                                                                                                                                
MR. ADCOCK explained that this price was city gate.                                                                             
                                                                                                                                
CHAIR HAWKER  asked if  Mr. Adcock  could share  how much  MWH had                                                              
currently invested in the project.                                                                                              
                                                                                                                                
MR.  ADCOCK  replied that  the  MWH  investment  was close  to  $3                                                              
million.                                                                                                                        
                                                                                                                                
3:29:57 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK  directed attention to  slide 1, "Model View  of NGSP,"                                                              
which depicted  the plant  model designed by  its contractor.   He                                                              
explained that it  was designed as a 6 Bcf plant.   He moved on to                                                              
slide  2, "Plant  Siting  with Future  Expansion  Considerations,"                                                              
and noted that the  proposed plant could be expanded  to 12 Bcf as                                                              
demand  grew,  while   allowing  the  first  6   Bcf  to  continue                                                              
operation  during  expansion.   Directing  attention  to slide  3,                                                              
"Constructed Gravel  Pad," he noted that this was  the North Slope                                                              
pad  constructed during  the previous  summer,  as well  as a  gas                                                              
supply  plant where  the  tie-in  for the  gas  arriving from  the                                                              
North Slope would occur.                                                                                                        
                                                                                                                                
CHAIR HAWKER asked who owned the depicted pad.                                                                                  
                                                                                                                                
MR. ADCOCK replied that the State of Alaska owned the pad.                                                                      
                                                                                                                                
CHAIR HAWKER asked how much the state had invested in the pad.                                                                  
                                                                                                                                
MR.  ADCOCK  offered  his  belief  that  it  was  several  million                                                              
dollars.                                                                                                                        
                                                                                                                                
3:31:09 PM                                                                                                                    
                                                                                                                                
MR. ADCOCK  concluded with  slide 4, "Component  Costs of  the IEP                                                              
Supply  Chain,"   noting  that  MWH   had  put  together   a  very                                                              
sophisticated  financial model  which was  refined daily  to model                                                              
the entire supply  chain.  This slide showed  the probabilities of                                                              
outcomes  given  the  uncertainties  in the  supply  chain,  which                                                              
included  the gas  itself subject  to energy  market changes,  the                                                              
liquefaction in  the plant, property  tax on the North  Slope, and                                                              
the  possible  costs of  the  trucking  component.   He  explained                                                              
that,  as these  variables were  stacked  together, the  projected                                                              
cost during the past December, was $12.50 - $13.50 per Mcf.                                                                     
                                                                                                                                
3:32:13 PM                                                                                                                    
                                                                                                                                
CHAIR  HAWKER  asked  whether  MWH   felt  that  the  project  was                                                              
economically viable,  if they would have been  willing to continue                                                              
with the  project, and the  reason Mr.  Adcock had been  given for                                                              
the termination of the project.                                                                                                 
                                                                                                                                
3:32:52 PM                                                                                                                    
                                                                                                                                
MR.  ADCOCK  offered  his  understanding   that  the  project  was                                                              
terminated   because  there   was  not   community  or   political                                                              
alignment behind  the project.   He stated that, although  MWH did                                                              
consider this  an economically viable  project, the  politics were                                                              
not  there to  close it.   He  declared  that MWH  was willing  to                                                              
continue to  work on the project;  however, the terms  required by                                                              
AIDEA  to extend  the  concession  agreement  would have  made  it                                                              
financially impractical for MWH to continue.                                                                                    
                                                                                                                                
CHAIR HAWKER  pointed out that  these documents were  available on                                                              
BASIS.                                                                                                                          
                                                                                                                                
3:34:00 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON  highlighted that, in a P3  environment, private                                                              
partners   were  sought   for  capitalization   to  some   of  the                                                              
investment.   She  directed attention  to comments  by Mr.  Adcock                                                              
for a  required investment  range of  $50 -  $100 million  with an                                                              
interest rate of  return capped at 12.5 percent.   She offered her                                                              
belief  that   this  rate  of   return  may  have   been  reviewed                                                              
politically,   and  determined  that   there  were   better  deals                                                              
elsewhere.                                                                                                                      
                                                                                                                                
MR. ADCOCK, in  response, explained that the  capital structure of                                                              
the project brought  the Alaska Industrial Development  and Export                                                              
Authority  (AIDEA)  grant funding  at  a 0  -  3 percent  interest                                                              
rate,  as well  as private  equity and  private debt.   He  stated                                                              
that,  as AIDEA  had allowed  12.5  percent return  on the  equity                                                              
component  of   the  capital,  this   was  the  return   that  MWH                                                              
requested.   As the  debt component  was in  addition to  this, he                                                              
offered an example  for the need to raise $120  million of private                                                              
capital, which would  have required $50 million in  equity and $70                                                              
million  in debt.   He noted  that the  debt would  "come in  at a                                                              
lower rate"  and that the lenders  were the last  financial entity                                                              
to enter the  picture as it was  necessary for them to  review the                                                              
entire  project  and  its  contracts   in  order  to  perform  due                                                              
diligence.   He  shared  that, although  MWH  had  spoken to  many                                                              
lenders, they had  not yet finalized terms, which  would have been                                                              
at a  much lower  rate than the  equity capital.   He  pointed out                                                              
that this equity  was typically at a higher rate  of return, as it                                                              
was  "the first  line of  fire,  if there's  any losses,  equity's                                                              
gone."  He shared  that, with a weighted average  cost of capital,                                                              
the  capital cost  would  be significantly  lower  for a  project,                                                              
especially if  the AIDEA  capital was blended  in.   He emphasized                                                              
that the public  policy goal by the state was to  make the project                                                              
happen,  with rates  to  consumers  that were  lower  than if  the                                                              
project  had been  totally financed  by  the private  sector.   He                                                              
pointed out  that blending in the  public sector component  of the                                                              
capital allowed  a lower weighted  average cost of  capital, which                                                              
directly translated to lower consumer rates.                                                                                    
                                                                                                                                
3:36:56 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
^PRESENTATION:   Alaska   Industrial    Development   and   Export                                                            
Authority                                                                                                                     
 PRESENTATION: Alaska Industrial Development and Export Authority                                                           
                                                                                                                              
3:38:12 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER  announced that the  next order of business  would be                                                              
a presentation  by the  Alaska Industrial  Development and  Export                                                              
Authority (AIDEA) regarding the Interior Energy Project (IEP).                                                                  
                                                                                                                                
CHAIR  HAWKER, noting  that there  had  been a  transition in  the                                                              
project during December  for a new conceptual direction,  asked if                                                              
the  decision   process  at  AIDEA   could  be  segued   into  the                                                              
presentation.                                                                                                                   
                                                                                                                                
3:41:03 PM                                                                                                                    
                                                                                                                                
TED  LEONARD, Executive  Director,  Alaska Industrial  Development                                                              
and Export  Authority (AIDEA),  Department of Commerce,  Community                                                              
& Economic  Development, Presented  a PowerPoint titled  "Overview                                                              
of  Interior  Energy  Project and  Potential  Purchase  of  Pentex                                                              
Alaska   Natural  Gas   Company,  LLC."   [Included  in   members'                                                              
packets].   In response  to Chair  Hawker, he  relayed that  AIDEA                                                              
was still  in contact  with MWH  Infrastructure Development,  Inc.                                                              
and  that AIDEA  was still  looking  for a  North Slope  solution.                                                              
Based on  cost, changing  conditions, and  associated risk,  AIDEA                                                              
was still  working to  review all  sources of  gas and  to provide                                                              
the lowest cost of energy to Fairbanks.                                                                                         
                                                                                                                                
CHAIR HAWKER directed  attention to the written  answers submitted                                                              
by AIDEA  [Included in  members' packets.]   He declared  that his                                                              
desire was  to have a  clear record for  the points  of difference                                                              
between  community expectations  and the  partnership between  MWH                                                              
and AIDEA,  and the  specific data point  which brought  about the                                                              
change of direction.                                                                                                            
                                                                                                                                
MR. LEONARD moved  on to slide 2, "IEP Goals,"  declaring that the                                                              
goal was  to supply natural gas  to as many customers  as possible                                                              
in Interior  Alaska, as soon as  possible, and at the  lowest cost                                                              
possible.  He  relayed that AIDEA understood that  the North Slope                                                              
facility, and  any other  investments for  LNG capacity,  would be                                                              
complementary to  the natural gas pipeline.   He acknowledged that                                                              
the  State of  Alaska was  looking at  a project  to replace  this                                                              
current project.   He pointed to  another goal for lower  PM2.5 in                                                              
nonattainment areas of  the Interior, such as the North  Pole.  He                                                              
stated that the  IEP goals and the targeted  community expectation                                                              
was $15 per Mcf delivered to the burner tip.                                                                                    
                                                                                                                                
CHAIR HAWKER  relayed that the earlier  testimony by MWH  had been                                                              
for a price of  $13 per Mcf delivered to the city  gate.  He asked                                                              
for a comparison of this to the burner tip price expectations.                                                                  
                                                                                                                                
MR. LEONARD  replied that this was  a moving target.   He referred                                                              
to  earlier presentations  two  years  prior for  the  feasibility                                                              
cost,  with a  distribution cost  of approximately  $4 [per  Mcf].                                                              
He stated that this estimate had changed.                                                                                       
                                                                                                                                
CHAIR HAWKER summarized  that the community was  expecting no more                                                              
than $11  [to the  city gate]  and that  this $2 differential  was                                                              
what changed the direction of the program.                                                                                      
                                                                                                                                
3:45:57 PM                                                                                                                    
                                                                                                                                
BOB  SHEFCHIK,   Development  Officer,  Interior   Energy  Project                                                              
(IEP),  Alaska   Industrial  Development  and   Export  Authority,                                                              
Department  of Commerce,  Community &  Economic Development,  said                                                              
that, although  he was newly  the IEP team  leader, he  had worked                                                              
with  interior   gas  utilities  for   the  past  2.5   years  and                                                              
consequently  had   some  background  for  expectations   and  the                                                              
potential price  for delivery  to the city  gate.  He  shared that                                                              
there  had been  similar presentations  for the  range of  pricing                                                              
during the process,  with a price ranging from $13.42  up into the                                                              
$14.00s.   He  expressed  disagreement with  that  portion of  the                                                              
presentation  by  Mr.  Adcock  for   the  cost  and  risk  to  the                                                              
utilities.                                                                                                                      
                                                                                                                                
3:47:12 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER  suggested that a reason  for the termination  of the                                                              
project  was that  the  meter price  did  not  meet the  community                                                              
goals, and he asked the goal expectations.                                                                                      
                                                                                                                                
MR.  SHEFCHIK  replied  "you  bet  I can.    The  expectation  was                                                              
pricing  in  the  range  of $15  per  thousand  cubic  feet  [Mcf]                                                              
delivered to the home, to the meter, the burner."                                                                               
                                                                                                                                
CHAIR  HAWKER asked  if this  translated  to roughly  $11 [to  the                                                              
city gate].                                                                                                                     
                                                                                                                                
MR. SHEFCHIK replied  that this was not a direct  linear question,                                                              
as the higher the  cost of the North Slope plant  and the more low                                                              
cost money used  to fund that plant, it was then  necessary to use                                                              
more high  cost money  for distribution and  storage.   He pointed                                                              
out  that as  the  cost  of the  plant  would  grow, the  cost  of                                                              
distribution would  increase.  He offered an example  that the use                                                              
of the  low cost money  approved by  the legislature  for building                                                              
the plant  meant that the  cost of money  was higher  for building                                                              
the   distribution  system.      This  would   result  in   higher                                                              
distribution costs,  which were in addition to  the already higher                                                              
cost of gas.   He noted that  a review of the entire  supply chain                                                              
had revealed  an increase of distribution  cost due to  the higher                                                              
cost  of  that money,  hence  an  increase  to the  storage  cost,                                                              
resulting in cost to the burner tip of $20.50 - $22.00.                                                                         
                                                                                                                                
CHAIR HAWKER  asked for  clarification that  the cost  reflected a                                                              
division of the funding in the state subsidy for the project.                                                                   
                                                                                                                                
MR. SHEFCHIK expressed  his agreement.  He said  that, in January,                                                              
2014, there  had been  a projected  cost of $170  million for  a 6                                                              
Bcf (billion  cubic  feet) plant;  then, when  the plant cost  was                                                              
significantly  higher,  additional   money  was  necessary,  which                                                              
subsequently increased the cost of money for distribution.                                                                      
                                                                                                                                
3:50:02 PM                                                                                                                    
                                                                                                                                
SENATOR  MACKINNON asked  about the  changing criteria  referenced                                                              
by  MWH  when  there  was  a  request  for  an  extension  of  the                                                              
contract.                                                                                                                       
                                                                                                                                
MR.  LEONARD,   in  response,   said  that   there  were   several                                                              
requirements  necessary,  in  order   to  move  forward  with  the                                                              
contract  extension.   The main  requirement had  been for  MWH to                                                              
waive exclusivity  of the contract, thereby allowing  the state to                                                              
talk with  other parties  for alternative sources.   He  said that                                                              
the  original concession  agreement  was based  on  a North  Slope                                                              
facility  which AIDEA  and MWH  would work  on exclusively,  while                                                              
AIDEA was  not allowed to talk  with others about  the development                                                              
of  other sources  of gas  for Fairbanks.    This agreement  would                                                              
have  given  MWH  the  exclusive  market  for  gas  delivery  into                                                              
Fairbanks.   He reported that exclusivity  needed to be  waived in                                                              
order for AIDEA  to take the step to look at  alternative sources.                                                              
He added  that other  requirements were  desired by the  attorneys                                                              
to  ensure  there   would  not  be  any  other   pitfalls  in  the                                                              
concession  agreement.  He  relayed that  the AIDEA attorneys  and                                                              
financial   advisors  believed   that  a   review  of  the   other                                                              
alternatives and  discussion of financing could not  be done under                                                              
the existing concession agreement.                                                                                              
                                                                                                                                
3:52:42 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON  directed attention  to page  4 of the  prepared                                                              
remarks  by  Mr.  Adcock,  and read:    "Although  the  Concession                                                              
Agreement  granted NLE  certain  exclusive rights,  it  was not  a                                                              
monopoly.    Alternative  gas  supplies,   hydropower,  and  other                                                              
competitive  pressures would  have constantly  put NLE returns  at                                                              
risk."  She asked if he was referring to this.                                                                                  
                                                                                                                                
MR.  LEONARD  replied  that, in  actuality,  the  alternative  gas                                                              
written  into  the  concession   agreement  was  the  natural  gas                                                              
pipeline.    In the  contract,  it  was specifically  stated  that                                                              
AIDEA would only work with MWH to bring gas to Fairbanks.                                                                       
                                                                                                                                
CHAIR  HAWKER,  asking  about  the   aforementioned  $280  million                                                              
facility cost on  the North Slope, offered his belief  that it was                                                              
$220 - $230 million.                                                                                                            
                                                                                                                                
MR. SHEFCHIK replied  that the facility had a  $228 million target                                                              
price, with  a $20 million do not  exceed.  Along with  this total                                                              
of  $248  million,  there  was  capitalized  interest,  operations                                                              
during  construction,  and  confidential  fees to  MWH  and  other                                                              
parties,  which had resulted  in the  aforementioned $280  million                                                              
total capitalized costs  for the plant.  He pointed  out that this                                                              
had "choked  the community  reaction on a  plant that had  come in                                                              
in pre-FEED estimates of $170 million."                                                                                         
                                                                                                                                
CHAIR HAWKER offered  his belief that a very  excessive number was                                                              
used,  as  opposed  to  the  EPC  (engineering,  procurement,  and                                                              
construction)  estimate of  $228 million  that had been  validated                                                              
by   knowledgeable  North   Slope   construction   experts.     He                                                              
acknowledged that "there  is no knowable answer here.   It is some                                                              
place between $228 and $280, depending where the thing lands."                                                                  
                                                                                                                                
MR. SHEFCHIK  expressed his disagreement,  stating that  the price                                                              
could  be  about  $20  million less  than  $280  million,  but  he                                                              
emphasized that  the price would  not be between $228  million and                                                              
$280 million.  He  declared that the only unknown  was "the not to                                                              
exceed price."                                                                                                                  
                                                                                                                                
CHAIR  HAWKER  offered  his  belief that  Mr.  Shefchik  was  mis-                                                              
interpreting his comment.   He opined that this had  been a viable                                                              
project, but asked  if there had not been enough  subsidy from the                                                              
state  to reach  the  community's economic  goals.   He  suggested                                                              
that AIDEA could  have come back to the legislature  and asked for                                                              
more support, instead of cancelling the project.                                                                                
                                                                                                                                
MR. LEONARD  opined that,  although asking  for more funding  from                                                              
the legislature  was an  alternative, AIDEA  wanted to  first look                                                              
at other alternative sources.                                                                                                   
                                                                                                                                
3:57:45 PM                                                                                                                    
                                                                                                                                
MR.  LEONARD  returned  attention  to  the  PowerPoint,  slide  3,                                                              
"Focus on  Full Supply  Chain."   He stated  that the  IEP project                                                              
was   not  solely   concentrating   on  plant   construction   and                                                              
distribution, but  was instead focusing on the  full supply chain,                                                              
from  gas supply,  to  plant, to  transportation,  to storage,  to                                                              
distribution,   and  to  conversion   to  utilize  the   increased                                                              
distribution  for the  LNG.   He  declared  that  AIDEA needed  to                                                              
"take  a   pause"  and   review  ways  to   reduce  the   cost  of                                                              
distribution  and lower  the price  to city gate.   He  reiterated                                                              
that there was an  AIDEA team looking at all sources,  in order to                                                              
quickly move the project forward to meet the goals of the IEP.                                                                  
                                                                                                                                
CHAIR HAWKER,  acknowledging  that the project  focus had  changed                                                              
to the full  supply chain, reported that testimony  indicated that                                                              
the state had  not put forward enough financial  subsidy to reduce                                                              
the prices  to meet the community  expectations.  He asked  if the                                                              
current list indicated  that AIDEA and the state  were now looking                                                              
at direct involvement  for subsidizing each and all  of the supply                                                              
chain elements.                                                                                                                 
                                                                                                                                
MR. LEONARD  explained that  the discussion  for financing  to the                                                              
original IEP  had always included  research for ways to  invest in                                                              
all the  aspects of  the supply  chain.  He  noted that  review of                                                              
the  supply  chain  during  the project  had  identified  ways  to                                                              
better optimize  through investment.   He offered his  belief that                                                              
the  presentation would  clarify  the elements  necessary to  make                                                              
the project  move forward.   He  stated that  it was necessary  to                                                              
focus on some identified areas to bring down the costs.                                                                         
                                                                                                                                
4:02:07 PM                                                                                                                    
                                                                                                                                
CHAIR  HAWKER  asked how  AIDEA  intended  to  achieve that.    He                                                              
questioned  whether  it was  necessary  for  the  state to  be  in                                                              
competition with  the private  sector, in order  to use  the lower                                                              
costs from  state capital, or  whether the state  should encourage                                                              
private sector development.                                                                                                     
                                                                                                                                
MR.  LEONARD, in  response to  Chair  Hawker, said  that he  would                                                              
discuss this,  as he moved  on to slide  4, "Work Performed  Under                                                              
the  Concession   Agreement."     He  relayed   that,  under   the                                                              
concession  agreement, MWH  was  the project  developer.   As  the                                                              
parties  worked   toward  financial  closure,  there   were  still                                                              
several items  necessary for  completion.  He  listed that  it was                                                              
necessary  for  AIDEA  to  agree  to the  project  costs  and  the                                                              
commercial  terms, that  MWH would  provide  the construction  and                                                              
operating  agreements, that  MWH  would negotiate  and secure  LNG                                                              
supply  agreements  with  the  utilities,  and  that  a  financial                                                              
model, with an agreed  upon LNG price, would be  developed to meet                                                              
the  financial needs  of the  community.   He  offered his  belief                                                              
that,  as AIDEA  was  performing its  due  diligence, the  capital                                                              
costs  were  much  higher  than   the  projected  costs,  slide  5                                                              
"Termination  of the Concession  Agreement."   He reiterated  that                                                              
the  project would  have required  more capital  from the  private                                                              
sector and  from the state.   He shared  that, as there  were many                                                              
moving  targets, the  cost rose  to $13  - $14 to  city gate,  and                                                              
with additional  distribution  costs based  on the utilization  of                                                              
the capital,  this brought the  cost to $19  - $20 [to  the burner                                                              
tip].                                                                                                                           
                                                                                                                                
CHAIR HAWKER  asked whether or not  the utilities would  commit to                                                              
purchase  gas based  on  the model  prices,  and if  not, at  what                                                              
price would the utilities have committed to purchase gas.                                                                       
                                                                                                                                
MR.  SHEFCHIK, in  response,  explained that  during  negotiations                                                              
with Golden  Valley Electric  Association, Inc. (GVEA),  Fairbanks                                                              
Natural Gas, LLC  (FNG), Interior Gas Utility (IGU),  and Northern                                                              
Lights Energy  (NLE), specific  issues for  each of the  utilities                                                              
had   been  discussed.      He   reported  that   throughout   the                                                              
discussions, the  price would change based on  assumptions, with a                                                              
range of  $13.42 to  more than $14.00  at city  gate.   He offered                                                              
his  belief that  GVEA would  have  accepted a  higher dollar,  as                                                              
distribution was not  necessary.  He relayed that IGU  and FNG had                                                              
concerns,  and he opined  that it  would have  been necessary  for                                                              
the price to be  $10 - $11 for IGU, or for  distribution financing                                                              
to  be available  to  drop that  cost  from $5.50  to  $3.50.   He                                                              
stated that  the utilities  would have  signed up  for a  price of                                                              
$11 -  $12 to the  city gate.   He offered  his belief  that there                                                              
was  willingness for  $11  and under,  uncertainty  between $11  -                                                              
$12, and much more difficulty for agreement above $12.                                                                          
                                                                                                                                
CHAIR  HAWKER asked  for the  current actual  cost of  gas to  the                                                              
city gate,  to use as  a benchmark in  comparison with  the target                                                              
numbers.                                                                                                                        
                                                                                                                                
MR. SHEFCHIK  replied that it was  unclear, as FNG was  a combined                                                              
supply  chain which  separated out  its utilities;  as the  supply                                                              
plant  was owned by  Titan Energy  LNG, LLC  and the  distribution                                                              
was  owned by  FNG,  FNG charged  themselves  $15.02  to the  city                                                              
gate.                                                                                                                           
                                                                                                                                
CHAIR  HAWKER  acknowledged  that   there  were  transfer  pricing                                                              
issues, and he asked for current retail burner tip prices.                                                                      
                                                                                                                                
REPRESENTATIVE  THOMPSON  relayed  that he  was  currently  paying                                                              
$23.35 per mcf (thousand cubic feet).                                                                                           
                                                                                                                                
MR. LEONARD said  that the facility charges ranged  from $23.44 to                                                              
$24.00.                                                                                                                         
                                                                                                                                
CHAIR  HAWKER   commended  the   persuasive  arguments   presented                                                              
earlier by Representative  Thompson for the need  to lower utility                                                              
prices.                                                                                                                         
                                                                                                                                
4:10:03 PM                                                                                                                    
                                                                                                                                
SENATOR  STEDMAN  asked for  a  conversion  from Mcf  to  kilowatt                                                              
hours (kWh) for electricity.                                                                                                    
                                                                                                                                
4:10:38 PM                                                                                                                    
                                                                                                                                
NICK  SZYMONIAK,   Development  Officer,  Energy   Infrastructure,                                                              
Alaska  Industrial Development  and  Export Authority,  Department                                                              
of  Commerce, Community  & Economic  Development,  replied that  a                                                              
conversion chart  had been provided earlier to  the Senate Special                                                              
Committee  on  Energy.     He  said  that  this   price  would  be                                                              
equivalent to  a little more than  $.08 kWh, if heated  by $25 per                                                              
million Btu natural gas.                                                                                                        
                                                                                                                                
SENATOR STEDMAN  asked if  this was also  comparable to  a heating                                                              
fuel cost of $3.00 per gallon.                                                                                                  
                                                                                                                                
MR. SZYMONIAK expressed his agreement.                                                                                          
                                                                                                                                
4:12:51 PM                                                                                                                    
                                                                                                                                
CHAIR  HAWKER asked  where  AIDEA  was going  with  regard to  the                                                              
value  chain it  was  reviewing  for investment.    He asked  what                                                              
AIDEA was doing in lieu of this project it had set aside.                                                                       
                                                                                                                                
MR.  LEONARD said  that  although  the project  had  not been  set                                                              
aside as  an alternative,  the one LNG  facility project  had been                                                              
put on  pause in order  to ensure that  all the alternatives  were                                                              
reviewed.   He offered  his belief  that the  utilities would  not                                                              
commit to  the price  presented through  the North Slope  Project.                                                              
He declared a  necessity for review of the alternative  sources in                                                              
conjunction  with a  review of  the  other aspects  in the  supply                                                              
chain, in order to bring the total cost to a workable price.                                                                    
                                                                                                                                
CHAIR HAWKER  asked about  the alternatives  under review,  and if                                                              
there  was assurance  that any  of these  alternatives would  meet                                                              
the desired prices.                                                                                                             
                                                                                                                                
4:15:31 PM                                                                                                                    
                                                                                                                                
MR.  SHEFCHIK offered  an  overview  for his  vision  to the  next                                                              
three  months  and the  expected  actions  for  the project.    He                                                              
relayed that  the cost  of heating  oil was currently  benchmarked                                                              
at $25  - $30  per million  Btu.   He declared  that the goal  for                                                              
every action  was to bring  down that cost.   He pointed  out that                                                              
the first  step would be  to convert from  heating oil  to trucked                                                              
gas and  then possibly  to train-supplied  gas,  and finally  to a                                                              
big pipeline  for  gas supply.   He stated  that  the goal was  to                                                              
build  an infrastructure  to  lower  the price  of  energy in  the                                                              
Interior, and  maintain the  opportunity for  service to  the road                                                              
system.   He  referenced  the aforementioned  slide  3, "Focus  on                                                              
Full Supply  Chain," and noted  natural gas supply,  liquefaction,                                                              
transportation,  storage,  distribution,  and conversions  as  the                                                              
areas  of investigation  for the  most effective  gas supply.   He                                                              
added  that teams  from  Department  of Natural  Resources  (DNR),                                                              
Department of  Revenue (DOR), and  AIDEA would look  for solutions                                                              
to lower  gas cost for  all the utilities,  as well as  a specific                                                              
contract  for  gas  that  would fill  a  liquefaction  train  from                                                              
Southcentral  Alaska.   He declared  that there  were a number  of                                                              
liquefaction  opportunities.   He assured  the committee  that the                                                              
project  would look  at  propane  and, as  due  diligence for  the                                                              
Pentex Alaska  Natural Gas Company,  LLC (Pentex)  acquisition was                                                              
performed, would  winnow this down  to a specific narrow  range of                                                              
options for comparison  to the North Slope benchmark.   He pointed                                                              
out that although  the community was indifferent to  its source of                                                              
gas, it was  highly sensitive to  the price and the  timeframe for                                                              
delivery.   He  opined that  by summer  there would  be a  project                                                              
"back on  the rails that  is consistent  with Senate Bill  23" and                                                              
would optimize all  the components of the supply chain.   He added                                                              
that,  if after  this  review AIDEA  could  not  make the  project                                                              
work, they would come back to the legislature.                                                                                  
                                                                                                                                
CHAIR  HAWKER summarized  that the  plan  for the  project was  to                                                              
review everything for the next six months.                                                                                      
                                                                                                                                
MR.  SHEFCHIK  replied  that  there  would  be  an  assessment  of                                                              
progress to the  legislature every three weeks, as  there would be                                                              
concurrent actions on  multiple paths.  He declared  that he had a                                                              
singular  goal  with  a  singular  focus and  if  there  were  not                                                              
sufficient  tools to  attain the  goal, they  would return  to the                                                              
committee for further support.                                                                                                  
                                                                                                                                
CHAIR HAWKER reiterated  that the objective was  for an identified                                                              
project which  met the expectations  of the utilities,  within six                                                              
months.   He reviewed the direction  of the project,  either south                                                              
to north,  or north to  south.  He  acknowledged that there  was a                                                              
market  for gas  in Southcentral,  although that  demand had  been                                                              
somewhat  alleviated  for  the short  term.    He asked  how  much                                                              
expansion was necessary from the Cook Inlet for the project.                                                                    
                                                                                                                                
4:22:50 PM                                                                                                                    
                                                                                                                                
MR. SHEFCHIK,  in response,  said that he  had agreed to  lead the                                                              
supply chain  starting at  LNG, and that  he would facilitate  the                                                              
gas supply,  although there would  be DOR and DNR  representatives                                                              
on the  team who were  expert on the  Cook Inlet energy  market to                                                              
look at  gas acquisition.   He stated that  the governor  had made                                                              
this a  priority of his administration  and was  putting resources                                                              
toward the  project.   He suggested  that there  could be  a large                                                              
combined  buyers' club  in anticipation  of the  2018 time  frame.                                                              
He stated that the  success of the IEP should not  be dependent on                                                              
solutions for the  energy issues in the rest of Alaska.   He noted                                                              
that  a smaller  project  team would  be  reviewing the  producers                                                              
without large  shares of  the market who  could meet  their needs.                                                              
He  acknowledged that  this was  the  extent of  his knowledge  on                                                              
Cook Inlet gas.                                                                                                                 
                                                                                                                                
4:24:38 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER  asked if the state  was considering the  purchase of                                                              
a smaller producer as a source of gas for the project.                                                                          
                                                                                                                                
MR.  SHEFCHIK replied  that they  were  looking for  a gas  supply                                                              
contract  to fill the  3 to  6 billion  expected known  demand for                                                              
the  upcoming five  years, noting  that  this was  a small  demand                                                              
relative to that from Southcentral Alaska and Cook Inlet.                                                                       
                                                                                                                                
CHAIR HAWKER  relayed that  an announcement  by the governor  that                                                              
the  state  was   going  to  acquire  Pentex  had   prompted  this                                                              
dialogue.   He asked where the  Pentex acquisition would  fit into                                                              
the project,  and about earlier  comments regarding rail  cars and                                                              
competition for the acquisition of the Pentex LNG plant.                                                                        
                                                                                                                                
4:25:58 PM                                                                                                                    
                                                                                                                                
MR. LEONARD, in  response, relayed that the acquisition  of Pentex                                                              
was to reduce cost  and to assist on the distribution  side, slide                                                              
7,  "Decision  to Begin  Negotiations  to  Purchase Pentex."    He                                                              
offered his  belief that the  ability of  AIDEA to look  long term                                                              
could  be  of   assistance  for  reducing  the   cost  of  current                                                              
distribution by  8 - 14 percent, and  by 15 - 20 percent  in 2019.                                                              
He  based  this  projection  on  the  costs  of  capital  and  the                                                              
willingness  by  AIDEA to  concentrate  on an  integrated  system.                                                              
This type  of investment would require  that AIDEA live  up to all                                                              
the Pentex  obligations in regard  to selling the LNG  facility at                                                              
Cook Inlet.   He offered his belief  that it was possible  to work                                                              
with Hilcorp  for that commitment demand  of 3.5 - 4 Bcf  from the                                                              
Fairbanks  area.   He  stated that  this  would  move forward  the                                                              
ability  to  bring gas  to  Fairbanks  by promoting  LNG  capacity                                                              
either on the  North Slope on in  the south.  He declared  that it                                                              
was important  to have the  demand in Fairbanks  in order  to move                                                              
forward to  incentivize the  private sector  for the LNG  capacity                                                              
section of the chain.                                                                                                           
                                                                                                                                
CHAIR  HAWKER  opined  that  the  purchase  of  a  private  sector                                                              
entity, Pentex,  by the state  was not necessarily  incentivizing.                                                              
He asked  for the  proposed dates  and times, directing  attention                                                              
to the  letter of  intent to  purchase Pentex,  which stated  that                                                              
the transaction would  be closed no later than  February 28, 2015.                                                              
He  asked how  this acquisition  could  be reconciled,  as it  was                                                              
before the  proposed assessment to  the economic viability  of the                                                              
various projects.                                                                                                               
                                                                                                                                
4:29:47 PM                                                                                                                    
                                                                                                                                
MR.  LEONARD replied  that  the letter  of  intent clarified  that                                                              
this was  a non-binding  agreement in order  to move  forward with                                                              
due  diligence.    He  noted  that  the  February  date  reflected                                                              
completion  of the  initial due  diligence, with  approval by  the                                                              
board estimated  to be at the end  of April, and closing  to be in                                                              
June or July.   He estimated that the due diligence  process would                                                              
take three  to four months.  As  there was a concentration  on the                                                              
distribution  side, this  was an important  component for  forward                                                              
movement from either  the north or the south,  and that optimizing                                                              
this  part of  the  chain was  critical  for  the Interior  Energy                                                              
Project.                                                                                                                        
                                                                                                                                
4:31:10 PM                                                                                                                    
                                                                                                                                
CHAIR  HAWKER  asked  if it  was  the  AIDEA  intent to  hold  and                                                              
operate  the Pentex  assets, or  to dispose of  Pentex to  another                                                              
entity.                                                                                                                         
                                                                                                                                
MR. LEONARD  replied that  the goal  was to hold  the asset  for a                                                              
short transition  period, work with the community  for creation of                                                              
an integrated operations  system, and then sell it,  with a return                                                              
of the investment,  to another entity.  He stated  that it was not                                                              
a goal of AIDEA to own the project long term.                                                                                   
                                                                                                                                
MR.  SHEFCHIK relayed  that his  directions from  the AIDEA  board                                                              
chair had been to  focus on the integration of the  system and the                                                              
development of  options for the  transition from AIDEA  to another                                                              
ownership structure,  a joint  venture partnership,  or management                                                              
from outside.  He  acknowledged that this was near  the top of his                                                              
task list while  performing the due diligence.  He  was to develop                                                              
a  physical  plan, as  well  as  an organizational  and  ownership                                                              
plan, to transition  AIDEA out of ownership after  recovery of its                                                              
investments.                                                                                                                    
                                                                                                                                
CHAIR HAWKER  asked why the  state needed to  be in the  middle of                                                              
this  even  for   a  short  period,  instead  of   a  free  market                                                              
transaction that did not require the state to hold the asset.                                                                   
                                                                                                                                
4:33:24 PM                                                                                                                    
                                                                                                                                
MR. LEONARD  directed attention to  slide 8, "Benefits  of Utility                                                              
Coordination &  Integrated Distribution  System," and  offered his                                                              
belief  that  moving  forward  with  the  project  required  AIDEA                                                              
ownership for  a portion  of the  time.  He  said that  no private                                                              
entity had come  forward to purchase FNG, noting that  it had been                                                              
for sale  in past  years.   He opined  that this investment  would                                                              
serve  a  public  purpose,  and,  based  on  the  preliminary  due                                                              
diligence,  this was a  safe investment.   Directing attention  to                                                              
the  two independent  utilities depicted  on slide  8, he  offered                                                              
his  belief  that  AIDEA  involvement  in  this  investment  would                                                              
reduce operating  costs, allow  for efficient capital  investment,                                                              
restart needs for  the storage necessary for demand  capacity, and                                                              
bring a unified demand to the market to purchase gas.                                                                           
                                                                                                                                
4:35:05 PM                                                                                                                    
                                                                                                                                
CHAIR HAWKER reiterated  that the state supported  the project and                                                              
intended  to  maintain   its  commitment  to  lowering   costs  in                                                              
Interior Alaska.   He pointed out that this was  clarification for                                                              
"what  we're doing,  where  we're putting  our  investments."   He                                                              
offered  his  belief  that  the  intent, as  there  was  only  one                                                              
obvious purchaser,  was to  facilitate the  acquisition of  FNG by                                                              
IGU.                                                                                                                            
                                                                                                                                
MR. LEONARD  replied that this would  be one of the  main options.                                                              
He reiterated  that this investment  would be short term  and that                                                              
it was  critical for  meeting the mission  of the Interior  Energy                                                              
Project.                                                                                                                        
                                                                                                                                
CHAIR HAWKER  asked again why AIDEA  did not directly  support IGU                                                              
in acquiring the Pentex assets.                                                                                                 
                                                                                                                                
MR. LEONARD replied  that, after due diligence,  the exit strategy                                                              
would include  all these  options in its  finance plan  before the                                                              
board would move forward with a presentation to the legislature.                                                                
                                                                                                                                
CHAIR  HAWKER  pointed  out  that the  purchase  of  Pentex  would                                                              
include  its existing  contract to  sell the  Point Mackenzie  LNG                                                              
plant  to a subsidiary  of  Hilcorp, as  well as  a long term  LNG                                                              
sales agreement with  FNG to sell 100 percent of  the plant output                                                              
for a period  of five years at $15  per Mcf to the city  gate.  He                                                              
noted  that  this   was  substantially  higher  than   the  figure                                                              
expressed as  acceptable to the  utilities.  He  acknowledged that                                                              
after this five  year period the price could be  adjusted to match                                                              
any comparable sales  of LNG by another seller  into the Fairbanks                                                              
area; however,  if there  was not another  seller, the  city would                                                              
not have any other option but to pay $15 at the city gate.                                                                      
                                                                                                                                
4:38:18 PM                                                                                                                    
                                                                                                                                
MR.  LEONARD  expressed  agreement   that  this  issue  was  being                                                              
addressed  during the  due diligence  process.   He said that,  as                                                              
this current FNG  contract was about 15 - 20 percent  of the total                                                              
supply, it would be blended with additional contracts.                                                                          
                                                                                                                                
CHAIR HAWKER asked  for clarification of the commitment,  that the                                                              
FNG  contract was  for  100  percent of  the  need  of active  gas                                                              
customers in  Fairbanks.  He  stated that  this was 20  percent of                                                              
the anticipated  build out  when the  Interior Gas Utility  (IGU),                                                              
currently without  any customers,  gets the  system built  out for                                                              
delivery to the rest of Fairbanks.                                                                                              
                                                                                                                                
MR. LEONARD  expressed his  agreement that  the current  contract,                                                              
about 0.95 Bcf  between Hilcorp Energy Company  (Hilcorp) and FNG,                                                              
was for  the existing  customers.   He reported  that the  IEP had                                                              
funded about 33  miles of new pipe for FNG, with  an additional 26                                                              
miles to  be built.   This  would make  another 1.5 Bcf  available                                                              
based  on conversions.   He  stated  that, based  on total  demand                                                              
need in the  future, this was  the aforementioned 20 percent.   He                                                              
shared that with  the proposed build out of North  Pole by IGU, as                                                              
well as the  proposed build out  by FNG in 2016, the  actual pipes                                                              
across structures would be 7200 instead of the current 1100.                                                                    
                                                                                                                                
CHAIR HAWKER  asked for  clarification that  this was  100 percent                                                              
of current  demand and  20 percent of  anticipated FNG  full build                                                              
out demand.                                                                                                                     
                                                                                                                                
MR. SHEFCHIK  clarified  that this  was 100 percent  of the  plant                                                              
capacity and  that, as  FNG had  two interruptible customers,  the                                                              
hospital  and the  university  which had  LNG  service turned  off                                                              
when  it  was  cold,  100 percent  of  demand  would  allow  these                                                              
customers to maintain service.                                                                                                  
                                                                                                                                
CHAIR HAWKER  stated that it was  agreed "to meet all  FNG current                                                              
requirements  by delivering to  FNG the  entire maximum  output of                                                              
the existing  facility."   He relayed that  the state  was looking                                                              
at acquiring  FNG, currently a privately  held entity.   He asked,                                                              
"Who is IGU?"                                                                                                                   
                                                                                                                                
MR. SHEFCHIK  replied that  the Interior Gas  Utility (IGU)  was a                                                              
public entity wholly owned by the Fairbanks North Star Borough.                                                                 
                                                                                                                                
CHAIR HAWKER asked if it currently had business operations.                                                                     
                                                                                                                                
MR. SHEFCHIK  replied that  it was a  development company  and did                                                              
not have any business operations.                                                                                               
                                                                                                                                
4:42:42 PM                                                                                                                    
                                                                                                                                
SENATOR   MACKINNON  expressed   her   concern   that  there   was                                                              
dependence on "a  reliable supply from the Cook  Inlet region from                                                              
a small  explorer that  may or  may not  have proven  production."                                                              
She  asked   if  Mr.  Shefchik   had  more  information   on  this                                                              
availability and new discoveries.                                                                                               
                                                                                                                                
MR.  SHEFCHIK  reiterated  that,  as  he had  shared  all  of  his                                                              
knowledge of the  Cook Inlet energy supply, there was  a team lead                                                              
by  DOR and  DNR for  the  Cook Inlet  contract  acquisition.   He                                                              
shared that a  focus of the current administration  was to develop                                                              
a gas supply contract for this project.                                                                                         
                                                                                                                                
SENATOR  MACKINNON expressed  her understanding  that the  current                                                              
utility  contracts in  Anchorage  were short  term,  and that  the                                                              
city had  just stopped its brownout  drills to reduce usage.   She                                                              
acknowledged  that, although there  was a lot  of activity  in the                                                              
Cook Inlet,  there were proven reserves  on the North Slope.   She                                                              
questioned whether  this was a chase  under the auspice  of "build                                                              
it and they will  come."  She directed attention  to the ferry [MV                                                              
Susitna] as just such an example.                                                                                               
                                                                                                                                
MR. SHEFCHIK  replied that  there was  not any  desire to  build a                                                              
supply chain  with no gas,  and that the  direction of  the supply                                                              
chain would be determined by the availability of gas.                                                                           
                                                                                                                                
4:45:02 PM                                                                                                                    
                                                                                                                                
SENATOR  MACKINNON expressed  her concern  for the  criteria  of a                                                              
supplier  to this  project,  if  this was  for  finding a  smaller                                                              
supplier.   She  stated  a  desire to  provide  a  lower cost  for                                                              
reliable, cleaner  energy to Interior  Alaska.  She  expressed her                                                              
interest  for the formula  of the  purchase price  to the  various                                                              
facilities.  She  pointed out that a declaration  of price allowed                                                              
little  option for  negotiations.   She  offered  her belief  that                                                              
there had  been overpayment  for the product,  and that  the state                                                              
would be required to pay the difference in a subsidy.                                                                           
                                                                                                                                
MR. LEONARD replied  that the purchase price stated  in the letter                                                              
of interest was  a negotiated proposed price based  on preliminary                                                              
information, and  was not a  set price.   He reminded that  it was                                                              
necessary to  perform due diligence,  and that financial  advisors                                                              
and  a  utility  evaluation  company   would  be  consulted.    He                                                              
explained that  if, after valuation,  the price was too  high then                                                              
AIDEA would  attempt to negotiate a  fair value price or  the deal                                                              
would be terminated.   He stated that AIDEA would  only pay a fair                                                              
price based on asset value.                                                                                                     
                                                                                                                                
SENATOR MACKINNON  expressed her interest in the  determination of                                                              
cost  value, remarking  that, as  it had  been on  the market  for                                                              
multiple years  at that  price, everyone  else thought  that price                                                              
was too high.                                                                                                                   
                                                                                                                                
4:47:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE THOMPSON  stated that he  had copies of  the formal                                                              
request from  1954 entreating  the federal  government to  build a                                                              
gas  line from  the  National Petroleum  Reserve  to Fairbanks  to                                                              
help relieve  the cost  of energy,  and "it's  61 years  later and                                                              
we're still waiting."                                                                                                           
                                                                                                                                
CHAIR HAWKER  reflected on  the historical records  he had  in his                                                              
possession.                                                                                                                     
                                                                                                                                
4:49:09 PM                                                                                                                    
                                                                                                                                
SENATOR  STEDMAN  offered  his   understanding  that,  as  it  was                                                              
necessary to make  a good business decision, a  lack of purchasers                                                              
indicated  something  wrong with  the  price or  the  market.   He                                                              
expressed  his concern  for the  state making  a purchase  of good                                                              
value.  He pointed  out that there had been situations  where "the                                                              
state ends up  holding the bag," while other  investors behind the                                                              
corporation  "end up  sitting fairly  well."   He declared  a need                                                              
for due  diligence,  regardless of  the time  frame, and the  need                                                              
for a prudent decision.                                                                                                         
                                                                                                                                
4:50:21 PM                                                                                                                    
                                                                                                                                
SENATOR  BISHOP   expressed  his   gratitude  to  AIDEA   for  its                                                              
diligence,  attention,  and commitment  for  bringing  gas to  the                                                              
interior.  He asked  if there had been full due  diligence for the                                                              
purchase  of  FNG.    He declared  that  there  had  been  reverse                                                              
engineering for  this project from  the beginning, and  that front                                                              
end  engineering  would  have  resulted   in  completion  of  this                                                              
project.                                                                                                                        
                                                                                                                                
CHAIR  HAWKER  reflected  on the  Pentex  purchase,  noting  that,                                                              
while  it currently  provided  100 percent  of  the current  need,                                                              
this would only  be 20 percent of  future need.  He  pointed out a                                                              
need to  add four times  the current  capacity in the  foreseeable                                                              
future.   He stated that often  a used and in-place  asset offered                                                              
a  more cost  effective price  than  building new.   He  suggested                                                              
that it was  necessary to compare  this with the cost  of building                                                              
a new facility with four times the capacity.                                                                                    
                                                                                                                                
MR. LEONARD asked  for clarification that the reference  was for a                                                              
distribution system and not an LNG facility.                                                                                    
                                                                                                                                
CHAIR  HAWKER replied  that  he was  referencing  the value  chain                                                              
model, with the  need to add an additional 80  percent by building                                                              
new  capacity:   finding  the gas,  building  the  LNG plant,  and                                                              
building the  delivery and  distribution systems.   He  noted that                                                              
it  was also  necessary  to  pay for  the  LNG conversion  in  the                                                              
homes.   He asked if  it was possible,  after the Pentex  purchase                                                              
and building  for the new  capacity, to still  meet the $10  - $11                                                              
city gate cost objective.                                                                                                       
                                                                                                                                
MR.  SHEFCHIK replied  that this  was an  accurate description  of                                                              
the situation  and would be a  part of the due  diligence decision                                                              
process.                                                                                                                        
                                                                                                                                
CHAIR HAWKER  referenced  Senate Bill 23,  which empowered  Alaska                                                              
Industrial  Development  and  Export   Authority  to  provide  the                                                              
financial  support  to a  North  Slope sourced  gas  project.   He                                                              
questioned whether  this gave  carte blanche  to the build  out in                                                              
Fairbanks.    He asked  what  AIDEA  currently required  from  the                                                              
Alaska  State Legislature  during this  session in  order to  have                                                              
the free rein to  move forward and execute this  value chain grand                                                              
plan.                                                                                                                           
                                                                                                                                
MR. LEONARD  said that, in order  to utilize the full  strength of                                                              
Senate  Bill 23, removal  of the  wording "North  Slope" would  be                                                              
necessary  to allow  the  funding  to be  used  for assistance  in                                                              
lowering the  cost of  gas in Southcentral  Alaska, if  that route                                                              
became available.   He said  that it was  necessary to  review all                                                              
sources  of gas  in order  to bring  the lowest  possible cost  to                                                              
Fairbanks.                                                                                                                      
                                                                                                                                
CHAIR   HAWKER   asked   for  clarification   that   the   funding                                                              
appropriation  mentioned  by Mr.  Leonard  was the  $57.5  million                                                              
authorized in Senate Bill 18.                                                                                                   
                                                                                                                                
MR.  LEONARD expressed  his agreement,  noting that  approximately                                                              
$45  million  was  still  available,  and  this  would  allow  the                                                              
flexibility for  an alternative source,  other than a  North Slope                                                              
plant, that  could utilize  those monies to  bring down  the cost,                                                              
reduce  the  risk, and  meet  the  goals  of the  Interior  Energy                                                              
Project.   He  stated that  the investment  by the  state for  the                                                              
North Slope plant  had brought the cost to $13 -  $14, and without                                                              
those state  funds, the  price would  have been  much higher.   He                                                              
declared   that  utilization   of   the  tools   granted  by   the                                                              
legislature  for  analyzing  alternatives   down  south  would  be                                                              
beneficial.                                                                                                                     
                                                                                                                                
4:57:28 PM                                                                                                                    
                                                                                                                                
CHAIR  HAWKER  offered his  belief  that  AIDEA had  not  received                                                              
adequate financial  support from the legislature  for the original                                                              
North to South project  to allow the build out by  IGU, as well as                                                              
the necessary  support at  the LNG  plant level  to achieve  a low                                                              
enough cost  of gas throughout the  entire system.   He questioned                                                              
whether a  South to  North route  would change  the analysis.   He                                                              
asked  if  the   legislature  should  increase  funding   or  debt                                                              
capacity, or replace the funds already spent.                                                                                   
                                                                                                                                
MR. LEONARD  opined  that an analysis  would  show the impact  for                                                              
more  funding   and  more  bonding  authority,   although  bonding                                                              
authority  on  the  North  Slope  may not  be  beneficial  to  the                                                              
project.   He said that bonding  for distribution was  easier than                                                              
bonding for a plant.                                                                                                            
                                                                                                                                
CHAIR HAWKER  suggested that AIDEA  not "cut yourself  short," and                                                              
that AIDEA  should ask for more  funding so the  legislature could                                                              
make  that decision  to provide  the additional  support that  was                                                              
necessary  to make  the  project move  forward,  while judging  it                                                              
against the other competing interests in the state.                                                                             
                                                                                                                                
5:00:05 PM                                                                                                                    
                                                                                                                                
SENATOR  STEDMAN said  that the  target range  for getting  energy                                                              
delivered  to Fairbanks  was reasonable.   He  offered his  belief                                                              
that it  was not possible  to bring the  cost to Fairbanks  to the                                                              
same  range as  the cost  to  Anchorage.   He  suggested that  the                                                              
Fairbanks  target numbers  should be reasonable  numbers  to bring                                                              
other area  energy costs  into alignment,  noting that  this would                                                              
also include Southeast Alaska.                                                                                                  
                                                                                                                                
5:00:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  THOMPSON expressed  his pleasure  for the  pursuit                                                              
of  other alternatives.    He  declared  a desire  for  reasonably                                                              
priced  energy,  and  he  acknowledged  that  Fairbanks  consumers                                                              
recognized  the  costs and  did  not "have  our  hands  out."   He                                                              
pointed  out that  this could  create  economic development  which                                                              
could enhance the entire state.                                                                                                 
                                                                                                                                
5:02:08 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There  being  no  further  business   before  the  committee,  the                                                              
Legislative Budget  and Audit Committee  meeting was  adjourned at                                                              
5:02 p.m.                                                                                                                       

Document Name Date/Time Subjects
1.16.15 Administrative Order NO. 272 SIGNED.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
6EMemoResolutionFundIEPproject.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
2014_12-22_AIDEALtr2ChrisBrownMWH.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
2015_01-05 AIDEALtr2ChrisBrownMWH.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
AIDEA Board Approves Interior Energy Project Loan 02.06.15.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
AIDEA Fact Sheet on Pentex Purchase 02 03 15.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
AIDEA press release - FNG purchase.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
G15-03MemoTermSheetResolutionIGULoan.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
HAK Harvest Titan Release FINAL 11.20.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
Hilcorp Harvest LNG Plant 1.29.15.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
MWH response to AIDEA Letter of 22 Dec 2014 - Signature Copy.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
Pentex - AIDEA LOI, 2015_01_26, executed.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects Background Docs
SB23 of 2013.pdf JBUD 2/12/2015 3:00:00 PM
SB 23
WesPac Letter to LB&A - Hawker 021115.pdf JBUD 2/12/2015 3:00:00 PM
2015_01-05_CA-TerminationLetter.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
2015_02-10_AIDEALtr2JimKuikenMWH.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
AIDEA Presentation to LBA 2-12-15.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
AIDEA responses to LBA questions 2-12-15.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
AIDEA-Sources and Uses of Funds for IEP project.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
AIDEA-Sources and Uses of SETS Appropriations.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
Harvest Letter to LBA.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
LBA AIDEA Presentation final.pptx JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
MWH Correspondence 2-2-15.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
MWH Prepared Remarks 12 February 2015.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
MWH-Slides to accompany remarks.pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
Pentex - AIDEA LOI 2015_01_26 executed (2).pdf JBUD 2/12/2015 3:00:00 PM
AIDEA Interior Energy Projects
IEP Conversion Slide from 2013.pdf JBUD 2/12/2015 3:00:00 PM