Legislature(2009 - 2010)BARNES 124

03/28/2009 10:00 AM House ENERGY


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* first hearing in first committee of referral
+ teleconferenced
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*+ HB 163 ALASKA NATURAL GAS DEVELOPMENT AUTHORITY TELECONFERENCED
Heard & Held
*+ HB 164 IN-STATE PIPELINES: LEASES; CERTIFICATION TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                         March 28, 2009                                                                                         
                           10:00 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bryce Edgmon, Co-Chair                                                                                           
Representative Charisse Millett, Co-Chair                                                                                       
Representative Nancy Dahlstrom (via teleconference)                                                                             
Representative Kyle Johansen                                                                                                    
Representative Jay Ramras (via teleconference)                                                                                  
Representative Pete Petersen                                                                                                    
Representative Chris Tuck                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE BILL NO. 164                                                                                                              
"An Act relating  to noncompetitive leases of state  land and for                                                               
rights-of-way  for oil  or natural  gas pipelines  that originate                                                               
and  terminate  within  the  state  and  to  the  regulation  and                                                               
certification  of   those  pipelines;  relating   to  conditional                                                               
certification for certain new natural  gas pipelines; relating to                                                               
definitions   of  "common   carrier"  and   "firm  transportation                                                               
service" in the Pipeline Act."                                                                                                  
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 163                                                                                                              
"An  Act  clarifying  the  purpose  of  the  Alaska  Natural  Gas                                                               
Development  Authority; and  relating to  definitions of  certain                                                               
terms in AS 41.41."                                                                                                             
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
BILL: HB 164                                                                                                                  
SHORT TITLE: IN-STATE PIPELINES: LEASES; CERTIFICATION                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/02/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/02/09       (H)       ENE, RES, FIN                                                                                          
03/28/09       (H)       ENE AT 10:00 AM BARNES 124                                                                             
                                                                                                                                
BILL: HB 163                                                                                                                  
SHORT TITLE: ALASKA NATURAL GAS DEVELOPMENT AUTHORITY                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/02/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/02/09       (H)       ENE, RES, FIN                                                                                          
03/28/09       (H)       ENE AT 10:00 AM BARNES 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE  BALASH,  Special  Staff Assistant  for  Energy  and  Natural                                                               
Resource Issues                                                                                                                 
Office of the Governor                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Presented HB  164 and  HB 163 on  behalf of                                                             
the governor.                                                                                                                   
                                                                                                                                
HAROLD HEINZE, CEO                                                                                                              
Alaska Natural Gas Development Authority (ANGDA)                                                                                
Office of the Commissioner                                                                                                      
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the hearing on HB 163.                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR CHARISSE  MILLETT called the House  Special Committee on                                                             
Energy meeting to order at  10:00 a.m.  Representatives Petersen,                                                               
Tuck,  Edgmon,  Ramras  (via teleconference),  and  Millett  were                                                               
present  at the  call  to order.    Representatives Johansen  and                                                               
Dahlstrom  (via teleconference)  arrived  as the  meeting was  in                                                               
progress.                                                                                                                       
                                                                                                                                
HB 164-IN-STATE PIPELINES: LEASES; CERTIFICATION                                                                              
                                                                                                                                
CO-CHAIR  MILLETT  announced that  the  first  order of  business                                                               
would be HOUSE  BILL NO. 164, "An Act  relating to noncompetitive                                                               
leases of  state land  and for rights-of-way  for oil  or natural                                                               
gas pipelines that  originate and terminate within  the state and                                                               
to the regulation and certification  of those pipelines; relating                                                               
to  conditional   certification  for  certain  new   natural  gas                                                               
pipelines; relating to definitions  of "common carrier" and "firm                                                               
transportation service" in the Pipeline Act."                                                                                   
                                                                                                                                
10:00:53 AM                                                                                                                   
                                                                                                                                
JOE  BALASH,  Special  Staff Assistant  for  Energy  and  Natural                                                               
Resource Issues,  Office of the Governor,  informed the committee                                                               
the  bills  presented are  components  of  a three-part  plan  to                                                               
initiate an  in-state natural  gas pipeline  project.   The first                                                               
component is a funding request  to initiate work needed to define                                                               
the  need for,  and the  delivery  of, natural  gas to  Alaskans.                                                               
This  work includes;  an alternatives  analysis,  selection of  a                                                               
route,    applications    for    permits    and    rights-of-way,                                                               
identification of the source of  gas and potential customers, and                                                               
the eventual  sanctioning of a project.   The work effort  is led                                                               
by  Harry  Noah,  Project  Director.   Mr.  Balash  continued  to                                                               
explain the other  components of the plan are HB  163 and HB 164.                                                               
House Bill  164 makes the  changes in  the Pipeline Act  that are                                                               
necessary  to  facilitate  the  commercial  relationships  for  a                                                               
privately constructed  and operated  pipeline.  He  recalled that                                                               
discussions  with   ENSTAR  Natural  Gas  Company   and  Anadarko                                                               
Petroleum Corporation  about a  bullet line  from Gubik  field to                                                               
Southcentral began in December 2008.   Those discussions centered                                                               
on a specific project; however,  prior to the introduction of the                                                               
bill, the governor directed that the  changes made by HB 164 must                                                               
be applicable  to all in-state  pipelines.  He  acknowledged that                                                               
the  proposed legislation  was developed  without "having  done a                                                               
lot of  the homework to  understand ... older  infrastructure and                                                               
preexisting relationships."                                                                                                     
                                                                                                                                
10:05:41 AM                                                                                                                   
                                                                                                                                
MR.  BALASH pointed  out HB  164  is primarily  about access  and                                                               
contractual  rights to  capacity  in a  pipeline.   Historically,                                                               
Alaska's  right-of-way leasing  act  requires the  use of  common                                                               
carrier service to obtain a lease  to build a pipeline.  A common                                                               
carrier means  that any  entity with  a product  will be  able to                                                               
ship,  regardless  of  the  impact   on  the  existing  shippers.                                                               
However,  ENSTAR  and  Anadarko  expressed  concerns  that  after                                                               
spending billions  of dollars to  develop a field, they  wanted a                                                               
contractual right  to capacity in  the pipeline.   Therefore, the                                                               
requirement  in state  law that  a pipeline  operate as  a common                                                               
carrier needs to be changed.   Mr. Balash explained that Title 42                                                               
of the  Pipeline Act provides  for firm  [transportation] service                                                               
under a contract, but does not protect against proration.                                                                       
                                                                                                                                
10:08:46 AM                                                                                                                   
                                                                                                                                
MR. BALASH  noted that the  first two  sections of the  bill make                                                               
technical references  to other  changes in the  bill.   Section 3                                                               
creates a  new set of  covenants required for  in-state pipelines                                                               
only.  These covenants are  important as the state "[is] stepping                                                               
down  from that  gold standard  of common  carrier to  a form  of                                                               
contract carriage,  we wanted  to make sure  that access  for new                                                               
exploration, new  development, and  new deliveries, was  going to                                                               
be possible."   The  covenants require that  the party  agrees to                                                               
the    following:   open    seasons   on    a   regular    basis;                                                               
nondiscriminatory treatment of  shipping commitments; expansions;                                                               
transparency   in    engineering   increments;    expansions   on                                                               
commercially reasonable  terms; commit to rolled-in  rates; offer                                                               
a distance sensitive  tariff; commit to Alaska hire;  commit to a                                                               
project  labor  agreement; and  commit  to  be regulated  by  the                                                               
Regulatory  Commission of  Alaska (RCA).   Mr.  Balash noted  the                                                               
covenants are  based on  the "must haves"  in the  Alaska Gasline                                                               
Inducement Act (AGIA) of 2007.                                                                                                  
                                                                                                                                
10:11:45 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  MILLETT asked  whether there  were circumstances  under                                                               
which  this project  would  be regulated  by  the Federal  Energy                                                               
Regulatory Commission (FERC) and not the RCA.                                                                                   
                                                                                                                                
10:12:17 AM                                                                                                                   
                                                                                                                                
MR.  BALASH directed  attention to  Sec. 3,  lines 20-22,  of the                                                               
bill  and  pointed  out the  proposed  legislation  identifies  a                                                               
pipeline  that   is  subject  to  intrastate   jurisdiction,  not                                                               
interstate jurisdiction.   Under certain circumstances,  FERC may                                                               
have  jurisdiction  over  a  pipeline;  for  instance,  one  that                                                               
crosses the  state border.   In addition, FERC does  have "citing                                                               
authority" for  liquefied natural gas (LNG)  facilities; however,                                                               
FERC's authority in these instances is not entirely clear.                                                                      
                                                                                                                                
10:14:57 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  questioned the economic viability  of an                                                               
intrastate pipeline  that promised  to begin  and end  in Alaska.                                                               
He suggested  that FERC would  get involved  if at some  time the                                                               
gas  was flowing  out of  state  in order  to find  a market  and                                                               
secure financing.                                                                                                               
                                                                                                                                
10:16:43 AM                                                                                                                   
                                                                                                                                
MR.  BALASH assumed  the question  is, "What  if the  pipeline is                                                               
going  to  move more  gas  than  is used  here  in  Alaska?"   He                                                               
observed  when the  pipeline  service  ends, the  gas  has to  go                                                               
somewhere,  such as  manufactured  into a  product, or  converted                                                               
into LNG.   The critical question  is whether the export  will go                                                               
to  East  Asia  or to  the  Lower  48.    The FERC  would  assert                                                               
jurisdiction  as soon  as the  product or  the gas  crosses state                                                               
lines; however, until more is  known about the commercial aspects                                                               
of the  project, it will  be difficult to determine  whether FERC                                                               
does  or does  not have  jurisdiction.   Mr.  Balash advised  the                                                               
aforementioned determination,  and the commercial aspects  of the                                                               
project, will be identified during the next two years.                                                                          
                                                                                                                                
10:18:16 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOHANSEN opined  until the  "whole picture  comes                                                               
together, we  don't know where FERC  comes in, we don't  know how                                                               
far  back  up  the  pipeline   they  go...."    In  fact,  FERC's                                                               
involvement will be unknown until much, much, later, he said.                                                                   
                                                                                                                                
10:19:14 AM                                                                                                                   
                                                                                                                                
MR. BALASH concurred.                                                                                                           
                                                                                                                                
10:19:20 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE PETERSEN asked whether  building a pipeline across                                                               
federal land would automatically involve FERC.                                                                                  
                                                                                                                                
10:19:44 AM                                                                                                                   
                                                                                                                                
MR.   BALASH   said  that   crossing   federal   land  does   not                                                               
automatically bring  in FERC  jurisdiction; FERC  jurisdiction is                                                               
determined by Sec. 7 of the  Natural Gas Act (NGA) that regulates                                                               
the interstate transportation of natural gas.                                                                                   
                                                                                                                                
10:20:19 AM                                                                                                                   
                                                                                                                                
CO-CHAIR   EDGMON  asked   whether  the   state  has   sufficient                                                               
information  to construct  enabling legislation  for future  work                                                               
with a private partner.                                                                                                         
                                                                                                                                
10:21:01 AM                                                                                                                   
                                                                                                                                
MR.  BALASH  said  the administration  knows  there  are  parties                                                               
exploring for  gas and who want  to develop fields and  "count on                                                               
capacity."    This  legislation allows  changes  in  the  leasing                                                               
statute  and   pipeline  regulation  statute  for   the  kind  of                                                               
commercial contracts  required to protect the  shipper, and those                                                               
who are  seeking financing and  contracts.   In the event  of the                                                               
construction  of an  in-state line,  this body  of changes  would                                                               
create a framework familiar to  those who would operate a federal                                                               
interstate project.                                                                                                             
                                                                                                                                
10:22:11 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  gave the  example of a  pipeline project                                                               
built without  FERC regulation, but  that is expanded at  a later                                                               
date to an export market.  "Does FERC jump in then?" he asked.                                                                  
                                                                                                                                
10:23:26 AM                                                                                                                   
                                                                                                                                
MR.  BALASH acknowledged  that the  proposed  legislation is  not                                                               
specific  to a  bullet  line,  but is  applicable  to a  pipeline                                                               
regardless.   In  fact, this  is an  effort to  craft an  overall                                                               
state  regulatory  structure  with   few  differences  from  FERC                                                               
regulations, and  in the event FERC  does step in, there  will be                                                               
few disruptions.                                                                                                                
                                                                                                                                
10:24:36 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  observed movement  away from  the bullet                                                               
line concept allows for flexibility  in pipeline routes; however,                                                               
"it all  comes down to"  the cost  of construction.   He surmised                                                               
the pipeline corridor is the easiest and most logical route.                                                                    
                                                                                                                                
10:25:34 AM                                                                                                                   
                                                                                                                                
MR.  BALASH said  the  administration has  been  working on  that                                                               
question.    Typically,  the  shortest   pipeline  is  the  least                                                               
expensive;  however, the  differences in  cost are  not known  at                                                               
this time.   Mr.  Noah will be  undertaking the  determination of                                                               
the cost of each alternative route.                                                                                             
                                                                                                                                
10:26:53 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOHANSEN asked  whether the  bullet line  follows                                                               
the existing pipeline.                                                                                                          
                                                                                                                                
MR. BALASH said  the all-Alaska pipeline would  follow the Trans-                                                               
Alaska Pipeline  System (TAPS) corridor  to a  liquefaction plant                                                               
in Valdez.  The bullet line  would travel down the Dalton Highway                                                               
to Fairbanks, and then follow the Parks Highway to Southcentral.                                                                
                                                                                                                                
10:28:03 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT asked  for the administration's plan  on what to                                                               
do with the excess capacity.                                                                                                    
                                                                                                                                
MR. BALASH  pointed out the  first question is to  determine what                                                               
is still available from Cook Inlet.   If North Slope gas is going                                                               
to replace  Cook Inlet gas,  there will  need to be  a transition                                                               
period.  He  gave the example of a pipeline  that cost $3 billion                                                               
and has  a tariff computed on  how much gas is  traveling through                                                               
the pipeline.   The  less gas traveling  through equals  a higher                                                               
tariff,  and  if  the  price  is  too  high,  companies  will  be                                                               
reluctant to  commit gas.  The  tipping point is estimated  to be                                                               
about  400 million  to 500  million  cubic feet  (MMcf) per  day;                                                               
however, the demand for natural  gas in Southcentral at this time                                                               
is about 200  MMcf per day.   Thus there needs to  be an increase                                                               
in industrial  use to get  enough throughput  in the pipe  for an                                                               
economical tariff.                                                                                                              
                                                                                                                                
10:31:42 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT  surmised the administration  is looking  for an                                                               
anchor  industry such  as  the export  of  gas by  ConocoPhillips                                                               
Alaska, Inc.   She opined the project will  have FERC involvement                                                               
if there is excess capacity or if the state exports LNG.                                                                        
                                                                                                                                
10:32:36 AM                                                                                                                   
                                                                                                                                
MR. BALASH observed that the  present system of pipelines in Cook                                                               
Inlet supports the LNG plant and is not regulated by FERC.                                                                      
                                                                                                                                
CO-CHAIR MILLETT  cautioned that FERC has  considered involvement                                                               
with the LNG plant and with an in-state pipeline.                                                                               
                                                                                                                                
MR.  BALASH  acknowledged  that   possibility,  and  assured  the                                                               
committee  the administration  is  working to  prevent that  from                                                               
happening;  however,  a  change  to FERC  jurisdiction  will  not                                                               
require a  "sea change  in approach,  or planning,  or reordering                                                               
commercial terms between the parties."                                                                                          
                                                                                                                                
10:34:03 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE PETERSEN recalled the  LNG export license was only                                                               
extended until  2011.  He  assumed the export license  would need                                                               
to be extended further.                                                                                                         
                                                                                                                                
MR. BALASH  agreed.   Depending on the  availability of  gas, the                                                               
facility's  status  may  change  from  full  operation  to  "warm                                                               
status."    In  fact,  all  of  the  options  present  commercial                                                               
challenges and a transition period.                                                                                             
                                                                                                                                
10:35:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOHANSEN noted  supporters  of  the in-state  gas                                                               
line have  suggested bringing natural  gas to Southeast as  a way                                                               
to  increase demand.   He  asked whether  the administration  has                                                               
plans to  gasify parts of  the state  such as Nome,  the Aleutian                                                               
Chain, or Southeast to increase demand.                                                                                         
                                                                                                                                
10:37:51 AM                                                                                                                   
                                                                                                                                
MR. BALASH  spoke of  the opportunity to  deliver natural  gas or                                                               
propane  to  communities  as  an  alternative  to  diesel.    The                                                               
administration sees an imperative  to move rural communities away                                                               
from  the use  of  diesel  wherever possible.    Whether that  is                                                               
suitable for Southeast, Mr. Balash  would not say; however, there                                                               
is a propane distributor that believes in the possibility.                                                                      
                                                                                                                                
10:39:41 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN expressed his  belief that "You've got to                                                               
find a  place to  put the gas  and if you  can't do  it in-state,                                                               
you've got to  do it out-of-state and ... we're  right back where                                                               
we started from."                                                                                                               
                                                                                                                                
10:40:27 AM                                                                                                                   
                                                                                                                                
MR.  BALASH clarified  that exporting  gas from  Alaska does  not                                                               
automatically "trigger"  FERC jurisdiction.   If  the gas  has an                                                               
international destination only, FERC  will not have jurisdiction,                                                               
as in the case of a long-term contract with an Asian buyer.                                                                     
                                                                                                                                
10:41:47 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  recalled a  lot of discussion  about the                                                               
potential natural gas markets in the Midwest.                                                                                   
                                                                                                                                
MR.  BALASH  responded  that  the pursuit  of  a  large  diameter                                                               
pipeline  is, and  remains, the  priority of  the administration.                                                               
However,   because  that   project  is   not  a   certainty,  the                                                               
administration wants  to be prepared  on a parallel path  with an                                                               
in-state line.                                                                                                                  
                                                                                                                                
10:43:28 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE    JOHANSEN    asked    whether    Congress    and                                                               
constituencies  throughout the  U.  S. can  be  convinced of  the                                                               
urgency for both the big  pipeline project and [the extension of]                                                               
the export license.                                                                                                             
                                                                                                                                
MR. BALASH said absolutely.   The potential for Alaska to deliver                                                               
gas from  a variety of  sources is unparalleled,  particularly as                                                               
natural gas hydrates become more  commercial.  The large diameter                                                               
gas pipeline will  require 55 trillion cubic feet of  gas over 30                                                               
years from the  North Slope.  At this time  there are 34 trillion                                                               
cubic  feet of  known reserves;  furthermore, 200  trillion cubic                                                               
feet is expected  to be found in the future.   Mr. Balash assured                                                               
the  committee of  the  opportunity  for Alaska  gas  to flow  to                                                               
Midwestern  markets  and  potentially   to  premium  Pacific  Rim                                                               
markets.                                                                                                                        
                                                                                                                                
10:46:18 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK  asked  whether existing  pipelines  in  the                                                               
state operate with common carriers.                                                                                             
                                                                                                                                
MR.  BALASH   confirmed  that   pipelines  have   common  carrier                                                               
covenants on  their state  leases; however,  in some  cases there                                                               
are legal arrangements around the covenants.                                                                                    
                                                                                                                                
10:47:12 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK asked for an example.                                                                                       
                                                                                                                                
MR. BALASH  said he  could research  disputes between  parties on                                                               
the common carrier covenants.                                                                                                   
                                                                                                                                
10:48:11 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK asked  whether  disputes  were usually  over                                                               
access to the pipeline.                                                                                                         
                                                                                                                                
MR.  BALASH  expressed  his  understanding  that  a  third  party                                                               
shipper wanted to use an  original party's pipeline to move their                                                               
gas into a  market.  "As, I  think Aurora has gone  sort of right                                                               
over  the  top of  ENSTAR  in  using  the ENSTAR  common  carrier                                                               
pipelines, but  to move gas  to customers, and sort  of eliminate                                                               
ENSTAR as the middleman,"  he commented.                                                                                        
                                                                                                                                
10:49:14 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  asked whether the proposed  legislation will                                                               
affect the existing common carrier lines.                                                                                       
                                                                                                                                
MR. BALASH advised  that the new requirements in  [AS 38.35.] 121                                                               
would  not apply  retroactively to  state leases  already issued.                                                               
However, the changes made in  AS 42.06. Pipeline Act would apply,                                                               
particularly the changes in definitions in Sec. 8 and Sec. 9.                                                                   
                                                                                                                                
10:50:26 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  asked whether the  changes in rights  of way                                                               
will eliminate  lawsuits.  He  further asked how  the legislation                                                               
will affect the open season and allow for competition.                                                                          
                                                                                                                                
10:50:57 AM                                                                                                                   
                                                                                                                                
MR.  BALASH said  the main  purpose is  to create  the regulatory                                                               
environment that allows  commercial parties to enter  the kind of                                                               
arrangements necessary for a privately  based project.  This must                                                               
be done  in a manner that  preserves a high degree  of access for                                                               
third parties.   The  state has an  interest in  undeveloped land                                                               
and resources, and wants to  ensure that resources are developed.                                                               
If access  is available through  the transportation  systems, the                                                               
state can encourage more activity.                                                                                              
                                                                                                                                
10:52:14 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK   asked  whether  this  would   eliminate  a                                                               
monopoly  or  create  more  of  a monopoly.    He  expressed  his                                                               
understanding that  under a common carrier  provision anyone with                                                               
a supply  of gas  can potentially  ship; however,  disputes arise                                                               
when  the pipeline  transportation company  refuses to  allow the                                                               
shipper access.   The proposed  changes to the  right-of-way that                                                               
eliminates common  carrier provisions  would make it  so whatever                                                               
was negotiated in advance takes  precedence.  Representative Tuck                                                               
surmised this would create more of a monopoly.                                                                                  
                                                                                                                                
10:53:04 AM                                                                                                                   
                                                                                                                                
MR. BALASH  said there are  certain types of  business activities                                                               
in  the state  that  are monopolies,  and that  is  why they  are                                                               
regulated by  the RCA.   Natural gas  pipelines are one  of those                                                               
businesses; in  fact, the right-of-way  leasing act  directs that                                                               
there will  be common  carrier service  for pipelines  that cross                                                               
state rights-of-way.   There is  debate as  to whether this  is a                                                               
successful  model  for  the encouragement  of  third  parties  to                                                               
develop oil  and gas  resources.   However, the  proposed changes                                                               
will  move away  from  the  common carrier,  and  require that  a                                                               
pipeline  owner  hold  open  seasons  and  offer  capacity  on  a                                                               
nondiscriminatory  basis.     It  is  expected   that  this  will                                                               
encourage  third  parties  to  go  find  and  develop  additional                                                               
supplies of gas for transportation in the existing pipelines.                                                                   
                                                                                                                                
10:55:18 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK asked how the  RCA's authority is going to be                                                               
affected with the changes in the common carrier provision.                                                                      
                                                                                                                                
10:56:10 AM                                                                                                                   
                                                                                                                                
MR.  BALASH said  there is  nothing in  the proposed  legislation                                                               
that fundamentally alters the RCA's  authority.  The pipeline act                                                               
provides for firm transportation  service and the state right-of-                                                               
way leasing act does not.   The RCA would still have authority to                                                               
regulate  the  tariffs and  contracts  between  the shippers  and                                                               
pipeline  companies, and  the legislation  does not  diminish its                                                               
ability to regulate natural gas pipelines.                                                                                      
                                                                                                                                
10:57:20 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  MILLETT  asked for  the  reasoning  behind the  use  of                                                               
rolled-in  rates  as opposed  to  incremental  rates.   She  also                                                               
requested  a definition  of  commercially  reasonable terms,  and                                                               
asked  who  would determine  the  market  demand of  commercially                                                               
reasonable terms.                                                                                                               
                                                                                                                                
10:57:45 AM                                                                                                                   
                                                                                                                                
MR. BALASH  explained that when a  oil or gas pipeline  is put in                                                               
service it  is used  to transport  valuable commodity  to market;                                                               
access to  the pipeline is  essential to those who  are exploring                                                               
for oil or gas.  Common  carrier service allows a shipper to come                                                               
into  the  pipeline; however,  if  there  is  no more  room,  the                                                               
existing shippers are  prorated "down."  If  the state regulation                                                               
moves  away  from the  common  carrier  regime to  a  contractual                                                               
regime, then  all the shippers  have firm  transportation service                                                               
that cannot be prorated down.   Therefore, a new party cannot get                                                               
into the pipeline, unless the  pipeline expands by compression or                                                               
looping.   After expansion,  if rates are  rolled-in, all  of the                                                               
shippers pay the  same; however, rolling-in may  result in higher                                                               
rates  for the  original shippers,  thus there  is a  cap of  115                                                               
percent on how high the rates can increase.                                                                                     
                                                                                                                                
11:02:58 AM                                                                                                                   
                                                                                                                                
MR.  BALASH then  turned  to the  subject  of distance  sensitive                                                               
rates.    During  FERC's  hearings  on  the  Alaska  natural  gas                                                               
pipeline, both  the executive branch  and the  legislative branch                                                               
agreed  that  gas coming  from  Prudhoe  Bay,  and taken  out  in                                                               
Fairbanks, should not pay same  rate as gas delivered to Chicago.                                                               
The same general  principal applies to an  in-state pipeline; for                                                               
instance, gas put  in the line at Nenana should  only pay for the                                                               
mileage from  that point to  market.  This method  will encourage                                                               
exploration at all  points along the pipeline route.   Looking at                                                               
the  situation from  the  consumer side,  gas  removed along  the                                                               
route  should  not  have  to pay  transportation  costs  for  the                                                               
distance of delivery to Anchorage.                                                                                              
                                                                                                                                
11:05:52 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT remarked:                                                                                                      
                                                                                                                                
     If someone  discovers gas, and  they need  expansion on                                                                    
     the pipe ... it's going  to be looping, and they commit                                                                    
     their gas to Fairbanks,  but the looping causes rolled-                                                                    
     in rates  to increase  all the  way to  the end  of the                                                                    
     pipe  for the  other shippers.   How  are you  going to                                                                    
     regulate that  instance where a  new shipper  is coming                                                                    
     on board,  but only  using 400 miles  of the  pipe, and                                                                    
     everybody else is being charged  for that expansion all                                                                    
     the way  to the 800  mile end?  The  distance sensitive                                                                    
     rate for  that shipper is  just the rolled-in  rates to                                                                    
     400 miles.                                                                                                                 
                                                                                                                                
11:06:47 AM                                                                                                                   
                                                                                                                                
MR. BALASH directed  attention to Sec. 4, pages 6-7,  of the bill                                                               
and read:                                                                                                                       
                                                                                                                                
     "Commercially  reasonable  terms"  means  that  revenue                                                                    
     from transportation  contracts covers  the cost  of the                                                                    
     expansion.                                                                                                                 
                                                                                                                                
MR. BALASH  continued to explain  that regulation will  depend on                                                               
"what  has to  be  added  where, along  the  pipe."   A  distance                                                               
sensitive  tariff defines  zones for  delivery that  add up  to a                                                               
single  charge.   The RCA  would  identify which  costs apply  to                                                               
which delivery zone.                                                                                                            
                                                                                                                                
11:07:54 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  MILLETT  asked  who would  determine  the  commercially                                                               
reasonable term.                                                                                                                
                                                                                                                                
MR. BALASH  said the commercially  reasonable term is  defined in                                                               
the statute and used  by the RCA if it is  called upon to enforce                                                               
the terms  of the lease  covenants.   In further response  to Co-                                                               
Chair  Millett,  Mr. Balash  said  the  RCA  looks at  the  "cost                                                               
causer"  and  they  become  the  "cost payer."    In  a  pipeline                                                               
setting, if  everyone is putting  in gas at  the top of  the pipe                                                               
and bringing  it out at the  bottom, then everyone pays  the same                                                               
cost.   However, if  there are segmented  delivery points  in and                                                               
out of the  pipe, the RCA will  have to look at costs  and how to                                                               
allocate costs throughout.                                                                                                      
                                                                                                                                
11:09:39 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT remarked:                                                                                                      
                                                                                                                                
     In  your  description, the  costs,  the  group that  is                                                                    
     costing  the increase  is paying  the increase,  but in                                                                    
     rolled-in rates,  everybody pays  the cost  for someone                                                                    
     new entering the pipe....                                                                                                  
                                                                                                                                
MR.  BALASH agreed  that everybody  is paying,  but everybody  is                                                               
benefitting  from  the  increased compression  as  the  increased                                                               
compression  makes the  pipeline more  efficient, therefore,  the                                                               
overall toll goes down.                                                                                                         
                                                                                                                                
CO-CHAIR MILLETT said,  "But that's only in  compression.  That's                                                               
not in looping."                                                                                                                
                                                                                                                                
MR. BALASH said,  "That is usually the case, it  depends."  Under                                                               
the  common carrier  regulation of  today, the  original shippers                                                               
would be  at risk of  being prorated  when new shippers  come in.                                                               
[With  the  proposed  legislation]   the  original  shippers  are                                                               
gaining certainty that  their capacity will not  be prorated, and                                                               
they are also gaining the certainty  that if new shippers come in                                                               
and  costs increase,  their costs  will  not go  higher than  115                                                               
percent.                                                                                                                        
                                                                                                                                
11:11:45 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK observed  that the  benefit of  the proposed                                                               
legislation is that the suppliers are  no longer forced to take a                                                               
prorated percentage;  they are guaranteed that  when new shippers                                                               
come on  line, they will  not be  reduced in capacity.   However,                                                               
they potentially  will have  to cover  additional costs  when new                                                               
shippers come in, but not over 115 percent.                                                                                     
                                                                                                                                
11:12:37 AM                                                                                                                   
                                                                                                                                
MR. BALASH concurred.   He then turned to Sec. 4,  page 6, of the                                                               
bill  and noted  that this  section includes  definitions of  the                                                               
terms   "commercially    reasonable   terms"    and   "reasonable                                                               
engineering  increment."   Section 5  begins the  changes to  the                                                               
pipeline act; for example, AS 42.06.240(f) is amended to read:                                                                  
                                                                                                                                
     (f) Except if right-of-way lease covenants required by                                                                 
     AS 38.35.120-38.35.121 provide otherwise, in                                                                           
                                                                                                                                
MR.  BALASH   explained  that  this  change   specifies  that  if                                                               
something in the  covenants creates a conflict,  the covenants in                                                               
38.35.121 govern.   Section 6, page 9, allows the  RCA to issue a                                                               
conditional certificate  similar to the  conditional right-of-way                                                               
lease issued by the Department of Natural Resources.                                                                            
                                                                                                                                
11:15:57 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  MILLETT asked  whether the  RCA currently  issues these                                                               
certificates.                                                                                                                   
                                                                                                                                
MR.  BALASH  said a  certificate  is  required  from the  RCA  to                                                               
construct a pipeline.   In further response  to Co-Chair Millett,                                                               
he  acknowledged  that  two  conditional  certificates  could  be                                                               
issued on one project.                                                                                                          
                                                                                                                                
11:16:24 AM                                                                                                                   
                                                                                                                                
MR.  BALASH explained  Sec.  7  of the  bill  allows  the RCA  to                                                               
enforce  the  terms  of  [AS  38.35.121] in  the  course  of  its                                                               
regulatory activities on an annual basis.                                                                                       
                                                                                                                                
11:17:16 AM                                                                                                                   
                                                                                                                                
MR.  BALASH noted  that Sec.  8  includes a  definition of  "firm                                                               
transportation service," and Sec. 9  adds a new paragraph stating                                                               
common  carrier  offers  both  firm  transportation  service  and                                                               
interruptible transportation service.                                                                                           
                                                                                                                                
11:17:55 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  asked for  a further description  of the                                                               
"give and take" on distance sensitive rates.                                                                                    
                                                                                                                                
11:19:27 AM                                                                                                                   
                                                                                                                                
MR. BALASH explained that the  users of pipeline capacity pay for                                                               
what they  need to  use.   He gave an  example of  the additional                                                               
cost of  a segment  of pipe  going to  a community  some distance                                                               
from  the   pipeline  route,  and   who  should  pay   the  extra                                                               
transportation cost.                                                                                                            
                                                                                                                                
11:21:05 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  surmised there is no  difference whether                                                               
one is removing gas or putting it in.                                                                                           
                                                                                                                                
MR.  BALASH  agreed,  in  terms of  the  rationale  for  distance                                                               
sensitive rates on a pipeline of this type.                                                                                     
                                                                                                                                
11:21:32 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE PETERSEN referred to Sec.  8.  He asked under what                                                               
circumstances   the   pipeline's   overall  capacity   could   be                                                               
diminished.                                                                                                                     
                                                                                                                                
11:22:18 AM                                                                                                                   
                                                                                                                                
MR. BALASH  gave the example of  a 800 mile pipeline  with two of                                                               
four compressor stations inoperable.   In this case, the pipeline                                                               
cannot move as much gas, thus capacity is diminished.                                                                           
                                                                                                                                
11:22:50 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT asked whether  the in-state pipeline jeopardized                                                               
the AGIA  project or if there  was enough gas on  the North Slope                                                               
for both projects.                                                                                                              
                                                                                                                                
11:23:33 AM                                                                                                                   
                                                                                                                                
MR.  BALASH expressed  the administration's  long-term view  that                                                               
there is  a potential for large  volumes of natural gas  from the                                                               
North Slope.  At  this time, and in the near-term,  it would be a                                                               
challenge  to deliver  7.5 billion  cubic  feet per  day of  gas.                                                               
Whether  an in-state  line would  cause a  problem for  the large                                                               
diameter pipeline is based on the  size of the large pipe and the                                                               
volume that will  be shipped.  On the volume  of the bullet line,                                                               
he  opined 400  million  to 500  million cubic  feet  per day  is                                                               
required to make the bullet line economic.                                                                                      
                                                                                                                                
11:25:35 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT recalled  the AGIA license limits  the volume of                                                               
the bullet line.                                                                                                                
                                                                                                                                
MR.  BALASH reminded  the committee  that the  500 million  cubic                                                               
feet per  day limit in AGIA  is an assurance that  the state will                                                               
not support a  competing project.  This means the  state will not                                                               
grant  a favorable  tax, favorable  royalty terms,  or provide  a                                                               
cash grant to a competing project.   If an in-state project moves                                                               
ahead  without  any state  support  or  concessions, the  project                                                               
could be  larger in  volume, and not  affect the  state's project                                                               
assurance clause in the AGIA license.                                                                                           
                                                                                                                                
CO-CHAIR MILLETT remarked:                                                                                                      
                                                                                                                                
     So, as  long we  don't "incentify",  we don't  make any                                                                    
     special  exceptions,  we  don't  change  the  step  tax                                                                    
     structure  specifically for  the  bullet  line, we  can                                                                    
     have a bullet line larger than half a bcf.                                                                                 
                                                                                                                                
MR. BALASH concurred.                                                                                                           
                                                                                                                                
11:27:42 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK asked  whether  2.5 billion  [cf/d] was  the                                                               
"point of demarcation."                                                                                                         
                                                                                                                                
11:28:00 AM                                                                                                                   
                                                                                                                                
MR. BALASH clarified 2.5 billion was an arbitrary number.                                                                       
                                                                                                                                
11:28:31 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked  whether  an  incentive  for  the                                                               
competing project may include bonding capacity.                                                                                 
                                                                                                                                
MR.  BALASH  assured  the  committee the  AGIA  statute  is  very                                                               
specific in identifying tax,  royalty treatment or modifications,                                                               
and/or a  grant of  cash.   A legal  case will  be raised  if the                                                               
legislature and  the administration  are faced with  the question                                                               
of bonding capacity.                                                                                                            
                                                                                                                                
11:30:07 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT asked whether Point  Thomson was included in his                                                               
estimate of known gas reserves on the North Slope.                                                                              
                                                                                                                                
MR. BALASH indicated yes.                                                                                                       
                                                                                                                                
11:30:27 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT announced HB 164 was held over.                                                                                
                                                                                                                                
HB 163-ALASKA NATURAL GAS DEVELOPMENT AUTHORITY                                                                               
                                                                                                                                
CO-CHAIR  MILLETT  announced that  the  final  order of  business                                                               
would be HB 163.                                                                                                                
                                                                                                                                
11:30:54 AM                                                                                                                   
                                                                                                                                
MR. BALASH  reiterated HB 163 is  one of the three  components of                                                               
the  administration's plan  to initiate  an in-state  natural gas                                                               
pipeline project.   He recalled a 2002  ballot initiative created                                                               
the  Alaska Natural  Gas Development  Authority  (ANGDA) and  the                                                               
original language  of the initiative  directed ANGDA to  pursue a                                                               
project  from  Prudhoe  Bay  to   Valdez  with  a  spur  line  to                                                               
Southcentral.  In 2004, the  legislature expanded ANGDA's mission                                                               
to  include a  pipeline to  Cook Inlet.   Mr.  Balash noted  that                                                               
today the energy needs of  Alaskans requires further expansion of                                                               
ANGDA's purpose  as a useful  tool to  facilitate pre-development                                                               
activities.                                                                                                                     
                                                                                                                                
11:33:23 AM                                                                                                                   
                                                                                                                                
MR. BALASH, in response to  Representative Johansen, restated the                                                               
initiative was  enacted in 2002,  and amended by  the legislature                                                               
in 2004.                                                                                                                        
                                                                                                                                
11:34:23 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHANSEN  observed this  was a  citizen initiative                                                               
and the bill  is a proposal by the governor  to amend the citizen                                                               
initiative.  He asked whether  the amendment is necessary because                                                               
there  is new  information, or  a changing  environment affecting                                                               
the statute.                                                                                                                    
                                                                                                                                
MR.   BALASH  opined   that  was   part  of   the  consideration.                                                               
Additionally,  however,  ANGDA  has  been  operating  beyond  its                                                               
statutory mission,  albeit with  the legislature's  knowledge and                                                               
funding, and the  bill allows the agency to become  a vehicle for                                                               
getting gas and moving it anywhere in the state.                                                                                
                                                                                                                                
11:37:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOHANSEN  said  it  was a  valid  point  for  the                                                               
legislature and  the governor to  readdress the statute  and make                                                               
adjustments.                                                                                                                    
                                                                                                                                
11:37:55 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked  whether  HB 163  would  allow  a                                                               
company to build a short  pipeline that connected to the existing                                                               
pipeline system.                                                                                                                
                                                                                                                                
MR.  BALASH said  Sec. 1  would allow  ANGDA to  look beyond  the                                                               
North  Slope  for a  supply  of  gas.    In further  response  to                                                               
Representative  Petersen, he  indicated  that a  pipeline of  any                                                               
length would be allowed.                                                                                                        
                                                                                                                                
11:39:12 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT  recalled ANGDA was  directed to complete  a gas                                                               
pipeline  by  2007.    She  asked  for  an  overview  of  ANGDA's                                                               
accomplishments;  how much  money the  state has  appropriated to                                                               
ANDGA; and what its work product has been.                                                                                      
                                                                                                                                
11:40:03 AM                                                                                                                   
                                                                                                                                
MR. BALASH related that after  the initiative was passed in 2002,                                                               
the Murkowski  Administration appointed a board  of directors for                                                               
ANGDA.  A  modest appropriation funded the agency to  do the work                                                               
required under the original initiative,  which was to investigate                                                               
the  feasibility and  economic  viability of  a pipeline  project                                                               
from Prudhoe  Bay to  Prince William  Sound with  a spur  line to                                                               
Southcentral.   The authority  prepared a  report to  Alaskans in                                                               
2004; also  during that year  the legislature  reviewed statutory                                                               
changes  and  expanded the  authority's  scope.   Also  in  2004,                                                               
applications  began  to  be  submitted  under  the  Stranded  Gas                                                               
Development   Act  (SGDA),   and   it  became   clear  that   the                                                               
administration's  priority was  a  large diameter  pipeline.   In                                                               
fact, ANDGA  began to focus  on developing the spur  line service                                                               
from the big line to Southcentral.   The authority also looked at                                                               
opportunities  for  petrochemical   development;  other  uses  of                                                               
natural gas; and  propane distribution along the  rivers of rural                                                               
Alaska.   During 2005-2006 ANGDA secured  a conditional right-of-                                                               
way lease from the Department  of Natural Resources (DNR) for the                                                               
spur line project along the Glenn  Highway.  Early in the days of                                                               
the  Palin  Administration,  ANGDA   was  directed  back  to  the                                                               
original project; thus in 2007  major funding was used to develop                                                               
an AGIA application.  In  2008, that application was rejected for                                                               
noncompliance.                                                                                                                  
                                                                                                                                
11:45:26 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT asked whether ANGDA  submitted an application to                                                               
build a pipeline.                                                                                                               
                                                                                                                                
MR.  BALASH explained  ANGDA's application  was to  build a  spur                                                               
line along the  Glenn Highway connecting to an  LNG applicant, or                                                               
to  continue  up the  Richardson  Highway  to Delta  Junction  to                                                               
connect with one of the large pipeline projects.                                                                                
                                                                                                                                
CO-CHAIR  MILLETT  asked,  "So,  ANGDA  would  own  and  build  a                                                               
pipeline, was that the idea?"                                                                                                   
                                                                                                                                
MR. BALASH expressed  his belief that ANGDA's plan was  to do the                                                               
pre-development  work necessary  to turn  the project  over to  a                                                               
private  developer/owner/operator.   After  the  issuance of  the                                                               
AGIA  license  to  TransCanada, the  administration  received  an                                                               
estimate of the  funding needed for ANGDA to  continue work until                                                               
the open season in 2010.  He then  pointed out that at the end of                                                               
the  legislative  session  of  2008,  the  legislature  passed  a                                                               
resolution in  support of in-state  gas; however,  the governor's                                                               
request  for $10  million to  study  routes for  an in-state  gas                                                               
pipeline was denied and $4 million was appropriated to ANGDA.                                                                   
                                                                                                                                
11:48:53 AM                                                                                                                   
                                                                                                                                
MR. BALASH,  referring back to Co-Chair  Millett's question, said                                                               
the authority has  been appropriated about $10  million in total.                                                               
He assured the  committee ANGDA is ready to begin  its next stage                                                               
of  work in  pursuit  of  the spur  line  project;  in fact,  the                                                               
administration has done  its best to keep in  sight the statutory                                                               
mission, as  well as the  purpose behind  specific appropriations                                                               
made by the legislature.                                                                                                        
                                                                                                                                
11:50:03 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK   asked  about   the  Alaska   Gasline  Port                                                               
Authority (AGPA).                                                                                                               
                                                                                                                                
11:50:31 AM                                                                                                                   
                                                                                                                                
MR.  BALASH  said,  "ANDGA  and   AGPA  are  two  very  different                                                               
organizations with very different track records."                                                                               
                                                                                                                                
REPRESENTATIVE   JOHANSEN   asked   who   sponsored   the   ANGDA                                                               
initiative.                                                                                                                     
                                                                                                                                
MR.  BALASH said  one sponsor  was Scott  Hayworth who  is now  a                                                               
member of the board of directors.                                                                                               
                                                                                                                                
11:51:30 AM                                                                                                                   
                                                                                                                                
HAROLD  HEINZE, CEO,  Alaska  Natural  Gas Development  Authority                                                               
(ANGDA),  Office  of  the  Commissioner,  Department  of  Revenue                                                               
(DOR),  informed the  committee the  ballot statement  of support                                                               
for ANGDA  was signed by Mike  Macy (ph), Tyrone Neill  (ph), and                                                               
Scott Hayworth.   Mr. Heinze continued to explain  that the ANGDA                                                               
initiative  passed in  the 2002  election by  a 2:1  margin.   He                                                               
added  that the  initiative was  born of  frustration during  the                                                               
Knowles Administration.   In the summer of 2003,  the ANGDA board                                                               
of directors was  appointed and official work  began in September                                                               
2003.  The first  task undertaken by ANGDA was to  look at an LNG                                                               
project;  after  eighteen months  of  study  ANGDA concluded  the                                                               
project was  economic, competitive, and feasible,  but beyond the                                                               
means  of ANGDA.   Also,  at that  time, SGDA  deflected interest                                                               
away from an  LNG project.  The authority  focused on development                                                               
of  the  spur  line;  obtained  a  conditional  right-of-way  for                                                               
Glennallen to Palmer  that is worth several  million dollars; and                                                               
submitted  an  application under  the  AGIA  process.   The  AGIA                                                               
application was  focused on  ANGDA's part  of a  partnership that                                                               
was dependent on a private  sector partner.  Mr. Heinze clarified                                                               
that ANGDA is  not interested in owning and  building a pipeline,                                                               
but  is interested  in "making  one happen."   Other  events that                                                               
have  influenced  ANGDA's interest  include  the  recent rise  in                                                               
energy prices  and the propane  project on  the North Slope.   He                                                               
emphasized that ANGDA continues to  advance the spur line through                                                               
the  regulatory approval  process  and has  almost established  a                                                               
"ready to build  status" for any private sector  party coming in.                                                               
Mr.  Heinze opined  House Bill  163 is  necessary for  clarity so                                                               
that ANGDA can qualify for major financing.                                                                                     
                                                                                                                                
11:57:39 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  MILLETT recalled  the initiative  tasked ANGDA  with 12                                                               
goals,  and  the final  goal  was  to have  a  gas  line in  full                                                               
production by 2007.  She asked  how much closer [the state is] to                                                               
getting an in-state gas line.                                                                                                   
                                                                                                                                
MR. HEINZE acknowledged  that Sec. 5, Item 11,  of the initiative                                                               
petition set  out a series of  plans, and the goal  of having the                                                               
Alaska gas line in production by  2007 was missed.  The intent of                                                               
Sec. 5  was to provide a  first year task; however,  the focus of                                                               
the  governor and  the legislature  was on  the pipeline  through                                                               
Canada and  ANGPA was working  on an  LNG project.   He discussed                                                               
his experience in  the industry back to 1969.   Mr. Heinze opined                                                               
that  "things  are in  good  shape"  because  of the  two  groups                                                               
working  on  the  big  pipeline through  Canada  and  their  FERC                                                               
applications.  The primary focus for  ANGDA now is to assure that                                                               
the in-state side  is well represented in the FERC  process.  The                                                               
in-state  project must  be  prepared to  interface  with the  big                                                               
project between  January and July  2010, and be  further prepared                                                               
to  participate as  provided for  under  the federal  legislation                                                               
that  will  guide FERC  in  its  proceedings  on the  Alaska  gas                                                               
pipeline.                                                                                                                       
                                                                                                                                
CO-CHAIR MILLETT  asked if  ANGDA asked  for an  appropriation in                                                               
the operating budget.                                                                                                           
                                                                                                                                
MR. HEINZE  said ANGDA requested  $315,000, and he  described his                                                               
office staff.   Regarding further  appropriations, he  said ANGDA                                                               
has  received approximately  $10  million  in appropriations  and                                                               
with  operating expenses  has  received about  $12  million.   In                                                               
return  for  that,  the  state has  several  projects  where  the                                                               
private sector  can move forward.   He opined the  private sector                                                               
lacks the ability to see  with certainty whether the big pipeline                                                               
will succeed or not; once that  question is answered, there are a                                                               
number  of pipeline  companies  that will  be  interested in  the                                                               
Alaska line.                                                                                                                    
                                                                                                                                
12:04:11 PM                                                                                                                   
                                                                                                                                
CO-CHAIR  MILLETT   asked  about  the  level   of  interest  from                                                               
producers on the rights-of-way ANGDA has obtained.                                                                              
                                                                                                                                
MR. HEINZE  said several  large Lower  48 pipeline  companies are                                                               
interested in the  spur line project; in fact,  their interest is                                                               
due to  the work  ANGDA has  done.   Furthermore, he  assured the                                                               
committee  that  it is  clear  to  interest parties  that  public                                                               
monies expended by ANGDA must be reimbursed.                                                                                    
                                                                                                                                
12:05:20 PM                                                                                                                   
                                                                                                                                
CO-CHAIR MILLETT announced HB 163 was held over.                                                                                
12:05:40 PM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
There being no  further business before the  committee, the House                                                               
Special  Committee on  Energy meeting  was  adjourned at  [12:05]                                                               
p.m.                                                                                                                            

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