Legislature(2009 - 2010)BARNES 124

03/19/2009 03:00 PM ENERGY

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03:10:20 PM Start
03:11:14 PM HCR12
05:37:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 11:00 am 03/20/09 --
+ Overview on Hydroelectric Projects TELECONFERENCED
<Above Item Removed from Agenda>
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                         March 19, 2009                                                                                         
                           3:09 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Bryce Edgmon, Co-Chair                                                                                           
Representative Charisse Millett, Co-Chair                                                                                       
Representative Nancy Dahlstrom                                                                                                  
Representative Kyle Johansen                                                                                                    
Representative Jay Ramras                                                                                                       
Representative Pete Petersen                                                                                                    
Representative Chris Tuck                                                                                                       
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Senator Thomas Wagoner                                                                                                          
Senator Gene Therriault                                                                                                         
COMMITTEE CALENDAR                                                                                                            
HOUSE CONCURRENT RESOLUTION NO. 12                                                                                              
Requesting that the governor and  the attorney general review and                                                               
reevaluate  the license  issued  to  TransCanada Alaska  Company,                                                               
LLC, and  Foothills Pipe Lines  Ltd., jointly as  licensee, under                                                               
the  Alaska  Gasline  Inducement  Act to  determine  whether  the                                                               
project  proposed  by  the licensee  sufficiently  maximizes  the                                                               
benefits to  the people  of the state  and merits  continuing the                                                               
license,  taking into  consideration  economic changes  affecting                                                               
project financing, the availability  of liquefied natural gas and                                                               
natural  gas from  nonconventional sources,  the state's  risk of                                                               
paying treble damages associated with  an in- state gas pipeline,                                                               
and  the  expected  budget  deficit;   and  requesting  that  the                                                               
governor  and the  attorney  general report  the  outcome of  the                                                               
review and reevaluation within six months.                                                                                      
     -HEARD AND HELD                                                                                                            
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HCR 12                                                                                                                  
SHORT TITLE: URGING REEVALUATION OF AGIA LICENSE                                                                                
SPONSOR(s): REPRESENTATIVE(s) RAMRAS                                                                                            
03/12/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/12/09       (H)       ENE, RES                                                                                               
WITNESS REGISTER                                                                                                              
REPRESENTATIVE CRAIG JOHNSON                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HCR 12 as the co-sponsor.                                                                      
DON BULLOCK, Attorney                                                                                                           
Legislative Legal Counsel                                                                                                       
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Speaking as the drafter, answered questions                                                              
regarding the proposed CS for HCR 12, 26-LS0156\C.                                                                              
TOM IRWIN, Commissioner                                                                                                         
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the hearing on HCR 12.                                                                  
PAT GALVIN, Commissioner                                                                                                        
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the hearing on HCR 12.                                                                  
TONY PALMER, Vice President                                                                                                     
Alaska Development                                                                                                              
TransCanada; President                                                                                                          
TC Alaska; CEO                                                                                                                  
Foothills Pipelines, Ltd.                                                                                                       
Calgary, Alberta                                                                                                                
POSITION STATEMENT:  Testified during the hearing on HCR 12.                                                                  
ACTION NARRATIVE                                                                                                              
CO-CHAIR  BRYCE  EDGMON called  the  House  Special Committee  on                                                             
Energy meeting  to order at [3:09]  p.m.  Present at  the call to                                                               
order  were Representatives  Dahlstrom,  Ramras, Petersen,  Tuck,                                                               
Millett,  and Edgmon.   Representative  Johansen  arrived as  the                                                               
meeting  was  in progress.    Also  in attendance  were  Senators                                                               
Therriault and Wagoner.                                                                                                         
HCR 12-URGING REEVALUATION OF AGIA LICENSE                                                                                    
CHAIR EDGMON announced  that the only order of  business would be                                                               
HOUSE CONCURRENT RESOLUTION NO.  12, Requesting that the governor                                                               
and  the  attorney  general review  and  reevaluate  the  license                                                               
issued  to TransCanada  Alaska Company,  LLC, and  Foothills Pipe                                                               
Lines  Ltd.,  jointly  as  licensee,  under  the  Alaska  Gasline                                                               
Inducement Act to  determine whether the project  proposed by the                                                               
licensee  sufficiently maximizes  the benefits  to the  people of                                                               
the  state  and  merits  continuing   the  license,  taking  into                                                               
consideration economic  changes affecting project  financing, the                                                               
availability  of  liquefied  natural  gas and  natural  gas  from                                                               
nonconventional  sources,  the  state's  risk  of  paying  treble                                                               
damages  associated  with an  in-  state  gas pipeline,  and  the                                                               
expected  budget deficit;  and requesting  that the  governor and                                                               
the  attorney  general  report  the outcome  of  the  review  and                                                               
reevaluation within six months.                                                                                                 
3:10:20 PM                                                                                                                    
REPRESENTATIVE TUCK said he was  looking forward to learning more                                                               
about AGIA.                                                                                                                     
3:11:14 PM                                                                                                                    
CO-CHAIR  MILLETT moved  to adopt  committee substitute  (CS) for                                                               
HCR 12, 26-LS0156\C, Bullock, 3/18/09, as the working document.                                                                 
3:11:32 PM                                                                                                                    
CO-CHAIR EDGMON objected for the purpose of discussion.                                                                         
3:12:06 PM                                                                                                                    
REPRESENTATIVE   CRAIG   JOHNSON,   Alaska   State   Legislature,                                                               
presented the committee  substitute for HCR 12  as the co-sponsor                                                               
with  Representative  Ramras.     Representative  Johnson  called                                                               
attention to  the difficulties caused  when the  government hands                                                               
out  large  amounts of  money  without  keeping  a close  eye  to                                                               
prevent  unintended consequences.   In  fact, the  administration                                                               
has  authorized   the  payment   of  $500  million   dollars  and                                                               
"we've heard very  little since then."   He  recalled that during                                                               
his  recent trip  to the  Energy Council  conference, there  were                                                               
discussions of  the difficulties  of the gas  market on  a global                                                               
scale  that may  have an  impact  on securing  financing for  the                                                               
Alaska gas pipeline.  In fact,  Alaska's gas may not be needed in                                                               
a glutted  market.  He  stressed that HCR  12 does not  require a                                                               
rewrite of  Alaska's Gasline Inducement Act  (AGIA), but requires                                                               
a report  on the progress  of the legislation.   House Concurrent                                                               
Resolution  12 is  a  resolution  of the  people  and  it can  be                                                               
changed   if  the   language   is  too   strong   or  too   soft.                                                               
Representative Johnson  expressed his surprise at  the minority's                                                               
protest against this  resolution, and asked, "Who  can be opposed                                                               
at getting  more information?"  He  cautioned against authorizing                                                               
this money  and then  "walk[ing] away  without information."   He                                                               
said he  was heartened  by the governor  who said  the resolution                                                               
asked the administration to make  sure its decisions, with regard                                                               
to  the  gas  pipeline,  are truly  in  Alaska's  best  interest.                                                               
Representative Johnson  mentioned the  testimony that  will come,                                                               
and stressed  that all  he is  asking for is  for the  parties to                                                               
show  the   information  that   will  answer   his  constituents'                                                               
questions.   This resolution  asks for a  report on  the progress                                                               
that is  being made and  he encouraged  the committee to  move it                                                               
out to the next committee.                                                                                                      
3:15:43 PM                                                                                                                    
CO-CHAIR EDGMON  asked the sponsors  to walk through  the changes                                                               
in the proposed CS.                                                                                                             
3:16:32 PM                                                                                                                    
REPRESENTATIVE  RAMRAS  recalled   advice  from  former  Governor                                                               
Hickel to  freshman legislators and  opined Governor  Palin would                                                               
agree  that the  debate  of  AGIA was  whether  it  was for  "the                                                               
maximum  benefit  of  the  people  for  the  state  to  induce  a                                                               
competitive environment for two gas  pipelines, which is what has                                                               
materialized ...."   Furthermore,  any company in  America, after                                                               
investing  $500 million,  needs  regular  benchmarks and  written                                                               
reports in  order to glean a  sense of whether a  project remains                                                               
economic or  is losing its  commercial footing.   After attending                                                               
the Energy  Council, he  said, "I came  away excited  for America                                                               
and  frightened for  the  prospects  for Alaska."    The U.S.  is                                                               
reinventing its  cornerstone energy source; in  fact, the Federal                                                               
Energy   Regulatory  Commission   (FERC)   is  permitting   three                                                               
pipelines  and  two liquefied  natural  gas  facilities (LNG)  in                                                               
Oregon, over  the objections of many  of the residents.   This is                                                               
happening  in an  effort to  build a  natural gas  infrastructure                                                               
even though the  capacity for the importation of LNG  was six bcf                                                               
per day last year, and will be twenty  bcf per day next year.  In                                                               
addition,  he noted  the increase  of nonconventional  sources of                                                               
gas, such as  shale, that are being developed by  smaller, up and                                                               
coming  producers.   Shale is  available  in increasingly  larger                                                               
quantities  and  the  cost  of   tariff  transportation  is  low.                                                               
Sources at the Energy Council  stated Congress and Americans want                                                               
energy  independence, although  what they  really want  is energy                                                               
security, and  that is  possible with the  amount of  natural gas                                                               
available in  the Lower  48.  Moreover,  with 4.3  trillion cubic                                                               
feet  (tcf) of  storage in  natural geologic  formations, America                                                               
has the ability  to store more gas than is  possible in Europe or                                                               
Asia.   America uses the  most energy,  has the ability  to store                                                               
the most,  will have  the most receiver  ports for  imported LNG,                                                               
and is now  developing vast shale resources at  lower prices than                                                               
before.  Representative  Ramras pointed out the North  Slope is a                                                               
brand new "brown field", that  must be explored for gas; however,                                                               
in  the Lower  48  there are  "green fields"  where  the gas  has                                                               
already been located and the infrastructure  is in place.  All of                                                               
these factors are  putting the Alaska pipeline  somewhat at risk.                                                               
He asked,  "They certainly want Alaska  gas in the Lower  48, but                                                               
are  they willing  to pay  for it,  once you  deduct the  cost of                                                               
lifting it,  the capital  cost, and the  cost of  transporting it                                                               
and the embedded  construction risk that comes in  it?"  Further,                                                               
he  questioned whether  the state's  inducement  of $500  million                                                               
enhances the market,  or if the market will  be created naturally                                                               
when "the marketplace is ready."   He opined the governor and the                                                               
sponsors of HCR 12 are in  agreement, and all of the parties want                                                               
regular information such as written  benchmarks, that are part of                                                               
routine business  practice.  Representation Ramras  stressed that                                                               
HCR  12 asks  for a  written report,  within 180  days, from  the                                                               
administration on  how AGIA is  doing, the effects of  a changing                                                               
marketplace  on economics,  and whether  the inducement  is still                                                               
worthwhile.    This  report  is   the  orderly  dissemination  of                                                               
information   analyzing   the   greater   marketplace   and   the                                                               
advancement of AGIA.                                                                                                            
3:25:43 PM                                                                                                                    
CO-CHAIR EDGMON asked the sponsors  to present the changes to the                                                               
resolution reflected in the proposed CS.                                                                                        
3:25:58 PM                                                                                                                    
REPRESENTATIVE  RAMRAS  advised  the  changes  in  the  "whereas"                                                               
clauses are  very straightforward.   He then referred to  HCR 12,                                                               
26-LS0156\S, page 4, lines 25-26, that read:                                                                                    
     [Alaska] Gasline  Inducement Act) to  determine whether                                                                    
     the  project  proposed  by  the  licensee  sufficiently                                                                    
     maximizes the benefits  to the people of  the state and                                                                    
     merits continuing the license,                                                                                             
REPRESENTATIVE RAMRAS  explained the  above language  is replaced                                                               
by the  language in the  proposed CSHCR 12, 26-LS0156\C,  page 5,                                                               
lines 2-6 that read:                                                                                                            
     [Alaska] Gasline  Inducement Act) to  determine whether                                                                    
     the project proposed by the  licensee fails to maximize                                                                    
     the  benefits  to  the  people  of  the  state,  or  is                                                                    
     uneconomic, taking into  consideration economic changes                                                                    
     affecting  project   financing,  the   availability  of                                                                    
     liquefied   natural   gas    and   natural   gas   from                                                                    
     nonconventional  sources, the  state's  risk of  paying                                                                    
     treble   damages  associated   with  an   in-state  gas                                                                    
     pipeline, and the expected budget deficit;                                                                                 
REPRESENTATIVE RAMRAS  further explained  the material  change is                                                               
from "sufficiently  maximizes the benefits  to the people  of the                                                               
state and  merits continuing the  license" to "fails  to maximize                                                               
the benefits  to the people of  the state or is  uneconomic."  He                                                               
assured the  committee the intent of  the resolution is to  get a                                                               
lot  of information  at  regular intervals,  but  not to  rewrite                                                               
AGIA.  In  response to Representative Tuck, he  noted that treble                                                               
damages are the same as triple damages.                                                                                         
3:29:48 PM                                                                                                                    
DON  BULLOCK, Attorney,  Legislative  Legal Counsel,  Legislative                                                               
Legal   and  Research   Services,  Legislative   Affairs  Agency,                                                               
informed  the committee  he was  also the  drafter of  AGIA.   He                                                               
explained the  key change in the  proposed CS is the  question of                                                               
whether the  project is uneconomic.   The process of AGIA  was to                                                               
offer $500 million,  and the benefits of  a pipeline coordinator,                                                               
to any entity that would propose  a project and agreed to what is                                                               
commonly  known   as  the  "must-haves."     The   proposal  from                                                               
TransCanada was  determined as the  best project to  maximize the                                                               
benefits to  the people of the  state.  This led  to confusion as                                                               
the original  language in the resolution  asked for consideration                                                               
as  to whether  the  project  does maximize  the  benefit to  the                                                               
people  of the  state and  if  the license  should be  continued;                                                               
however,  at this  point AGIA  is a  contract and  he opined  the                                                               
intent of the  original resolution was not to undue  the award of                                                               
the  contract.   Therefore,  he  said  he  looked  at AGIA  as  a                                                               
contract  and searched  for provisions  within the  contract that                                                               
allow the evaluation of the project  as it is underway.  He cited                                                               
AS 43.90.210,  Amendment for Modifications  of the  Project Plan,                                                             
and  said   this  amendment  allows   the  licensee   to  propose                                                               
modifications if circumstances have  changed.  Also, AS 43.90.240                                                               
Abandonment  of  the  Project,   addresses  the  economic  issues                                                               
related  to  the  pipeline.    The  first  provision  allows  the                                                               
licensee and  the state to agree  that if the project  can not be                                                               
built with  value at  "the wellhead," the  parties can  walk away                                                               
from  the  contract.  However,  if  there  is  disagreement,  for                                                               
example,  the  state  feels  the   project  is  not  viable,  but                                                               
TransCanada  does,  the  parties  can go  to  arbitration.    Mr.                                                               
Bullock  then  described  the  evidence   that  would  prove  the                                                               
economics of  the project.   He concluded the economics  can, and                                                               
should,  be  constantly  monitored  and that  the  point  of  the                                                               
resolution,  by asking  for economic  status, is  consistent with                                                               
3:35:10 PM                                                                                                                    
REPRESENTATIVE PETERSEN  referred to Mr. Bullock's  legal opinion                                                               
included  in the  committee packet.    He asked  if he  correctly                                                               
interpreted Mr.  Bullock's opinion  that if  Alaska backs  out of                                                               
"this deal," the state would be liable for treble damages.                                                                      
3:36:15 PM                                                                                                                    
MR.  BULLOCK  said,   "Not  entirely."    If   the  state  offers                                                               
inducements of money  and the benefits of  a pipeline coordinator                                                               
to  a competing  gas  pipeline  with the  capacity  of more  than                                                               
500,000 cubic feet  per day, the damages  provision is triggered.                                                               
Damages would equal three times the  amount of the expenses up to                                                               
that point.                                                                                                                     
3:37:12 PM                                                                                                                    
REPRESENTATIVE RAMRAS  opined discussion  of this opinion  is not                                                               
relevant due to the changes in the proposed CS.                                                                                 
3:37:22 PM                                                                                                                    
MR. BULLOCK clarified  his memo addressed the issue  of the state                                                               
arbitrarily  canceling  the contract.    He  pointed out  that  a                                                               
business  will sometimes  pay damages  to get  out of  a contract                                                               
that  carries a  risk of  costing  them more;  however, the  AGIA                                                               
contract  is  different in  that  the  state is  subsidizing  the                                                               
development  of an  independent business.   He  concluded without                                                               
speculating on what the damages  of unilateral termination of the                                                               
contract would be.                                                                                                              
3:39:07 PM                                                                                                                    
REPRESENTATIVE PETERSEN asked whether  the amount would be higher                                                               
or lower than "half a billion dollars."                                                                                         
3:39:23 PM                                                                                                                    
MR.  BULLOCK  surmised  TransCanada's   first  billings  will  be                                                               
received  soon  and  the  commissioners  of  the  Departments  of                                                               
Revenue  (DOR)  and  Natural  Resources (DNR)  are  in  a  better                                                               
position to know.  He  reminded the committee that another factor                                                               
to  determine damages  is TransCanada's  reliance on  the state's                                                               
3:39:56 PM                                                                                                                    
TOM  IRWIN,   Commissioner,  Department  of   Natural  Resources,                                                               
informed  the committee  HCR  12 requests  the  governor and  the                                                               
attorney general  review and reevaluate  the AGIA  license issued                                                               
to TransCanada  Alaska and Foothills  Pipe Lines Ltd.   He opined                                                               
the purpose  of this request is  a belief that there  are changed                                                               
conditions  that  may  affect  whether  the  AGIA  project  still                                                               
sufficiently maximizes the benefits to  the people of Alaska, and                                                               
merits the AGIA  license.  He described the  elements of analysis                                                               
within AGIA  and said  the following  testimony will  discuss why                                                               
the review  and reevaluation is unnecessary.   Commissioner Irwin                                                               
recalled that,  prior to this  administration, there was  no work                                                               
being done on the Alaska natural  gas pipeline such as field work                                                               
and  regulatory  preparation  for  an   open  season  or  a  FERC                                                               
certificate; in fact,  all of the gas reserves in  the state were                                                               
the result  of the search  for oil, and proposed  contracts under                                                               
the  Stranded   Gas  Development  Act  (SGDA)   failed  to  pass.                                                               
However;  today  there  are  two  entities  working  toward  open                                                               
season, there  are multiple  companies exploring  for gas  on the                                                               
North Slope, and there is  a proven pipeline company committed to                                                               
build  the project.   Also,  the following  critical open  access                                                               
provisions  are  assured:  a low,  reasonable  tariff  structure;                                                               
expansion   commitments;   and    rational   expansion   tariffs.                                                               
Commissioner Irwin stated the AGIA  project has the assurances to                                                               
support Alaska's economic future.                                                                                               
3:46:36 PM                                                                                                                    
COMMISSIONER IRWIN continued to  explain that during negotiations                                                               
under the  Stranded Gas  Development Act,  there was  no interest                                                               
from  the   oil  producing  companies   to  assure   open  access                                                               
protections.    This  situation led  the  administration  to  the                                                               
development of AGIA  and its elements remain  essential to Alaska                                                               
today.  The  AGIA process included:   soliciting of applications;                                                               
analysis of  the applications; findings of  the project proposal;                                                               
and public  and legislative review.   TransCanada met all  of the                                                               
requirements of the legislation and,  as the licensee, must abide                                                               
by  all of  the  commercial terms  that  protect Alaska's  future                                                               
economic interests.   Commissioner Irwin turned  attention to the                                                               
analysis  of AGIA  that  is required  of  the administration.  He                                                               
reviewed  the requirements  of the  legislation  and the  process                                                               
followed by  the commissioners of  the DOR  and the DNR  to issue                                                               
the license.   Outside  experts such  as Wood  Mackenzie, Goldman                                                               
Sachs, Black & Veatch, Greenberg-Tarig,  Gaffney, Cline & Assoc.,                                                               
and  others,  were  consulted to  contribute  to  the  associated                                                               
finding; in  fact, the cost  of this extremely  rigorous analysis                                                               
and  finding was  $13 million.   He  also described  the modeling                                                               
employed to  generate the  net present value  (NPV) to  the state                                                               
and to assess  risks to the state  including price uncertainties,                                                               
changing project capital costs,  timing, interest rates, the cost                                                               
of  capital  financing,  operation  and  maintenance  costs,  and                                                               
escalation  rates.   Commissioner Irwin  concluded that  the AGIA                                                               
analysis  identified the  risks referred  to in  HCR 12,  and the                                                               
results are reflected in the AGIA finding.                                                                                      
3:51:32 PM                                                                                                                    
CO-CHAIR MILLETT  asked whether  the project was  currently under                                                               
review by the DOR.                                                                                                              
3:52:08 PM                                                                                                                    
PAT GALVIN,  Commissioner, Department of Revenue  (DOR), answered                                                               
yes.  He clarified that the  type of analysis underway may not be                                                               
meeting  the expectation  of HCR  12.   The  ongoing analysis  is                                                               
basically two-fold: evaluating new information  as it is known in                                                               
terms  of  price expectation  and  cost;  and comparing  proposed                                                               
changes  to  the  state  fiscal   system  that  will  affect  the                                                               
project's economics.    In addition, there  are studies currently                                                               
taking  place  associated  with the  project  and  the  project's                                                               
impact  on North  American natural  gas prices,  labor, industry,                                                               
and  environmental  concerns.    Secondly, there  is  a  separate                                                               
analysis regarding  the potential role  of the state  and federal                                                               
government in the financing of the project.                                                                                     
3:54:30 PM                                                                                                                    
CO-CHAIR  MILLETT   surmised  the  DOR  is   currently  analyzing                                                               
everything  required  by  the proposed  resolution.    She  asked                                                               
whether  the  department  can share  this  information  with  the                                                               
3:55:02 PM                                                                                                                    
COMMISSIONER  GALVIN  advised the  department  is  not doing  the                                                               
comprehensive  review required  by  the resolution.   This  would                                                               
require that all of the  consultants "re-do all of their numbers"                                                               
and  would  divert  resources from  the  project's  budget.  "The                                                               
premise  that we're  currently underdoing  the scope  of analysis                                                               
contemplated in the  resolution is, I would say,  not an accurate                                                               
premise, but  as far  as sharing the  information ...  we're very                                                               
happy to do that," he said.                                                                                                     
3:55:57 PM                                                                                                                    
CO-CHAIR  MILLETT   asked  whether   the  department   still  has                                                               
consultants under contract.                                                                                                     
3:56:18 PM                                                                                                                    
COMMISSIONER  GALVIN indicated  Goldman Sachs  is under  contract                                                               
for  the evaluation  of  the  potential roles  of  the state  and                                                               
federal government.  Similarly, Black  & Veatch is under contract                                                               
for  the  evaluation of  the  project's  effect on  the  national                                                               
economy.     Neither of  the contracts  include a  review of  the                                                               
contractor's previous work.                                                                                                     
3:57:09 PM                                                                                                                    
CO-CHAIR MILLETT asked whether  Commissioner Galvin was confident                                                               
that the project is economical.                                                                                                 
3:57:30 PM                                                                                                                    
COMMISSIONER GALVIN said yes.                                                                                                   
3:57:43 PM                                                                                                                    
COMMISSIONER IRWIN concurred.                                                                                                   
3:57:55 PM                                                                                                                    
REPRESENTATIVE  RAMRAS quoted  Dr. Antony  Scott and  opined that                                                               
with  the pressure  of shale,  LNG,  a recession,  and a  changed                                                               
marketplace, at  today's prevailing price, this  project would be                                                               
3:58:14 PM                                                                                                                    
COMMISSIONER GALVIN questioned the accuracy of the quote.                                                                       
3:58:30 PM                                                                                                                    
REPRESENTATIVE RAMRAS asked whether,  if today's price of natural                                                               
gas - $3.60 to $3.80 - is the  same in 2018, the project would be                                                               
3:58:56 PM                                                                                                                    
COMMISSIONER  GALVIN  said  the  answer depends  on  the  tariff.                                                               
TransCanada  has a  tariff  of below  $3.  The department's  risk                                                               
assessment  factor estimates  a  tariff of  around  $4; thus  the                                                               
department's analysis is that the project is still economic.                                                                    
3:59:24 PM                                                                                                                    
REPRESENTATIVE RAMRAS re-stated his question.                                                                                   
3:59:39 PM                                                                                                                    
CO-CHAIR  EDGMON asked  Commissioner Galvin  to proceed  with the                                                               
3:59:52 PM                                                                                                                    
COMMISSIONER  GALVIN presented  PowerPoint  slide 2,  "Revisiting                                                               
the  AGIA  Decisions."    He opined  the  resolution  raises  the                                                               
questions of whether  it is timely to revisit  the AGIA decisions                                                               
and whether anything  has happened since the  AGIA decisions were                                                               
initially  made  to  justify  revisiting  them.    He  broke  the                                                               
questions down into two pieces:   The commissioners' findings and                                                               
conclusions, and  the passage of AGIA.  Commissioner Galvin first                                                               
addressed  changes in  the world  since the  legislature approved                                                               
the license, such as the  global economic downturn, the continued                                                               
development  of shale  gas  supplies, and  the  expansion of  LNG                                                               
import  capacity.    Not  recognized in  the  resolution  is  the                                                               
increased  likelihood of  carbon regulation  and the  decrease in                                                               
project cost indices.   He elaborated that both  of these factors                                                               
favor the  project; in fact,  the carbon regulation  will improve                                                               
the  relative economics  of  natural gas.    Further, the  global                                                               
economic  downturn  has  resulted   in  lower  costs  for  energy                                                               
projects that require large amounts of steel.                                                                                   
4:03:08 PM                                                                                                                    
COMMISSIONER  GALVIN reminded  the  committee  another change  is                                                               
that prior  to the passage  of AGIA,  there were no  active major                                                               
gasline projects,  and now  there are two.   Before  returning to                                                               
the first  question, he reviewed  the basic premise of  AGIA that                                                               
issuing the  license to  TransCanada would  sufficiently maximize                                                               
the  benefit  to  Alaskans.    This decision  was  based  on  two                                                               
factors:  a  ranking  of  the  net present  value  (NPV)  of  the                                                               
anticipated cash  flows to  the state from  the project,  and the                                                               
project's  likelihood  of  success.    There  are  three  primary                                                               
factors to determine NPV:   the expectation of natural gas prices                                                               
in the  years from 2018 -  2043, the cost of  transportation, and                                                               
the  project   schedule.     Commissioner  Galvin   stressed  the                                                               
evaluation  can not  reflect the  natural gas  price, supply,  or                                                               
demand of  today, but the  expectation ten  years from now.   The                                                               
primary  factors  to  determine  the likelihood  of  success  are                                                               
project  economics,  the  technical  development  plan,  and  the                                                               
financing plan.                                                                                                                 
4:07:08 PM                                                                                                                    
COMMISSIONER GALVIN  began to put  the aforementioned  changes in                                                               
context.  For example,  the global  economic  downturn means  the                                                               
price and  demand for natural gas  is going down and  is expected                                                               
to  stay  down for  the  next  six  to  twenty-four months.    In                                                               
addition,    the   financial    markets   have    "tightened   up                                                               
significantly."   He related  he has  no indication  from experts                                                               
that this situation  will extend into the five  year timeframe of                                                               
the project.  Thus, the  global economic downturn does not affect                                                               
the project.   He stated  the continued development of  shale gas                                                               
was  anticipated, as  was the  continued increase  in LNG  import                                                               
capacity.    However,  unseen  was  the  introduction  of  carbon                                                               
regulation, and the subsequent increased  demand for natural gas.                                                               
Also not  included in the  analysis last spring was  the decrease                                                               
in project  cost indices.   He  restated that  both of  these are                                                               
changes "in the  opposite direction."  To illustrate  the fall in                                                               
steel  costs,  Commissioner  Galvin presented  slide  9,  "Global                                                               
Steel Price  Index" that  indicated the price  of steel  has gone                                                               
from $180 May 2007,  to $250 in July 2008, and  back down to $140                                                               
in March 2009. The fact that  the price of steel is one-half what                                                               
was  anticipated  is going  to  have  a  positive effect  on  the                                                               
economics of  the project.   He then summarized the  changes that                                                               
are new  and relevant  and concluded that  the overall  effect of                                                               
the changes is just as likely to be positive as negative.                                                                       
4:12:55 PM                                                                                                                    
COMMISSIONER   GALVIN  presented   several   excerpts  from   the                                                               
commissioners' AGIA  Finding and Determination; AGIA  NPV report.                                                               
These  excerpts   were  a   variety  of   consultants'  testimony                                                               
regarding shale  gas production rates,  technological innovation,                                                               
technical  advancement, LNG  import capacity  expansion, and  LNG                                                               
import volumes.                                                                                                                 
4:19:25 PM                                                                                                                    
REPRESENTATIVE RAMRAS remarked:                                                                                                 
     I just  want to  point out to  the committee  that what                                                                    
     we're getting  is the information  we requested  in HCR
     12, and  not discussing  whether we should  be pursuing                                                                    
     HCR 12.   I mean, this  is what we've all  been waiting                                                                    
     for,  is this  kind  of detailed  information, not  the                                                                    
     answer to  each of  the whereas  [clauses] ....   We're                                                                    
     not  discussing  the   resolution,  we're  meticulously                                                                    
     dissecting  each  of  the whereas  [clauses]  which  is                                                                    
     precisely why we're frustrated.                                                                                            
4:20:23 PM                                                                                                                    
CO-CHAIR  EDGMON  appreciated  Representative  Ramras'  comments;                                                               
however, he said  the subject matter is not  simple and listening                                                               
to detailed background information is appropriate.                                                                              
4:20:57 PM                                                                                                                    
COMMISSIONER GALVIN observed that  Representative Ramras raised a                                                               
question:  In the  relationship between  the legislature  and the                                                               
administration,  what   is  necessary  in   order  to   get  this                                                               
information?   "Frankly,  we  were never  asked  to present  this                                                               
information,"  he said.   He  assured the  committee there  is no                                                               
need to  pass a resolution,  but the  committee could ask  him to                                                               
come to a committee and present  "where things are in relation to                                                               
the current  market."   He stated that  this presentation  is for                                                               
members who  did not participate  in the AGIA hearings,  and also                                                               
so the committee will understand  that a reevaluation of the AGIA                                                               
decision  is  "plumbing the  depths  of  a tremendous  amount  of                                                               
analysis that  has already been  done."  The department  needs to                                                               
clarify what the sponsors are looking for in order to respond.                                                                  
4:22:19 PM                                                                                                                    
REPRESENTATIVE  JOHNSON  observed  there  was not  a  very  large                                                               
percentage  of the  legislature present.   The  sponsors seek  to                                                               
educate  every  member  of  the   legislature  on  this  subject;                                                               
however, they would like to avoid  calling a joint session.  What                                                               
the  sponsors  would  like  to  see  is  a  concise  report  that                                                               
legislators  can   read,  not  a   presentation  at   a  meeting.                                                               
Representative Johnson  stressed that this presentation  needs to                                                               
be in a  format that is accessible to everyone,  not just members                                                               
of the House  Special Committee on Energy or  the House Resources                                                               
Standing Committee.                                                                                                             
4:23:39 PM                                                                                                                    
COMMISSIONER   GALVIN   acknowledged   Representative   Johnson's                                                               
suggestion  was  very  helpful, and  assured  the  committee  the                                                               
department is happy  to provide the information  required to keep                                                               
members fully informed.                                                                                                         
4:24:07 PM                                                                                                                    
REPRESENTATIVE RAMRAS remarked:                                                                                                 
     How about Black & Veatch,  their number was a tariff of                                                                    
     $4.73, including  the conditioning plant, and  the fact                                                                    
     that gas is  at $3.70, what's our strategy  going to be                                                                    
     if gas is at $3.70 ten  years from now?  I mean, that's                                                                    
     the whole notion of what HCR 12 gets to ....                                                                               
REPRESENTATIVE RAMRAS  further noted  the discussion  was focused                                                               
on whereas clauses and not the "Be it resolved" of HCR 12.                                                                      
4:24:59 PM                                                                                                                    
CO-CHAIR EDGMON  said in order  to fully understand  the "problem                                                               
statement"  brought  by the  bill  sponsors,  the committee  must                                                               
backtrack  and  thoroughly  examine   "how  we  got  here  today,                                                               
especially with some new members around the table."                                                                             
4:25:37 PM                                                                                                                    
CO-CHAIR MILLETT  asked whether  Commissioner Galvin  was opposed                                                               
to HCR 12.                                                                                                                      
4:25:52 PM                                                                                                                    
COMMISSIONER  GALVIN  said  he  was  opposed  to  the  resolution                                                               
because it  does not provide  for what is being  requested, which                                                               
is simply  an update on  the project.   He opined  the resolution                                                               
requires  the  governor and  the  attorney  general to  determine                                                               
whether the project  fails to maximize benefits and  to take into                                                               
consideration all of the subjects  begin discussed.  He disagreed                                                               
that the department  is discussing the whereas  clauses; in fact,                                                               
he suggested  that the  committee look at  the question,  "Is now                                                               
the  time to  revisit  a  full evaluation  of  these things,  our                                                               
answer is 'no'."                                                                                                                
4:26:55 PM                                                                                                                    
REPRESENTATIVE JOHNSON expressed  the need for a  report from the                                                               
administration that  he can  take to his  constituents at  a town                                                               
hall  meeting.   This information  needs to  be available  to the                                                               
public, not just to the legislature.                                                                                            
4:27:54 PM                                                                                                                    
COMMISSIONER GALVIN  said the department  is available  to answer                                                               
questions  at  constituent  meetings.   He  presented  slide  18,                                                               
"Which  of  These  Changes  are Truly  New  and  Relevant?"  that                                                               
indicated additional  shale and  LNG supplies were  factored into                                                               
the price  assumptions for  the project.   In fact,  the findings                                                               
incorporated a significant  increase in LNG imports  from two bcf                                                               
per day in 2007, to seventeen bcf  per day in 2025.  He noted the                                                               
actual  import volumes  of  LNG  have gone  done  since AGIA  was                                                               
4:29:16 PM                                                                                                                    
CO-CHAIR  MILLETT   asked  why  bigger  LNG   tankers  are  being                                                               
4:29:44 PM                                                                                                                    
COMMISSIONER GALVIN explained  that LNG is the  primary method of                                                               
gas transportation in  the rest of the world.   The growth in LNG                                                               
is driven by demand growth in  the markets of Asia and Europe. He                                                               
concluded the analysis that was  done provided tremendous insight                                                               
into  the  global LNG  market,  as  well  as the  North  American                                                               
4:31:04 PM                                                                                                                    
REPRESENTATIVE JOHNSON  asked whether  the new ships  that gasify                                                               
on-board were "figured into this."                                                                                              
4:31:33 PM                                                                                                                    
COMMISSIONER GALVIN said yes.   Again, the issue with LNG imports                                                               
is not a matter of import  capacity or the amount of gasification                                                               
available,  but of  the supply  of gas  to justify  that capacity                                                               
created by the construction of  new facilities.  The expansion of                                                               
re-gas facilities is  not the limiting factor  on import volumes,                                                               
but the  limited factor  will be  the price  differential between                                                               
the North American price and elsewhere.                                                                                         
4:32:36 PM                                                                                                                    
REPRESENTATIVE JOHNSON surmised this  new technology was included                                                               
in the original assessment completed last spring.                                                                               
4:32:53 PM                                                                                                                    
COMMISSIONER  GALVIN confirmed  that gas  capacity expansion  and                                                               
the fact there  will be technological advancements  in gas import                                                               
capacity were factored in.   He then explained what the continued                                                               
development  of  shale  gas  means to  the  Alaska  gas  pipeline                                                               
project.  When the price of  Alaska gas is compared to shale, the                                                               
Alaska gas will most likely come  in at a lower cost.  Therefore,                                                               
shale gas is not a primary  threat to the Alaska gasline project,                                                               
but the inverse:  The advent of Alaska gas coming  into the North                                                               
American market  is a  primary risk factor  for the  economics of                                                               
shale  gas plays.     He  reported that  at  a recent  investment                                                               
conference, analysis  was provided by an  investment company with                                                               
holdings in shale  gas, that the Alaska gas project  is the "game                                                               
changer" for  the economics  of shale  gas.   Commissioner Galvin                                                               
concluded  that  on the  questions  concerning  the relevance  of                                                               
additional  shale gas  and LNG  supplies, the  overall effect  is                                                               
just as  likely to be positive  as negative.  In  addition, short                                                               
term  demand  slow-down  and   tightened  financial  markets  are                                                               
currently not  viewed as long-term  effects.  He then  provided a                                                               
quote  from  Jim  Mulva,  Chairman  and  CEO  of  ConocoPhillips,                                                               
published  on March  13, 2009  in Petroleumworld.com.,  regarding                                                               
costs and prices.   His conclusion was that  nothing has happened                                                               
since   the   AGIA   decisions    to   justify   revisiting   the                                                               
commissioners' Findings and Conclusions.                                                                                        
4:37:24 PM                                                                                                                    
COMMISSIONER GALVIN  divided the next issue  about whether recent                                                               
changes  justify   revisiting  the  AGIA  legislation   into  two                                                               
questions: "Does  AGIA restrict the  state's ability to  meet in-                                                               
state gas needs?" and "Are  the underlying purposes of AGIA still                                                               
valid?"   On the matter of  an in-state gas line,  he assured the                                                               
committee the obligation of treble  damages only applies to a gas                                                               
pipeline project capable of shipping  over 500 million cubic feet                                                               
per day  (cf/d).  The demand  expectation for the state  over the                                                               
next ten  years does not exceed  250 million cf/d, thus  a bullet                                                               
line meeting in-state  needs does not reach this  limit, does not                                                               
compete with the  AGIA project, and does not expose  the state to                                                               
the  risk of  treble damages.     This  is  also the  case for  a                                                               
pipeline from  the North Slope,  or a pipeline bringing  gas from                                                               
Cook Inlet to  Fairbanks.  Finally, he addressed  the validity of                                                               
the underlying purposes of AGIA.     Commissioner Galvin recalled                                                               
the purposes  of AGIA were to  move the pipeline forward  with an                                                               
enforceable  timeline.   The   circumstances  of today  reinforce                                                               
this goal because  a long-term project of this  importance to the                                                               
state can  not be  driven by  the vagaries  of the  daily market.                                                               
Also,  the  dual  goals  of   a  lower  tariff  and  open  access                                                               
provisions  remain critical  to  the  state's long-term  economic                                                               
future.  Commissioner Galvin urged  the committee to not overlook                                                               
that one of the key purposes  of AGIA is the leverage provided to                                                               
the  state in  its  discussions with  producers  relating to  the                                                               
project; in fact, without AGIA, if  the state wants a pipeline it                                                               
must capitulate to producers' demands.   His final conclusion was                                                               
that the  purposes of  AGIA are  valid and  its passage  is still                                                               
4:42:17 PM                                                                                                                    
REPRESENTATIVE JOHANSEN  read from the working  document, page 1,                                                               
line 1,  "Requesting that the  governor and the  attorney general                                                               
review and reevaluate  the project."  He  then asked Commissioner                                                               
Galvin  to  whom in  the  executive  branch  that task  would  be                                                               
4:43:46 PM                                                                                                                    
COMMISSIONER GALVIN  surmised the most cost  effective assignment                                                               
would be to the gasline  team, although the resolution also tasks                                                               
the attorney general.                                                                                                           
4:44:23 PM                                                                                                                    
REPRESENTATIVE    JOHANSEN     assumed    Commissioner    Galvin,                                                               
Commissioner Irwin, and Deputy  Commissioner Rutherford would "be                                                               
the lead on this review."                                                                                                       
4:44:41 PM                                                                                                                    
COMMISSIONER  GALVIN   said  yes;   however,  there  may   be  an                                                               
interpretation   of    the   resolution   that    precludes   the                                                               
commissioners from doing the review.                                                                                            
REPRESENTATIVE   JOHANSEN  then   asked  whether   the  appointed                                                               
attorney  general   relies  on  departments  and   divisions  for                                                               
technical  back-up  information  on  projects, and  if  there  is                                                               
interaction between departments.                                                                                                
COMMISSIONER GALVIN said yes.                                                                                                   
4:44:45 PM                                                                                                                    
CO-CHAIR  MILLETT  observed  the   department  has  not  received                                                               
billings from TransCanada Alaska (TC),  thus it is unaware of any                                                               
work TransCanada Alaska has completed up to this point.                                                                         
4:45:05 PM                                                                                                                    
COMMISSIONER  GALVIN stated  the  department  has regular  status                                                               
discussions with  TC and  has a  general idea  of the  work done;                                                               
however,   TC   has   not  formally   submitted   [billings   for                                                               
4:45:16 PM                                                                                                                    
CO-CHAIR MILLETT asked for an estimate  on the amount of money TC                                                               
has invested up to this point.                                                                                                  
4:45:40 PM                                                                                                                    
COMMISSIONER  GALVIN deferred  the question  to Mr.  Palmer.   In                                                               
further  response  to  Co-Chair  Millett, he  said  his  personal                                                               
knowledge is  a clear understanding  of what they have  done, but                                                               
the department  does not have  a "dollar value"   of what  TC has                                                               
expended.  He asked her to clarify the question.                                                                                
4:46:28 PM                                                                                                                    
CO-CHAIR  MILLETT   said  she  was  curious   about  Commissioner                                                               
Galvin's  comfort   level.    She   assumed  there  is   a  close                                                               
relationship between  the department and  TC, and asked  when the                                                               
first reimbursement billing would be submitted.                                                                                 
4:46:57 PM                                                                                                                    
COMMISSIONER GALVIN answered  the billings are due at  the end of                                                               
[March, 2009]; however,  the billings for the work  done thus far                                                               
will not  shed any light  on the economics  of the project.   The                                                               
billings  will  show whether  TC  is  keeping  on task  with  the                                                               
project development schedule.                                                                                                   
4:47:29 PM                                                                                                                    
CO-CHAIR MILLETT remarked:                                                                                                      
     Doesn't that  parlay into costs and  if they're keeping                                                                    
     on project schedule ... a  delay could cost the project                                                                    
     quite  a bit  of money....  I think  it does  interpret                                                                    
     into a cost.                                                                                                               
4:47:44 PM                                                                                                                    
COMMISSIONER GALVIN  explained that information gleaned  from the                                                               
billing  that  the  project  may   cost  a  different  amount  is                                                               
possible, but  that is unlikely.   The billing is more  likely to                                                               
be  a reflection  on the  costs of  design, engineering,  and the                                                               
steps  toward permitting.   The  status reports  received by  the                                                               
department indicate  TC is  on schedule and  there is  no current                                                               
information indicating the project is in any difficulty.                                                                        
4:48:33 PM                                                                                                                    
REPRESENTATIVE RAMRAS acknowledged  the commissioners are opposed                                                               
to HCR 12.   He provided the example of  a corporation in America                                                               
that  looks at  progress reports  every quarter.   He  then asked                                                               
whether the  commissioners could recommend  changes to HCR  12 so                                                               
that   the  commissioners   would  report   to  the   legislature                                                               
quarterly.   These  reports could  include statements  from those                                                               
working closely with  the gasline team and  "an occasional expert                                                               
now and then."   Commissioners may also  provide modifications so                                                               
that the quarterly report would  benchmark certain items, such as                                                               
market changes.   A redraft could  make HCR 12 a  document useful                                                               
to the DNR, the administration, legislators, and the public.                                                                    
4:50:26 PM                                                                                                                    
COMMISSIONER  IRWIN   suggested  that  the  committee   hear  Mr.                                                               
Palmer's testimony.   He then said, "We  will discuss everything,                                                               
but  to  me  [whereas  clauses]   are  issues  leading  up  to  a                                                               
conclusion.   We address the  [whereas clauses] ... I  don't want                                                               
any misunderstanding, TC Alaska  is working aggressively and [is]                                                               
very communicative with us on issues."                                                                                          
COMMISSIONER GALVIN answered yes to Representative Ramras.                                                                      
4:52:50 PM                                                                                                                    
TONY  PALMER, Vice  President,  Alaska Development,  TransCanada,                                                               
informed  the  committee  he  would  comment  on  the  resolution                                                               
regarding  the  capacity  to  finance  the  project  and  changed                                                               
circumstances in  the natural gas  market.  Mr. Palmer  began his                                                               
PowerPoint presentation  with a  slide that listed  2008 pipeline                                                               
accomplishments.   He  called attention  to the  Alberta Pipeline                                                               
System and  noted that  it was  approved to  be regulated  by the                                                               
National  Energy  Board  [Canada]  rather than  the  Province  of                                                               
Alberta.    He explained  that  this  change could  save  Alaskan                                                               
customers $1.3  billion to  $1.8 billion.   Secondly,  he pointed                                                               
out TransCanada is actively pursuing  shale gas in western Canada                                                               
and has  secured customers through  2014 for  1.5 bcf per  day of                                                               
new shale  gas.  On the  other hand, conventional gas  in western                                                               
Canada is continuing to decline by  1 bcf per day and is expected                                                               
to continue  to decline for  the next two  years;  in  fact, this                                                               
decline will  offset the  gain from shale.   Mr.  Palmer reminded                                                               
the  committee  that the  AGIA  license  allows two  options  for                                                               
Alaskan gas; at  the initial open season service  will be offered                                                               
to  customers who  want to  deliver within  Alaska, that  want to                                                               
deliver to Alberta, and that want  to deliver into the LNG market                                                               
via the Lower  48 or to Asian  markets.     He encouraged parties                                                               
to  consider  these options  before  deciding  whether there  are                                                               
changed circumstances  on the  project.   Mr. Palmer  spoke about                                                               
the progress  on the project  and pointed  out TC has  no control                                                               
over  natural  gas  prices  or  what  its  competitors  will  do;                                                               
however,  TC  is  focused  on   the  control  of  its  costs  and                                                               
scheduling.   He noted  that the current  toll estimate  of $2.76                                                               
million Btus was  forecast in 2007.  In  answer to Representative                                                               
Ramras' question about whether this  project would be competitive                                                               
in today's  marketplace, he said  "it depends, because,  not only                                                               
have  gas prices  changed, but  costs have  changed as  well." In                                                               
fact, there is  a strong correlation in the oil  and gas business                                                               
between  oil  and gas  prices  and  the  cost  of projects.    He                                                               
stressed  it is  not fair  to compare  today's prices  with costs                                                               
calculated in a "high price  environment."  TransCanada Alaska is                                                               
also   participating  in   ongoing  discussions   with  potential                                                               
shippers.    He  presented  slide  7,  "TransCanada's  access  to                                                               
Capital  Markets" and  said in  the  last four  months, during  a                                                               
turbulent credit market, TransCanada  has raised C$5.5 billion in                                                               
capital.   In  addition, the  Alaska Pipeline  Project will  have                                                               
access to  a US$18 billion  federal loan guarantee  and financing                                                               
will commence  at the "decision  to proceed" scheduled  for 2014-                                                               
2015; thus, the status of the  capital markets in five years, not                                                               
today,  is relevant.   Mr.  Palmer  said he  did not  have a  new                                                               
capital cost estimate at this time,  but that one is underway and                                                               
will  be complete  in one  year's  time; however,  he provided  a                                                               
slide  that showed  changes in  "bare pipe"  prices from  2007 to                                                               
2009.   The graph indicated  that first quarter 2009  pipe prices                                                               
have  returned to  the same  level as  they were  at the  time of                                                               
TransCanada's AGIA application.                                                                                                 
5:01:06 PM                                                                                                                    
MR. PALMER  explained that he  would not have  complete economics                                                               
on  the LNG  project  because TransCanada  is  not preparing  the                                                               
liquefaction facility  or constructing  the ships, or  looking at                                                               
the ultimate  markets.   Instead, he presented  a chart  of crude                                                               
oil  price  forecasts  from  four  reputable  consultants.    The                                                               
projections were  that oil prices  would be between $80  and $100                                                               
per barrel in  2018.  Slide 10  was a chart of  natural gas price                                                               
forecasts from  five consultants.   Mr. Palmer advised  that when                                                               
consultants prepare forecasts they look  at all of the sources of                                                               
supply and demand, alternative fuels,  and prices for competitive                                                               
fuels.   The forecasts were  all prepared between  November 2008,                                                               
and March  2009, and all  of the consultants anticipated  a sharp                                                               
decline lasting for as long as  two years.  However, by 2018, the                                                               
forecasts  indicate  a price  for  natural  gas  of over  $8  per                                                               
million  Btu.    Slide  11   "U.S.  EIA  Alberta  Hub  Gas  Price                                                               
Forecasts"  showed  that  the  current  U.S.  Energy  Information                                                               
Administration (EIA)  forecasts natural  gas prices from  2009 to                                                               
2029, to be approximately $2  per million Btu above its December,                                                               
2006 forecast.   Slide 12  "Impact on   Project Economics"  was a                                                               
comparison of the projected revenue  utilizing the December 2006,                                                               
forecast and the  March 2009, forecast.   The calculations showed                                                               
the current  U. S.  EIA forecast  would result  in an  extra $125                                                               
billion  earned by  the producers  and government  entities above                                                               
what  was forecast  at the  time of  the AGIA  application.   Mr.                                                               
Palmer then  summarized the following  points: the AGIA  bill has                                                               
been  approved  and  the  license   issued;  TC  is  aggressively                                                               
advancing  the  project;  a  contract was  awarded  to  URS;  the                                                               
project schedule  has been unaffected by  the turbulent financial                                                               
market;  TC has  solid  access to  capital  markets; current  gas                                                               
prices  result  in  an  increase   of  $125  billion  revenue  to                                                               
producers/governments  as compared  to projections  in TC's  AGIA                                                               
application; major  projects succeed  or fail based  on long-term                                                               
plans, not  on short-term swings in  natural gas prices; and   TC                                                               
will  continue  to  focus  on  costs,  schedule,  and  attracting                                                               
customers. Mr. Palmer concluded by saying  that he has not seen a                                                               
forecast from major  consultants that have natural  gas prices at                                                               
$3 ten years in the future.                                                                                                     
5:06:44 PM                                                                                                                    
REPRESENTATIVE RAMRAS  asked Mr.  Palmer to describe  the breadth                                                               
of TC's work force in Alaska.                                                                                                   
5:07:20 PM                                                                                                                    
MR. PALMER recalled  his previous testimony before  the House and                                                               
Senate  Resources Committees  during which  he identified  direct                                                               
employees of  TC, and consultants who  have been retained.     He                                                               
emphasized that this  is not a "make work" project  for TC or for                                                               
Alaska;  in  fact, the  focus  is  on  keeping  costs low  for  a                                                               
successful project. "We  don't think the measure  [of success] is                                                               
how many people we have in an  office and how big our office is,"                                                               
he  said.   In  further response  to  Representative Ramras,  Mr.                                                               
Palmer  said there  are  two TC  employees who  work  out of  the                                                               
office  and a  number of  consultants  working out  of their  own                                                               
offices.  Both the employees  and the employees of the consulting                                                               
firms are Alaskans.                                                                                                             
5:09:06 PM                                                                                                                    
CO-CHAIR MILLETT opined the $500  million investment the state is                                                               
making "weighs heavy  on all of us."  She  said during the Energy                                                               
Council she  met with FERC,  and noted the competing  project has                                                               
gone  through the  pre-file  process  and is  spending  a lot  of                                                               
capital.  Representative  Millet asked why TC  has not pre-filed,                                                               
and  whether  TC is  "parallel"  to  Denali-The Pipeline  Project                                                               
(Denali) in preparatory work.                                                                                                   
5:10:34 PM                                                                                                                    
MR. PALMER responded  that TC is on schedule to  conclude an open                                                               
season by  July, 2010.   That is  earlier than  Denali's schedule                                                               
"towards the  end of 2010."   He explained  that TC has  not pre-                                                               
filed because it  is the norm in the industry  that pre-filing is                                                               
made after the open season.   However,  FERC has requested a pre-                                                               
file, and TC  is only "cautious" because of  the additional costs                                                               
involved.   He reminded  the committee that  after filing  in the                                                               
normal  manner, FERC  retains  a third  party  contractor at  the                                                               
applicant's expense.   His  understanding is that Denali received                                                               
a number of  waivers; that is not the normal  situation and TC is                                                               
participating  in  discussions  with  FERC  at  this  time.    If                                                               
negotiations with  FERC are successful TC  may pre-file; however,                                                               
he assured the  committee that the fact TC has  not pre-filed has                                                               
not affected  its schedule, its  ability to advance  the project,                                                               
or its  ability to  hold the open  season.    On the  other hand,                                                               
FERC will be  a regulator for the project and  TC understands its                                                               
desire for pre-filing, thus discussions will continue.                                                                          
5:12:48 PM                                                                                                                    
CO-CHAIR MILLETT    asked   whether    the   state    created   a                                                               
disincentive to pre-file  by the [AGIA provision that  TC pays 90                                                               
percent of costs  after open season.]  She also  asked whether TC                                                               
has previously completed a $40  billion project, or if the Alaska                                                               
pipeline project was unique.                                                                                                    
5:13:20 PM                                                                                                                    
MR. PALMER explained  TC has not done a $40  billion project, but                                                               
has  built pipelines  that are  longer  and more  technologically                                                               
challenging;  in  fact,  it  has  a  $26  billion  project  under                                                               
construction.    TransCanada  does want to  be aligned  with FERC                                                               
and is working  to resolve the issue with them.   He acknowledged                                                               
there is  a 50/50 sharing of  costs with the state  in advance of                                                               
the open season,  and a 90/10 split after;  furthermore, based on                                                               
TC's  cost estimates,  it can  "prepare all  of the  work and  go                                                               
through FERC  for $611 million."   This would expend  100 percent                                                               
of the  state's investment and more,  thus there is no  impact on                                                               
TC by advancing the application or  not.  There will be an impact                                                               
if  the  regulation  process  is  started  early  and  the  total                                                               
expenditure is more.   He  assured the committee TC will continue                                                               
to work with FERC "to accommodate their needs, as well as ours."                                                                
5:15:52 PM                                                                                                                    
CO-CHAIR MILLETT  asked whether  the difference between  TC's and                                                               
Denali's commitments  will influence  the producers'  decision at                                                               
open season.                                                                                                                    
5:16:25 PM                                                                                                                    
MR. PALMER  advised the normal  process is for filing  after open                                                               
season; therefore, he did not expect  any impact.  He restated TC                                                               
will  pre-file  if  the  issues  with  FERC  are  resolved.    In                                                               
addition, a pre-file now or in  201l, will not affect the date of                                                               
the  actual FERC  application that  is  scheduled for  2012.   In                                                               
response to  an earlier question,  he explained  that TransCanada                                                               
will  be submitting  its first  billing  for reimbursement  under                                                               
AGIA early [in  April.]  A billing was not  submitted for 25 days                                                               
in December, thus this billing will  be for three months plus the                                                               
25  days  in   December.    He  estimated   that  the  qualifying                                                               
expenditures  through  the  end  of March  are  approximately  $2                                                               
million, and TC is seeking reimbursement for one-half of that.                                                                  
5:17:33 PM                                                                                                                    
CO-CHAIR   MILLETT  asked   whether   TransCanada  supports   the                                                               
5:17:43 PM                                                                                                                    
MR. PALMER  said he did  not support  the premise that  there has                                                               
been a change  in the gas market or in  the financial market that                                                               
is a  detriment to the  project.   If the resolution  requests an                                                               
update, he  said, "I have  no opposition  to the State  of Alaska                                                               
keeping itself updated as to how the project is proceeding ...."                                                                
5:18:39 PM                                                                                                                    
CO-CHAIR MILLETT observed  that the U. S.  public perceives there                                                               
is a  credit problem that may  threaten the project, and  that in                                                               
fact, "everything has changed."                                                                                                 
5:19:31 PM                                                                                                                    
MR.  PALMER expressed  his hope  that his  presentation indicated                                                               
that when this project is in service,  and for the 25 to 50 years                                                               
after, that is not the case.  He reviewed his previous points.                                                                  
5:21:12 PM                                                                                                                    
CO-CHAIR  EDGMON   recalled  statements  heard  at   the  [Energy                                                               
Council]  that the  Denali  project  appears to  be  on a  faster                                                               
track.  The main  goal is to get the gas, and  he noted there was                                                               
skepticism as to whether TC was going to get the gas.                                                                           
5:22:23 PM                                                                                                                    
MR. PALMER stressed  TC has constructed 36,000  miles of pipeline                                                               
and continues  to ship gas  that it  does not own.   Furthermore,                                                               
his company  has attracted  producers for  customers on  the same                                                               
basis in  the past.   The rationale of AGIA  was to hold  an open                                                               
season and also require an  applicant to continue through to FERC                                                               
certification; on  the other  hand, the  normal procedure  in the                                                               
industry  is that  a company  would  not proceed  after a  failed                                                               
initial open season.                                                                                                            
5:23:45 PM                                                                                                                    
CO-CHAIR EDGMON stated he also  heard that the supply picture has                                                               
fundamentally  changed,  or  is  changing, since  the  AGIA  bill                                                               
5:24:38 PM                                                                                                                    
MR. PALMER reminded  the committee TC's estimate for  the cost of                                                               
the  project  is  $26  billion,  not  $40  billion,  and  of  the                                                               
importance of  keeping the costs  down.  Secondly,  the estimates                                                               
for new gas  supplies were forecast by  reputable consultants and                                                               
the EIA.   Forecasts for  the supply of gas  will go up  and down                                                               
over  time, but  a  long-term project  can not  halt  based on  a                                                               
short-term basis.                                                                                                               
5:26:28 PM                                                                                                                    
REPRESENTATIVE  PETERSEN stated  he  saw the  projections of  gas                                                               
prices  and for  increases in  the supply  of gas  at the  Energy                                                               
[Council].  He expressed his concern  that a message was given to                                                               
allow  an advantage  to competitors  of the  Alaska gas  pipeline                                                               
project.    In   fact,  he  believed  the   participants  at  the                                                               
conference may have been given a "low-ball estimate."                                                                           
5:28:08 PM                                                                                                                    
MR. PALMER reviewed  his comments on the projected  price of gas.                                                               
He reminded  the committee that  during the initial  open season,                                                               
customers can nominate Valdez if  they believe the North American                                                               
market is overwhelmed by shale gas.   This would allow parties to                                                               
move Alaskan gas to the global LNG market.                                                                                      
CO-CHAIR EDGMON handed the gavel to Co-Chair Millett.                                                                           
REPRESENTATIVE RAMRAS expressed  his respect for Mr.  Palmer.  He                                                               
then noted that in Canada the  banking system is intact, there is                                                               
no housing debacle,  employment is high, and  there is prosperity                                                               
even  during this  economic downturn.  However, Alaskans  will be                                                               
"fatigued"  when  they have  to  choose  between funding  capital                                                               
projects  and sharing  costs with  TransCanada.   Furthermore, he                                                               
questioned  whether  the  $500  million  is  moving  the  project                                                               
forward or  if the  project is  advancing because  the underlying                                                               
economics  do,  or  do not,  support  it.  Representative  Ramras                                                               
explained his  extreme concern about  TC's decision "[to]  not go                                                               
through the  process in the  way that the  FERC told me  ... they                                                               
would prefer ... which is with a pre-file."                                                                                     
5:32:32 PM                                                                                                                    
MR. PALMER reminded  the committee that the  potential pay-off to                                                               
Alaskans for their $500 million investment is $100 billion.                                                                     
5:33:27 PM                                                                                                                    
REPRESENTATIVE  RAMRAS  opined  the  forecasts  provided  by  Mr.                                                               
Palmer were unrealistic.                                                                                                        
5:33:45 PM                                                                                                                    
MR. PALMER stated the forecasts were from reputable sources.                                                                    
5:34:02 PM                                                                                                                    
CO-CHAIR MILLETT  suggested that the  committee recess to  a call                                                               
of the  chair as there  is further testimony  to be heard  on the                                                               
REPRESENTATIVE DAHLSTROM  recalled testimony that  TransCanada is                                                               
working on three  pipelines, and the Alaska  pipeline was "number                                                               
three, in the  order of priority."  She asked  whether this meant                                                               
that after  the Mackenzie [Gas  Project] is built, there  will be                                                               
no need to build other [pipelines].                                                                                             
5:36:32 PM                                                                                                                    
MR. PALMER  advised the  exact quote  was "sequencing,"  which is                                                               
very different  than "priority."   TransCanada is  constructing a                                                               
$12 billion  oil pipeline and  the first portion is  scheduled to                                                               
be completed  next year.   In addition, the Mackenzie  project is                                                               
currently  on schedule  to  be  completed by  2014.   The  Alaska                                                               
pipeline  is scheduled  for  completion  in 2018.    In terms  of                                                               
sequencing,  the  Alaska  project  is third;  however,  both  the                                                               
Mackenzie  and  the  Alaska  gas  pipelines  are  needed  in  the                                                               
marketplace and TC supports both.                                                                                               
5:37:34 PM                                                                                                                    
[HCR 12 was held over.]                                                                                                         
The House  Special Committee  on Energy  meeting was  recessed at                                                               
5:37 p.m.  to a call of  the chair.  [The  meeting was reconvened                                                               
March  20, 2009  at 11:02  a.m.   HCR  12 was  scheduled but  not                                                               

Document Name Date/Time Subjects
BENTEK Presentation.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Alaska Legislature House Energy Cte Mar 19 2009 w-o note.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Call for Information.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Prison Article.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Lynn Canal Article.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
HCR12 Blank CS.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
HCR12 to CS HCR 12 changes.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
FERC Docket Sheet.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Rep Petersen Legal Opinion.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Denali FERC Correspondence.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
FERC Powerpoint.pdf HENE 3/19/2009 3:00:00 PM
HCR 12
Commissioners AGIA Presentation.pdf HENE 3/19/2009 3:00:00 PM
HCR 12