Legislature(2015 - 2016)CAPITOL 17

03/19/2015 10:15 AM House ENERGY

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10:21:28 AM Start
10:22:18 AM Presentation: Alaska Gasline Development Corporation
12:05:57 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Alaska Natural Gas Update by Dan Fauske,
President, Alaska Gasline Development Corporation
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                         March 19, 2015                                                                                         
                           10:21 a.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Jim Colver, Co-Chair                                                                                             
Representative Liz Vazquez, Co-Chair                                                                                            
Representative Benjamin Nageak                                                                                                  
Representative David Talerico                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Matt Claman                                                                                                      
Representative Adam Wool                                                                                                        
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
PRESENTATION:  ALASKA GASLINE DEVELOPMENT CORPORATION                                                                           
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
MILES BAKER, Vice President External Affairs and Government                                                                     
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "AGDC Update" and dated 3/19/15.                                                                                      
FRANK RICHARDS, Vice President Engineering and Program                                                                          
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during the presentation                                                               
by the Alaska Gasline Development Corporation.                                                                                  
DARYL KLEPPIN, Commercial Operations Director                                                                                   
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Answered questions during  the presentation                                                             
by the Alaska Gasline Development Corporation.                                                                                  
ACTION NARRATIVE                                                                                                              
10:21:28 AM                                                                                                                   
CO-CHAIR  LIZ  VAZQUEZ  called the  House  Special  Committee  on                                                             
Energy meeting  to order at  10:21 a.m.   Representatives Colver,                                                               
Nageak, Talerico, Tilton, Claman,  Wool, and Vazquez were present                                                               
at the call to order.                                                                                                           
^PRESENTATION:  ALASKA GASLINE DEVELOPMENT CORPORATION                                                                          
     PRESENTATION:  ALASKA GASLINE DEVELOPMENT CORPORATION                                                                  
10:22:18 AM                                                                                                                   
CO-CHAIR VAZQUEZ announced that the  only order of business would                                                               
be a presentation by the Alaska Gasline Development Corporation.                                                                
10:22:29 AM                                                                                                                   
MILES  BAKER,  Vice  President External  Affairs  and  Government                                                               
Relations,   Alaska  Gasline   Development  Corporation   (AGDC),                                                               
reviewed  the   presentation  (slide  2).     As  an   aside,  he                                                               
acknowledged that  pending legislation may change  some facets of                                                               
the presentation, which covered AGDC's  tasks "up till now."  Mr.                                                               
Baker said  AGDC is  a public  corporation of  the state,  with a                                                               
legal existence  separate from the  state.  Enabling  statutes in                                                               
AS 31.25.010  were created in  2013 and modified and  expanded in                                                               
Senate Bill  138 [passed in  the 28th Alaska  State Legislature].                                                               
The current  purposes of AGDC are:   to develop gas  pipelines, a                                                               
liquefied   natural   gas   (LNG)    project,   and   other   gas                                                               
transportation   mechanisms;   to   finance   and   operate   gas                                                               
transportation systems; to provide  economic benefit and revenue;                                                               
to assist the Department of  Natural Resources and the Department                                                               
of Revenue to maximize the value  of the state's gas resource; to                                                               
hold the  state's equity in  the liquefaction  facility component                                                               
of  the  Alaska  LNG  (AKLNG) project;  to  advance  an  in-state                                                               
pipeline capable  of delivering  North Slope  natural gas  to the                                                               
Railbelt and  Fairbanks at  the lowest  possible cost  (slide 3).                                                               
The  primary  objectives of  AGDC  are:   commercialize  Alaska's                                                               
North  Slope   gas  resource;  secure   a  long-term   supply  of                                                               
affordable  energy  to  Alaskans;  generate  jobs,  revenue,  and                                                               
economic  growth; facilitate  further  oil  and gas  development;                                                               
maximize overall  benefit to Alaskans understanding  that not all                                                               
Alaskans will have  access to the pipeline (slide 4).   Mr. Baker                                                               
noted that  AGDC has two  principle initiatives:  AKLNG,  a large                                                               
scale,  large volume  LNG export  project, and  the Alaska  Stand                                                               
Alone Pipeline  (ASAP) project.   The ASAP project  was initiated                                                               
as  a  publically financed,  state-owned  project  with a  public                                                               
investment to date of over $400  million.  The AKLNG project is a                                                               
joint venture  between the state  and BP,  ConocoPhillips, Exxon,                                                               
and TransCanada  - 99 percent of  the gas resource owners  on the                                                               
North Slope  are equity partners.   Regarding design, ASAP  is to                                                               
deliver gas  to Alaskans at  the lowest possible  cost, currently                                                               
by "lean gas" conditioned on the North Slope to utility grade.                                                                  
10:31:02 AM                                                                                                                   
REPRESENTATIVE NAGEAK asked for the  amount of the funds spent to                                                               
MR.  BAKER said  the state  has appropriated  to date  about $419                                                               
million; AGDC received $355 million  of which $25 million was for                                                               
state  agencies, and  the balance  was to  move the  ASAP project                                                               
through  preliminary  front-end  engineering  design  (pre-FEED),                                                               
front-end  engineering  design  (FEED),  open season,  and  to  a                                                               
project-sanctioning   decision.      In   further   response   to                                                               
Representative Nageak,  he reviewed the funding,  adding that the                                                               
balance  of $220  million  is  held in  the  Alaska in-state  gas                                                               
pipeline  fund which  is  managed  by AGDC.    The AKLNG  project                                                               
received a  separate appropriation  of $70  million, specifically                                                               
so that  AGDC could  make equity contributions  to 25  percent of                                                               
the liquefaction plant and for management costs (slide 5).                                                                      
10:34:47 AM                                                                                                                   
CO-CHAIR   COLVER  surmised   the  funds   have  been   spent  on                                                               
permitting, rights-of-way, and pre-design work.                                                                                 
10:35:19 AM                                                                                                                   
FRANK   RICHARDS,   Vice   President  Engineering   and   Program                                                               
Management, AGDC, said  the majority of the  expenditures to date                                                               
has  been for  engineering design  and permitting.   The  Class 3                                                               
cost estimate  level work on  the ASAP project is  completed, and                                                               
$150 million has been spent as of December, 2014.                                                                               
CO-CHAIR  COLVER  questioned  whether the  same  contractors  are                                                               
collecting  field  data for  ASAP  and  AKLNG projects,  and  are                                                               
sharing information.                                                                                                            
MR. RICHARDS said yes.  In  many instances, AGDC is using many of                                                               
the  same contractors  as are  used  by the  state's partners  in                                                               
AKLNG, such  as the pipeline  engineering service, the  field and                                                               
environmental work, and the program management services.                                                                        
REPRESENTATIVE  WOOL directed  attention to  slide 5  and pointed                                                               
out discrepancies in the completion dates for the projects.                                                                     
MR. BAKER  responded that after  the passage of Senate  Bill 138,                                                               
AKLNG became a  priority, but ASAP was  further along; therefore,                                                               
the  construction schedule  was rescheduled  to insert  the AKLNG                                                               
FEED decision which is expected  mid-2016.  The ASAP timeline has                                                               
been slowed, and  timelines for the two projects  are now roughly                                                               
the same except for the LNG and gas conditioning facilities.                                                                    
REPRESENTATIVE   WOOL   confirmed   that   both   projects   need                                                               
conditioning plants, and AKLNG needs liquefaction also.                                                                         
10:40:50 AM                                                                                                                   
MR. BAKER returned  to a comparison of the  projects, noting that                                                               
the projects are very different  in size, both with gas treatment                                                               
facilities  on the  North Slope;  however,  ASAP has  compression                                                               
added  on the  North  Slope, and  AKLNG  would have  intermediate                                                               
compression  stations.   Terminus  of AKLNG  is  in Nikiski,  the                                                               
terminus  of  ASAP is  near  Big  Lake at  ENSTAR's  distribution                                                               
facility with a lateral line  into Fairbanks.  Design capacity of                                                               
ASAP  is 500  million cubic  feet/day and  AKLNG capacity  is 3.3                                                               
billion  cubic  feet/day  at  the gas  treatment  plant  and  2.2                                                               
billion cubic feet/day at the LNG  plant.  The estimated cost for                                                               
AKLNG  is $45-65  billion,  and for  ASAP is  $10  billion.   The                                                               
estimated operations  workforce for AKLNG is  1,000 employees and                                                               
150 employees for ASAP (slide 5).                                                                                               
MR.  RICHARDS  advised  that  all  of  the  work  that  has  been                                                               
accomplished are  assets owned by  the state.  After  the passage                                                               
of House  Bill 4 [passed  in the 28th Alaska  State Legislature],                                                               
AGDC requested a  lease for rights-of-way that  provided a right-                                                               
of-way to AGDC for pipeline  across state lands, other than state                                                               
parks.  An environmental impact  statement (EIS) was completed on                                                               
the concept of the original  project, but following the intent of                                                               
the  legislature,  the design  concept  was  changed in  2013  to                                                               
accommodate utility-grade gas,  without further conditioning, and                                                               
an increase  in the  diameter of the  pipeline.   Subsequently, a                                                               
supplemental EIS was  required because of the  changes, and which                                                               
should be completed in the fourth  quarter of 2015.  Mr. Richards                                                               
described  the federal  right-of-way  process,  after which  AGDC                                                               
will  hold approximately  85 percent  of the  right-of-way for  a                                                               
pipeline  project.    Furthermore,  AGDC  modified  its  plan  of                                                               
development  (POD)   and  drafted  an   environmental  evaluation                                                               
document (EED), which is a  precursor to the supplemental EIS and                                                               
can be  utilized by the  U.S. Army  Corps of Engineers  (Corps of                                                               
Engineers).    The public  scoping  process  has been  completed,                                                               
which indicated  the project has  local support  from communities                                                               
and federal  agencies.  Along  the pipeline route, AGDC  has also                                                               
completed  field   surveys,  2-dimensional  (2-D)   terrain  unit                                                               
mapping,  a cultural  resource survey,  and wetlands  delineation                                                               
with jurisdictional  determinations from  the Corps  of Engineers                                                               
(slide 6).                                                                                                                      
10:47:44 AM                                                                                                                   
REPRESENTATIVE NAGEAK inquired as to  whether the assets are held                                                               
by both projects.                                                                                                               
MR. RICHARDS  answered that each  project is advancing  and there                                                               
is a  cooperation agreement that  allows for an exchange  of data                                                               
and engineering  information between  the projects;  however, the                                                               
inventory of all  of the information has not been  "melded."  The                                                               
data exchange involves compensation  for data that is transferred                                                               
between projects.                                                                                                               
CO-CHAIR VAZQUEZ returned attention to  slide 6 and asked whether                                                               
the assets are independent assets  of the state regardless of the                                                               
MR. RICHARDS explained  that corporate assets listed  on slides 6                                                               
and 7  are held by  AGDC as state assets.   The assets  have been                                                               
used  for  ASAP and  some  can  be  transferred  to AKLNG.    Mr.                                                               
Richards  continued  to  identify  further  work  that  has  been                                                               
accomplished over  the last three  and one-half years.   The work                                                               
has been focused on the area  south of Livengood because the area                                                               
north  of  Livengood  has  been studied  by  the  AKLNG  producer                                                               
parties.     Therefore,  AGDC  drilled   geotechnical  boreholes,                                                               
assessed material  sites, and purchased strain  based design pipe                                                               
specifically   tested  to   withstand  stream   accumulation,  as                                                               
required by  the U.S. Department  of Transportation  Pipeline and                                                               
Hazardous  Materials  Safety  Administration (PHMSA).    This  is                                                               
testing information  that can be  shared with  federal regulators                                                               
and  will transfer  to AKLNG.   Finally,  AGDC has  completed its                                                               
Class  3  cost  estimate  Project   Execution  Plan  (PEP)  which                                                               
delineates  pre-construction  and  design phase  work,  and  work                                                               
through construction and into execution  of a pipeline, including                                                               
a detailed project logistics plan (slide 7).                                                                                    
CO-CHAIR COLVER  asked how the  test sections of pipe  are tested                                                               
for permafrost conditions in various types of soil.                                                                             
10:54:05 AM                                                                                                                   
MR. RICHARDS said AGDC uses models  to look at the demands placed                                                               
on pipe by stream accumulation due  to frost heave, and that also                                                               
reveal  the capacity  and strength  of the  materials.   The pipe                                                               
segments are welded and then cut  into samples that are tested in                                                               
laboratories.   The small scale  testing has been  completed, and                                                               
the  medium scale  testing of  three-foot-long  pipe segments  is                                                               
CO-CHAIR  COLVER recalled  that  during a  previous gas  pipeline                                                               
project test  sections of pipe  were buried and monitored  in the                                                               
field.   He asked  whether testing  for permafrost  conditions is                                                               
now done in a laboratory.                                                                                                       
MR. RICHARDS  stated that  AGDC has  not initiated  field trials,                                                               
but  is using  computer models  which take  less time.   He  then                                                               
directed  attention to  a graph  that illustrated  land ownership                                                               
along the  ASAP right-of-way.   State leases  cover approximately                                                               
55  percent and,  after  a  decision by  the  U.S. Department  of                                                               
Interior, Bureau  of Land Management, federal  ownership will add                                                               
almost 30  percent.  Rights-of-way  across private land  have not                                                               
been initiated (slide 8).                                                                                                       
MR. BAKER  pointed out federal  regulations require  special pipe                                                               
for the project; however, pipe  to meet the specifications is not                                                               
made in the U.S.   The special pipe is needed  for about 10 miles                                                               
of  the pipeline,  and the  remaining pipe  will be  sourced from                                                               
U.S. mills.   He restated  AGDC's intent  to leverage any  of the                                                               
work  completed  for  either  project.    Turning  to  AKLNG,  he                                                               
described the  participation in the  project, beginning  with the                                                               
four resource  owners:  ConocoPhillips,  BP, ExxonMobil,  and the                                                               
state.   ConocoPhillips, BP,  and ExxonMobil  hold 75  percent of                                                               
the interest in the project and  the state holds 25 percent.  The                                                               
state's  25 interest  is represented  by TransCanada  in the  gas                                                               
treatment plant (GTP)  and the pipeline, and  AGDC represents the                                                               
state's interest in the LNG facility (slide 10).                                                                                
11:00:59 AM                                                                                                                   
CO-CHAIR VAZQUEZ asked for the cost of the LNG facility.                                                                        
MR. BAKER  estimated the LNG  facility cost  at $25 billion.   In                                                               
further  response  to  Co-Chair  Vazquez,  he  said  the  current                                                               
terminus site is Nikiski.                                                                                                       
CO-CHAIR  VAZQUEZ  questioned  whether   the  ASAP  pipeline  has                                                               
secured contracts to supply gas.                                                                                                
MR.  BAKER explained  that in  the  case of  AKLNG, the  resource                                                               
owners that  have the gas and  the ability to transport  and sell                                                               
gas,  are  investing  the money  to  develop  the  transportation                                                               
mechanism and  the liquefaction facility.   In the case  of ASAP,                                                               
AGDC  is a  pipeline company  using public  money to  advance the                                                               
project to the  point of a commercial open  season where shippers                                                               
and buyers  of gas  would negotiate  contracts.   Final contracts                                                               
are  then used  to  acquire financing  to  complete the  project.                                                               
Therefore, ASAP  would not  go to  project sanctioning  and raise                                                               
the money to complete  construction without commercial agreements                                                               
in place.   Mr. Baker further explained  that project sanctioning                                                               
is the term used for ASAP  and final investment decision (FID) is                                                               
the term used for AKLNG.   The AKLNG project is currently in pre-                                                               
FEED phase  which will be  concluded mid-2016, at which  time the                                                               
five  participants  would  decide  to advance  to  FEED.    After                                                               
approximately two years, FID would  lead to preconstruction.  For                                                               
ASAP, commercial open season is  an extra step before the project                                                               
sanctioning decision.                                                                                                           
CO-CHAIR  VAZQUEZ observed  approaching the  capital markets  for                                                               
financing is another additional step.                                                                                           
11:05:40 AM                                                                                                                   
MR. BAKER  said yes.   For  ASAP, AGDC was  given the  ability to                                                               
bond and to evaluate ownership  models, such as whether the state                                                               
would be the  sole owner, or should solicit equity  partners.  In                                                               
fact, AGDC was  in contact with owner,  builder, operators (OBOs)                                                               
like TransCanada  and Enbridge.   A  company like  Enbridge could                                                               
bring equity to the project.                                                                                                    
CO-CHAIR VAZQUEZ  asked for  a description  of a  commercial open                                                               
11:07:27 AM                                                                                                                   
MR.  BAKER  said  ASAP  would  be  regulated  by  the  Regulatory                                                               
Commission of  Alaska (RCA);  as with  most utilities,  RCA would                                                               
review  the  project's  cost structure  and  return  on  invested                                                               
capital and must  approve a tariff structure.   This would happen                                                               
prior  to an  open  season.   If  the  project's recourse  tariff                                                               
filing is  approved, RCA  would set the  terms and  conditions of                                                               
ASAP's open season.                                                                                                             
CO-CHAIR COLVER  asked for the differences  between RCA's current                                                               
regime of pipeline  and common carrier review and  the new regime                                                               
directed  by  House Bill  4  [passed  in  the 28th  Alaska  State                                                               
11:09:36 AM                                                                                                                   
The committee took an at ease from 11:09 a.m. to 11:20 a.m.                                                                     
11:20:43 AM                                                                                                                   
DARYL KLEPPIN, Commercial Operations  Director, AGDC, in response                                                               
to  Co-Chair  Colver's  earlier   question,  explained  that  oil                                                               
pipelines  such as  the Trans-Alaska  Pipeline System  (TAPS) are                                                               
common carriers.  Gas pipelines  are typically contract carriage,                                                               
which means a shipper in the  pipeline signs a contract to ship a                                                               
given  volume of  gas  over a  long period  of  time, perhaps  25                                                               
years.    Long-term  contracts  are needed  in  order  to  obtain                                                               
financing for  a large project.   Shippers agree to "take  or pay                                                               
contracts,"  and the  long-term  commitment from  a company  with                                                               
significant   financial  resources   is  used   to  finance   the                                                               
construction of the pipeline.                                                                                                   
CO-CHAIR  VAZQUEZ asked  whether  the contracts  are approved  by                                                               
MR. KLEPPIN  said the aforementioned  contracts are  for shipping                                                               
the gas, but RCA approves sales  contracts for the sale of gas to                                                               
a party.   For ASAP, House  Bill 4 requires that  RCA approve the                                                               
recourse tariff filing prior to  open season; the recourse tariff                                                               
is  the price  for shipping  through the  pipeline.    After  the                                                               
filing of  the recourse tariff,  RCA has 90  days to act  and, if                                                               
the tariff is approved, open season can be scheduled.                                                                           
CO-CHAIR  VAZQUEZ asked  for  a description  of  the open  season                                                               
MR. KLEPPIN  advised that the  details of an open  season process                                                               
are  part of  the recourse  tariff  filing.   Typically, an  open                                                               
season requires  advertising of its  time period, the  details of                                                               
the  tariff,   other  special   conditions,  and   the  financial                                                               
requirements for  purchasers.    In further response  to Co-Chair                                                               
Vazquez, he said  open season cannot occur prior  to the approval                                                               
of the  recourse tariff by  RCA, and can  be scheduled up  to two                                                               
years afterward.                                                                                                                
MR.  BAKER restated  that ASAP  commercial activities,  including                                                               
tariff  filing,  open season,  and  post-open  season, have  been                                                               
delayed pending  the FEED  decision on AKLNG;  if AKLNG  does not                                                               
advance at FEED, AGDC would return  to ASAP and complete its open                                                               
season by mid-2017.   He returned attention  to the presentation,                                                               
noting  that since  Senate Bill  138 [passed  in the  28th Alaska                                                               
State  Legislature]   and  the  signing  of   the  joint  venture                                                               
agreements,  AGDC has  sought to  coordinate the  ASAP and  AKLNG                                                               
projects utilizing  historic baseline  and engineering  data from                                                               
past  pipeline  projects.   The  objective  remains  to  minimize                                                               
duplication  and to  maximize the  value of  the historical  data                                                               
such as  geotechnical, hydrological, environmental,  cultural and                                                               
routing information.   Only one  project will advance  thus there                                                               
must be  fair compensation  for the  use of  data, and  there are                                                               
efforts  towards alignment  on routing.   In  addition, AGDC  has                                                               
field crews conducting borehole work for AKLNG (slide 11).                                                                      
11:31:03 AM                                                                                                                   
CO-CHAIR VAZQUEZ asked for examples of datasets.                                                                                
MR. BAKER  advised that datasets  would be for  geotechnical work                                                               
such as  borehole work and engineering  data that can be  used by                                                               
engineers  in  designing  the  project.    Also,  information  on                                                               
materials  sites  has been  collected  which  could be  used  for                                                               
either project.                                                                                                                 
CO-CHAIR  COLVER  told  of  his   experience  as  a  professional                                                               
surveyor mapping for pipelines.                                                                                                 
MR. BAKER  turned to AKLNG  recent activity:   80 percent  of 250                                                               
person workforce in  the 2014 summer field  season were Alaskans;                                                               
actively soliciting Alaska  vendors; identifying in-state offtake                                                               
facilities  for both  projects.   In addition,  major engineering                                                               
contracts  for early  stages of  the project  have been  awarded.                                                               
Regulatory  documents  were filed  with  the  U.S. Department  of                                                               
Energy  which  has authorized  exports  to  Free Trade  Agreement                                                               
(FTA) countries,  and non-FTA are  pending.  The first  drafts of                                                               
the  Resource Reports  have been  filed with  the Federal  Energy                                                               
Regulatory Commission  (FERC), notice  of intent has  been issued                                                               
by FERC, and public meetings  will take place shortly (slide 12).                                                               
Mr. Baker  directed attention  to ASAP,  noting that  the current                                                               
design  for the  project completed  FEED on  time and  on budget.                                                               
The major  deliverables were  the Class 3  cost estimate  and the                                                               
project  execution plan.   The  cost  estimate includes  pipeline                                                               
facilities, engineering cost,  construction logistics and owners'                                                               
costs.  The  new estimated total capital cost  is $9.968 billion,                                                               
with a contingency of 20 percent (slide 14).                                                                                    
11:40:03 AM                                                                                                                   
MR. RICHARDS added that Class 3  is a level of effort established                                                               
by the  American Association of  Cost Estimators and  defines the                                                               
work  product   undertaken  for  the  construction   of  a  major                                                               
facility.   A Class  4 cost  estimate for  ASAP was  developed in                                                               
2012, and additional  engineering and analyses over  the past two                                                               
and one-half years has raised the effort to a Class 3 standard.                                                                 
11:41:32 AM                                                                                                                   
MR. BAKER stated that from the  Class 3 cost estimate models have                                                               
been developed to  generate tariffs.  The  tariff rate represents                                                               
the cost  of transportation, and  when added  to the cost  of the                                                               
gas and  local distribution,  determines the  burner tip  cost to                                                               
the consumer.   The cost  of gas  for Anchorage and  Fairbanks is                                                               
estimated to  be $2.00-$3.30 per  thousand British  thermal units                                                               
(MMBtu),  and the  local distribution  cost is  estimated to  add                                                               
$1.50  in  Anchorage and  $4.00  in  Fairbanks.   Therefore,  the                                                               
estimated burner tip  cost of gas delivered by  ASAP to utilities                                                               
and residents in Alaska is estimated  to be less than the cost of                                                               
imported LNG.  Mr. Baker pointed  out that this price is based on                                                               
selling  500  million  standard cubic  feet  per  day  (mmscf/d);                                                               
however, in-state use on an  annual average is about 250 mmscf/d.                                                               
The question  remains whether  these rates  are competitive  to a                                                               
commercial user (slide 15).                                                                                                     
11:44:45 AM                                                                                                                   
CO-CHAIR  COLVER  cautioned  that upcoming  proposed  legislation                                                               
would prohibit export, but ASAP  requires additional customers to                                                               
meet its  burner tip  projections of  $11.50-$14.00 per  MMBtu in                                                               
Anchorage.  He expressed concern that  the estimated cost is a 40                                                               
percent increase to Anchorage  ratepayers, and questioned whether                                                               
it is  necessary for a  state-sponsored project to generate  a 12                                                               
percent return on equity to investors.                                                                                          
MR.  BAKER said  demand  in  winter could  peak  at 450  mmscf/d;                                                               
however, he agreed  that additional users are needed.   An equity                                                               
partner could  change the financing  structure and  the economics                                                               
of  ASAP.   Whether the  state has  a non-economic  imperative to                                                               
provide gas to Alaskans, and  other questions, would be addressed                                                               
at open season.                                                                                                                 
11:49:25 AM                                                                                                                   
REPRESENTATIVE  WOOL  surmised ASAP  would  displace  all of  the                                                               
natural gas production from Cook Inlet.                                                                                         
MR. KLEPPIN responded, "We assume  that is the Cook Inlet demand,                                                               
assuming all of Cook Inlet production  is displaced.  It does not                                                               
assume any offset with production from Cook Inlet."                                                                             
11:51:13 AM                                                                                                                   
REPRESENTATIVE  WOOL  asked  what  would  happen  to  Cook  Inlet                                                               
production  if  ASAP provides  all  of  the in-state  consumption                                                               
"times two."                                                                                                                    
MR.  BAKER recalled  in 2009  there was  concern that  Cook Inlet                                                               
production  was  declining,  thus  North Slope  gas  was  sought.                                                               
Five years later,  due to new exploration in Cook  Inlet, that is                                                               
less of a concern; however,  Railbelt utilities do not have long-                                                               
term supply contracts from Cook Inlet resources.                                                                                
CO-CHAIR VAZQUEZ  related that  Chugach Electric  Association has                                                               
gas contracts from Cook Inlet through 2019.                                                                                     
REPRESENTATIVE CLAMAN noted the Class  3 burner tip cost estimate                                                               
is an increase of almost 40 percent from the estimate in 2012.                                                                  
MR. KLEPPIN  answered that the  significant driver in  the tariff                                                               
increase was  additional construction  costs of $2.3  billion; in                                                               
addition, in  2012, an  11 percent return  on equity  was assumed                                                               
instead of 12 percent.                                                                                                          
MR. BAKER  acknowledged the burner  tip costs are  attractive for                                                               
Fairbanks, but not  for Anchorage, although there  would be long-                                                               
term price stability.                                                                                                           
MR. KLEPPIN  said Hilcorp  entered into a  consent decree  to cap                                                               
gas prices through  the first quarter of 2018, and  it is unclear                                                               
what will happen to gas pricing after that date.                                                                                
MR.  BAKER  referred  to Governor  Bill  Walker's  Administrative                                                               
Order   271  (AO   271)  [the   executive  order   which  stopped                                                               
nondiscretionary spending  on ASAP], and noted  that in response,                                                               
AGDC has  ensured that it is  only working on the  most essential                                                               
aspects of  ASAP; in fact,  everything possible has  been delayed                                                               
and the spend  plan through 2016 has been reduced  by 60 percent,                                                               
from $150  million to $60  million (slide  16).  In  that regard,                                                               
schedule changes  have been  driven by the  alignment of  ASAP to                                                               
the AKLNG FEED decision (slide 17).   New members to AGDC's board                                                               
attended  their first  meeting, and  the board  passed Resolution                                                               
2015-01,  which directs  that subject  to withdrawal  of AO  271,                                                               
AGDC  staff  will  prepare  a rough  order  of  magnitude  scope,                                                               
schedule,  and  budget  associated with  two  potential  upsizing                                                               
scenarios for ASAP on or before 4/9/15 (slide 18).                                                                              
11:59:09 AM                                                                                                                   
CO-CHAIR COLVER recalled previous  testimony that AGDC permitting                                                               
by the  Corps of Engineers is  on hold pending the  resolution of                                                               
potential changes.                                                                                                              
MR. BAKER  said the  supplemental EIS  process was  initiated for                                                               
ASAP and  went through public  scoping, and  evaluation documents                                                               
were filed.   On 3/2/15 the  Corps of Engineers notified  AGDC it                                                               
has suspended activity on the draft supplemental EIS.                                                                           
CO-CHAIR  COLVER inquired  as to  whether the  state or  AGDC has                                                               
clarified the Corps of Engineers position.                                                                                      
MR. BAKER  assured the  committee the process  with the  Corps of                                                               
Engineers has not  been stopped or canceled,  although an amended                                                               
document for the  latest right-of-way changes has  been held back                                                               
as well.   The concern  is that adding compressor  stations along                                                               
the pipeline, or increasing the size  of the footprint of the gas                                                               
conditioning   facility   may   require  AGDC   to   modify   the                                                               
supplemental  EIS  to  the  point   that  it  would  have  to  be                                                               
reinitiated.    Mr.  Baker  returned   to  the  presentation  and                                                               
provided a  history of the  basis for  the design of  ASAP (slide                                                               
19).   The reconfiguration strategy  directed by AGDC's  board is                                                               
as follows:   increase the  state's leverage and  options; expand                                                               
ASAP volume  and capacity; extend  terminus to  tidewater; design                                                               
for both in-state  and export markets; use  existing funds; build                                                               
on  existing   work  products;  avoid  duplication   (slide  20).                                                               
Initial parameters tasked  to AGDC are as follows:   maintain 36"                                                               
diameter  pipe; maintain  lean gas  composition; pursue  pipeline                                                               
and  a gas  conditioning  facility on  the  North Slope;  develop                                                               
rough order  of magnitude cost and  timeline to look at  the pipe                                                               
currently in  design and  at a higher  strength pipe  (slide 21).                                                               
Critical success factors  for a North Slope  gas pipeline project                                                               
are as follows:   maintain alignment between the  state and North                                                               
Slope producers; ensure the state's  ability to advance a project                                                               
that is viable and economic  if AKLNG falters; obtain concurrence                                                               
of AKLNG  joint venture partners;  ensure a  complementary versus                                                               
competitive   orientation;   maximize  financial   resources   to                                                               
accelerate  a  FEED decision  and  to  leverage public  resources                                                               
(slide 22).                                                                                                                     
12:05:57 PM                                                                                                                   
There being no further business before the committee, the House                                                                 
Special Committee on Energy meeting was adjourned at 12:05 p.m.                                                                 

Document Name Date/Time Subjects
2015-03-19 - HENE - Agenda.pdf HENE 3/19/2015 10:15:00 AM
2015 03 19 AGDC House Energy Committee.pdf HENE 3/19/2015 10:15:00 AM