Legislature(2007 - 2008)HOUSE FINANCE 519

04/25/2007 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 04:00 pm --
+ HB 184 COMMEMORATIVE TROOPS LICENSE PLATE TELECONFERENCED
Heard & Held
+ HB 228 WORKERS' COMP. MEDICAL TREATMENT FEES TELECONFERENCED
Moved CSHB 228(L&C) Out of Committee
+ SB 103 LAND TRANSFERS ALASKA RR & EKLUTNA TELECONFERENCED
Moved Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 88 TVS AND MONITORS IN MOTOR VEHICLES TELECONFERENCED
Heard & Held
Presentation: Mega Project Financing by
Frederic Rich, Sullivan & Cromwell LLP
= Previously Scheduled under Legislative
Budget & Audit Committee
                   HOUSE FINANCE COMMITTEE                                                                                      
                       April 25, 2007                                                                                           
                          1:46 P.M.                                                                                             
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Chenault  called the House Finance Committee  meeting                                                                  
to order at 1:46:13 PM.                                                                                                       
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Harry Crawford                                                                                                   
Representative Les Gara                                                                                                         
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Mary Nelson                                                                                                      
Representative Bill Thomas Jr.                                                                                                  
                                                                                                                                
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Richard Foster                                                                                                   
                                                                                                                                
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative  Bob  Roses;  Representative  Anna  Fairclough;                                                                  
Representative    Carl    Gatto;    Derek    Miller,    Staff,                                                                  
Representative Mike Kelly;  Paul Lisankie, Director,  Division                                                                  
of  Workers' Compensation,  Department  of  Labor &  Workforce                                                                  
Development; Josh  Applebee, Staff, Representative  Bob Roses;                                                                  
Anne  Carpeneti, Assistant  Attorney  General, Legal  Services                                                                  
Section-Juneau,  Criminal Division,  Department of Law;  Linda                                                                  
Hall,   Director,  Division   of  Insurance,   Department   of                                                                  
Commerce,  Community  and  Economic  Development;  Rod  Betit,                                                                  
President,  Alaska State Hospital  & Nursing Home  Association                                                                  
(ASHNHA),  Anchorage;  George  Rhyneer,  Cardiologist,  Alaska                                                                  
Physicians  and  Surgeons,  Anchorage;   Sally  Stuvek,  Human                                                                  
Resource Director,  Fairbanks North  Star Borough,  Fairbanks;                                                                  
Pat  Carter, Lobbyist,  Support  Our Troops,  Anchorage;  Norm                                                                  
Cohen, Staff, Representative Max Gruenberg                                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Sally  Stuvek,   Fairbanks  North  Star  Borough,   Fairbanks;                                                                  
Michael Hinchen,  Alaska Timber Insurance Exchange,  Portland,                                                                  
Oregon  &   Ketchikan;  Martin   Boyer,  Executive   Director,                                                                  
Support  Our  Troops,  Florida;  Bonnie  Woldstad,  Fairbanks;                                                                  
Duane   Bannock,  Director,   Division   of  Motor   Vehicles,                                                                  
Department  of Administration,  Anchorage; Keith Sanders,  Sr.                                                                  
Vice  President, Land  & Legal  Affairs,  Cook Inlet  Regional                                                                  
Inc. (CIRI)                                                                                                                     
                                                                                                                                
PRESENTATION BY SULLIVAN & CROMWELL LLP:                                                                                      
                                                                                                                                
Representatives present:                                                                                                      
Representative  Mike  Chenault;  Representative   Mike  Kelly;                                                                  
Representative   David   Guttenberg;    Representative   Scott                                                                  
Kawasaki;  Representative   Anna  Fairclough;   Representative                                                                  
Paul  Seaton;  Representative  Berta  Gardner;  Representative                                                                  
Michael Doogan;  Representative  Peggy Wilson;  Representative                                                                  
Bryce  Edgmon; Representative  Craig  Johnson;  Representative                                                                  
Carl Gatto; Representative John Coghill.                                                                                        
                                                                                                                                
Senators present:                                                                                                             
Senator  Bert  Steadman;  Senator  Joe  Thomas;  Senator  Gary                                                                  
Stevens;  Senator  Lyman  Hoffman;  Senator  Gene  Therriault;                                                                  
Senator Thomas  Wagner; Senator Johnny Ellis;  Senator Charlie                                                                  
Huggins; Senator Lyda Green; Senator Bettye Davis                                                                               
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 88     An Act relating to televisions, monitors, portable                                                                    
          computers,  and similar  devices in motor  vehicles;                                                                  
          and providing for an effective date.                                                                                  
                                                                                                                                
          HB 88 was HEARD & HELD in Committee for further                                                                       
          consideration.                                                                                                        
                                                                                                                                
HB 184    An  Act relating to  a commemorative troops  license                                                                  
          plate; and providing for an effective date.                                                                           
                                                                                                                                
          HB 184 was HEARD & HELD in Committee for further                                                                      
          consideration.                                                                                                        
                                                                                                                                
HB 228    An  Act   relating  to  fees  for  certain   medical                                                                  
          treatment  and  service  under the  Alaska  Workers'                                                                  
          Compensation  Act;  and providing  for an  effective                                                                  
          date.                                                                                                                 
                                                                                                                                
          CS HB 228 (L&C) was reported out of Committee with                                                                    
          a "do  pass" recommendation and with  zero note #1 &                                                                  
          #2  by  the Department  of  Administration  and  the                                                                  
          Department of Labor & Workforce Development.                                                                          
                                                                                                                                
SB 103    An  Act authorizing  the transfer  of land from  the                                                                  
          Alaska  Railroad Corporation  to Eklutna,  Inc.; and                                                                  
          providing for an effective date.                                                                                      
                                                                                                                                
          SB 103 was reported out of Committee with a "do                                                                       
          pass"  recommendation and  with zero note #1  by the                                                                  
          Department   of  Commerce,   Community  &   Economic                                                                  
          Development.                                                                                                          
                                                                                                                                
           Presentation by Sullivan & Cromwell LLP                                                                              
                                                                                                                                
                                                                                                                                
1:48:05 PM                                                                                                                    
HOUSE BILL NO. 228                                                                                                            
                                                                                                                                
     An Act relating to fees for certain medical treatment                                                                      
     and service under the Alaska Workers' Compensation Act;                                                                    
     and providing for an effective date.                                                                                       
                                                                                                                                
DEREK  MILLER,  STAFF, REPRESENTATIVE  MIKE  KELLY,  commented                                                                  
that in 2005, the  Alaska Legislature passed SB  130, a rework                                                                  
of  the  Workers  Compensation  statutes.    As  part  of  the                                                                  
rework,  medical   payments  were  frozen  at   the  2004  fee                                                                  
schedule  so that a  review could  be done  of the  underlying                                                                  
reasons for premium  increases.  The review was  to be jointly                                                                  
done by a special  Workers Compensation Legislative  taskforce                                                                  
in  concert   with  the  Department   of  Labor  &   Workforce                                                                  
Development  Medical Review Committee.   The taskforce  was to                                                                  
develop recommendations  to moderate program increases  in the                                                                  
future.    As part  of  the  conditions  of the  medical  rate                                                                  
freeze, the  taskforce was to  have completed their  review by                                                                  
February of  2006; the rate freeze  would sunset in  August of                                                                  
2007 (to be replaced by a new fee schedule).                                                                                    
                                                                                                                                
The  taskforce  did not  complete  the  report by  that  time;                                                                  
consequently,  the  State  is faced  with  the sunset  of  the                                                                  
medical  rate freeze  in August 2007.   There  is no plan  for                                                                  
the post rate freeze sunset period.                                                                                             
                                                                                                                                
Mr. Miller  pointed out  that under HB  228, the medical  rate                                                                  
freeze  would  be  extended   two  years  to  allow  time  for                                                                  
recommendations  to be  developed.   It  implements an  annual                                                                  
rate increases  based on the Consumer Price Index  (CPI).   He                                                                  
added that  the bill is not meant  to be a long-term  fix, but                                                                  
rather  a   stop-gap  measure,   extending  the  medical   fee                                                                  
schedule, adjusting  it for inflation.  The bill  is supported                                                                  
statewide.                                                                                                                      
                                                                                                                                
1:50:30 PM                                                                                                                    
                                                                                                                                
Representative  Crawford remembered  when price controls  were                                                                  
put   in  place   to  lessen   inflation   during  the   Nixon                                                                  
Administration,  which  did not  accomplish  the  intent.   He                                                                  
voiced  concern  that  the  legislation  does  not  allow  the                                                                  
market  place precedence.   He  stressed  the importance  that                                                                  
injured workers  receive the  care they  need.  He  questioned                                                                  
the time table.                                                                                                                 
                                                                                                                                
Mr.  Miller  explained  that the  Division  of  Insurance  has                                                                  
indicated  that if the  measure is not  adopted, medical  care                                                                  
costs   will  increase   related   to   workers   compensation                                                                  
insurance.   The March 1timeline   places it in the  middle of                                                                  
the legislative session in order for long-term discussion.                                                                      
                                                                                                                                
Representative  Gara acknowledged  the need  to raise  medical                                                                  
treatment  compensation  rates as  costs  keep increasing;  he                                                                  
asked  if compensation  rates  for certain  injuries had  been                                                                  
frozen.                                                                                                                         
                                                                                                                                
1:55:25 PM                                                                                                                    
                                                                                                                                
Vice   Chair  Stoltze   asked   about  restrictions   &   need                                                                  
constraints  to  important  services.    Representative  Kelly                                                                  
said  it was  not  addressed;  the bill  only  recognizes  the                                                                  
sunset and absent  that, rates will be frozen.   The bill does                                                                  
not attempt to fix the system.                                                                                                  
                                                                                                                                
1:57:38 PM                                                                                                                    
                                                                                                                                
LINDA HALL,  DIRECTOR,  DIVISION OF  INSURANCE, DEPARTMENT  OF                                                                  
COMMERCE, COMMUNITY  AND ECONOMIC DEVELOPMENT,  voiced support                                                                  
for the  bill and offered  to answer  questions regarding  the                                                                  
impact to insurance.                                                                                                            
                                                                                                                                
Representative  Crawford questioned  the timing of  the rates.                                                                  
Ms. Hall did  not know why those  dates had been chosen.   The                                                                  
Division  makes their rates  effective  the beginning  of each                                                                  
calendar  year with  the process  beginning in  April or  May,                                                                  
2007.   Any data  received by  them would  be included  in the                                                                  
rate  making process.   She  indicated concern  with the  mid-                                                                  
term rates.                                                                                                                     
                                                                                                                                
1:59:55 PM                                                                                                                    
                                                                                                                                
ROD BETIT,  PRESIDENT,  ALASKA STATE HOSPITAL  & NURSING  HOME                                                                  
ASSOCIATION   (ASHNHA),   ANCHORAGE,    noted   that   ASHNHA,                                                                  
requested  the proposed  legislation  in an  attempt to  "fix"                                                                  
this  problem.   The  work  of the  task  force has  not  been                                                                  
complete  and with a  rate freeze sunset  in August,  hospital                                                                  
and physicians  would get paid on what they had  billed, which                                                                  
would result  in insurers paying  out more than intended.   No                                                                  
one  wants  to  see that  happen.    HB  228  addresses  these                                                                  
concerns.                                                                                                                       
                                                                                                                                
Representative  Gara  asked  if  the  medical  cost  inflation                                                                  
adjustment  would be retroactive  to the  time it was  frozen.                                                                  
Mr.  Betit  replied  it would  be  prospective  for  the  next                                                                  
eighteen months.                                                                                                                
                                                                                                                                
Representative  Crawford  inquired  about  the  difference  in                                                                  
rate structure.   Mr.  Betit explained  that hospital  members                                                                  
follow the  Consumer Price Index  (CPI) closely.  At  the time                                                                  
the freeze was  put in place, the hospital charges  were being                                                                  
discounted by workers'  compensation; he anticipated  it would                                                                  
be in the 25% discount range.                                                                                                   
                                                                                                                                
Representative  Crawford thought that the rate  was higher; he                                                                  
worried about the  final disparity.  Mr. Betit  commented that                                                                  
the  bill  only  impacts the  medical  claims  of  an  injured                                                                  
worker, not all  medical claims; no one is happy  with it as a                                                                  
permanent  solution.   Long-term  reimbursement  needs  to  be                                                                  
made through negotiation.                                                                                                       
                                                                                                                                
2:04:33 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  if the frozen  rates would  create                                                                  
risk  for those  not receiving  treatment with  fees too  low.                                                                  
Mr.  Betit  said  no; the  providers  will  continue  to  give                                                                  
treatment.                                                                                                                      
                                                                                                                                
Representative  Gara pointed out  that they would  be charging                                                                  
less  than the  workers  comp arena  to private  patients  and                                                                  
asked  if costs  would  be passed  to  other consumers.    Mr.                                                                  
Betit  explained   that  the  same  charge  is   made  to  all                                                                  
patients.    There  are  different  reimbursement   agreements                                                                  
reached with  different payers;  each hospital offers  charity                                                                  
policies, some of which are passed to other payers.                                                                             
                                                                                                                                
Representative   Gara  reiterated  his  query   regarding  the                                                                  
workers  comp rate being  lower than  customarily charged  and                                                                  
causing a  rate increase to others.   Mr. Betit reiterated  it                                                                  
was not passed on.                                                                                                              
                                                                                                                                
2:07:32 PM                                                                                                                    
                                                                                                                                
GEORGE   RHYNEER,   CARDIOLOGIST,    ALASKA   PHYSICIANS   AND                                                                  
SURGEONS,  ANCHORAGE, testified  in support  of HB 228,  as it                                                                  
provides  the Legislature  time  to  more fully  evaluate  the                                                                  
real cost  of workers' compensation.   He noted that  the cost                                                                  
of  medical  care  continued  to  rise  due  to  technological                                                                  
advances.   Physicians want to  determine a solution  for cost                                                                  
effectiveness and that HB 228 allows that to happen.                                                                            
                                                                                                                                
2:10:19 PM                                                                                                                    
                                                                                                                                
SALLY STUVEK, (TESTIFIED  VIA TELECONFERENCE),  HUMAN RESOURCE                                                                  
DIRECTOR, FAIRBANKS  NORTH STAR BOROUGH, FAIRBANKS,  testified                                                                  
that   the  Fairbanks   North   Star  Borough   supports   the                                                                  
legislation, which  provides stability in establishing  costs.                                                                  
The  adjustment  appears reasonable  as  the rates  have  been                                                                  
frozen since 2004.   She requested that consideration  be made                                                                  
for March 2009,  when the bill again sunsets,  there then be a                                                                  
process  in place  to  address these  concerns.   A  long-term                                                                  
solution would  be the best.   It is  also an important  issue                                                                  
for providers.                                                                                                                  
                                                                                                                                
MICHAEL  HINCHEN,  (TESTIFIED  VIA  TELECONFERENCE),   GENERAL                                                                  
MANAGER, ALASKA  TIMBER INSURANCE  (ATI) EXCHANGE,  PORTLAND &                                                                  
KETCHIKAN,  stated   that  he  represents  a   small  workers'                                                                  
compensation insurance  company, formed in 1980.   The company                                                                  
is  owned by  the  policy  holders,  who are  concerned  about                                                                  
rising medical costs.  [remaining testimony inaudible].                                                                         
                                                                                                                                
2:16:28 PM                                                                                                                    
                                                                                                                                
PAUL LISANKIE,  DIRECTOR, DIVISION  OF WORKERS'  COMPENSATION,                                                                  
DEPARTMENT  OF LABOR & WORKFORCE  DEVELOPMENT, responded  to a                                                                  
query  by Representative  Gara,  explaining that  it would  be                                                                  
lump   sum  payments   associated   with   permanent   partial                                                                  
impairments,  not  indexed.   Representative  Gara  asked  the                                                                  
last time  they were  updated.   Mr. Lisankie  thought it  was                                                                  
2000  & offered  to check  the precise  date.   Representative                                                                  
Gara  said he  was concerned  that  injured  people are  being                                                                  
compensated.                                                                                                                    
                                                                                                                                
2:18:16 PM                                                                                                                    
                                                                                                                                
PUBLIC TESTIMONY CLOSED                                                                                                       
                                                                                                                                
Representative  Gara asked if workers compensation  rates were                                                                  
updated,  does that  affect all  rates.   Ms. Hall  emphasized                                                                  
that benefits  in any one time  period are aggregated  for the                                                                  
amount  that  the system  costs  by  a three  year  look-back,                                                                  
trending  for  current and  projected  costs.   There  are  no                                                                  
single  items,  creating  a  huge cost.    Alaska  is  already                                                                  
number one  in the  country for premium  costs for  employers.                                                                  
Representative  Gara noted that he would speak  to the sponsor                                                                  
regarding his concerns.                                                                                                         
                                                                                                                                
Co-Chair Meyer referenced the two zero notes.                                                                                   
                                                                                                                                
Representative  Gara  pointed   out  the  two  CPI  rates  for                                                                  
medical  services,  the  one  used is  the  Medical  Care  CPI                                                                  
index; the  other is  the Medical Care  Services Component,  a                                                                  
percent  higher.   Representative  Kelly  agreed, noting  that                                                                  
the one chosen caused the "least consternation".                                                                                
                                                                                                                                
2:22:58 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze MOVED  to REPORT  CS HB  228 (L&C)  out of                                                                  
Committee  with   individual  recommendations   and  with  the                                                                  
accompanying fiscal  notes.  There being NO OBJECTION,  it was                                                                  
so ordered.                                                                                                                     
                                                                                                                                
CS HB  228 (L&C)  was reported  out of Committee  with  a "do"                                                                  
recommendation  and with zero notes #1 & #2 by  the Department                                                                  
of  Administration   and  Department  of  Labor   &  Workforce                                                                  
Development.                                                                                                                    
                                                                                                                                
2:24:20 PM                                                                                                                    
HOUSE BILL NO. 184                                                                                                            
                                                                                                                                
     An Act relating to a commemorative troops license                                                                          
     plate; and providing for an effective date.                                                                                
                                                                                                                                
REPRESENTATIVE  BOB  ROSES,  SPONSOR,  introduced  his  staff,                                                                  
JOSH APPLEBEE.                                                                                                                  
                                                                                                                                
Representative  Roses stated  that HB 184  brings the  Support                                                                  
Our Troops  commemorative license  plate to Alaska,  sponsored                                                                  
by Support  Our Troops®  (SOT)  Inc.  The  plate would  happen                                                                  
through   a  $40  fee,   collected  &   appropriated   by  the                                                                  
Legislature  to Support  Our Troops for  redistribution.   SOT                                                                  
establishes  an Alaska  Disbursement  Board  to determine  the                                                                  
best manner to  distribute the funds.  SOT® began  the process                                                                  
of issuing Official Support Our Troops plates in 40 states.                                                                     
                                                                                                                                
Representative  Roses noted  that  Support  Our Troops®  is  a                                                                  
501(c)  (3) national  public-benefit  charity group  dedicated                                                                  
to  assisting the  troops  and their  families.   It  provides                                                                  
simple  means through  which  America's families  can  protect                                                                  
the  integrity  of their  troops'  families.   SOT's  business                                                                  
model is to create  recurring revenue streams  such as license                                                                  
plates, t-shirts, & bumper stickers.                                                                                            
                                                                                                                                
Representative  Roses added  that  SOT is  one  of the  safest                                                                  
national  charities,  with checks  and  balances  in place  to                                                                  
ensure  the accurate  collection  and disbursement  of  funds.                                                                  
Finally,  the bill  provides a  true form of  self taxation  &                                                                  
only those  Alaskans who want to  buy the plates,  would agree                                                                  
to the additional fee.                                                                                                          
                                                                                                                                
2:27:15 PM                                                                                                                    
                                                                                                                                
Representative  Gara suggested  the money  should go to  local                                                                  
veteran  organizations.   Representative  Roses  replied  that                                                                  
many local  organizations  do not have  a mechanism to  handle                                                                  
the funds  nor do they  have accounts  set up.  He  understood                                                                  
that the  dollars gained  would more than  off-set costs.   He                                                                  
believed it was a positive cash flow.                                                                                           
                                                                                                                                
Co-Chair  Meyer   asked  the   local  controls  in   place  to                                                                  
guarantee   that   the   dollars    come   back   to   Alaska.                                                                  
Representative  Roses  explained  that  the  Legislature  will                                                                  
have to  appropriate  the money  each year  & the State  Board                                                                  
would be responsible for the State disbursements.                                                                               
                                                                                                                                
Co-Chair   Meyer  worried   about  appropriating   funds   for                                                                  
something  outside of  Alaska control.   Representative  Roses                                                                  
understood that  they would not have ability to  issue without                                                                  
legislative approval.                                                                                                           
                                                                                                                                
2:32:06 PM                                                                                                                    
                                                                                                                                
MARTIN  BOYER,   (TESTIFIED  VIA  TELECONFERENCE),   EXECUTIVE                                                                  
DIRECTOR,  SUPPORT  OUR TROOPS,  FLORIDA,  offered  to  answer                                                                  
questions of the Committee.                                                                                                     
                                                                                                                                
Representative  Roses  asked  how  much Mr.  Boyer  was  being                                                                  
paid.  Mr. Boyer  responded that he has not been  paid for the                                                                  
past year  and half.   The  funds coming  in go toward  paying                                                                  
lobbyists and  state registration  fees.  He anticipated  that                                                                  
once  money  comes  in,  his  salary  would  be  approximately                                                                  
$5,000/month,   established   by  the   board  of   directors.                                                                  
Representative  Roses  added  that the  Alaska  lobbyist,  Pat                                                                  
Carter was volunteering pro bono.                                                                                               
                                                                                                                                
2:35:26 PM                                                                                                                    
                                                                                                                                
Representative  Crawford   asked  about  inserting  a  sunset.                                                                  
Representative Roses noted that had not been considered.                                                                        
                                                                                                                                
Representative  Crawford worried  about the  variety of  funds                                                                  
created within  the General Fund & recommended  a review date.                                                                  
                                                                                                                                
PAT CARTER,  LOBBYIST,  SUPPORT OUR  TROOPS (SOT),  ANCHORAGE,                                                                  
thought that  it would be  complex to  insert a sunset  when a                                                                  
license  plate was  no longer  valid.   When  the State  stops                                                                  
appropriating  the  money,  the  Division  of  Motor  Vehicles                                                                  
(DMV) would  stop selling  the plates.   It would be  annually                                                                  
reviewed through the appropriation process.                                                                                     
                                                                                                                                
2:39:32 PM                                                                                                                    
                                                                                                                                
DUANE  BANNOCK,  (TESTIFIED  VIA  TELECONFERENCE),   DIRECTOR,                                                                  
DIVISION  OF MOTOR  VEHICLES,  DEPARTMENT  OF  ADMINISTRATION,                                                                  
ANCHORAGE,  addressed the  sunset provision,  noting there  is                                                                  
no downside  to  it.  In  order for  a specialty  plate to  be                                                                  
successful,  it requires marketing  by the sponsoring  agency;                                                                  
from his research,  he did not anticipate that  SOT would "let                                                                  
the State down".  He noted support for the bill.                                                                                
                                                                                                                                
Representative   Crawford  asked  if  1,000  plates   was  the                                                                  
breaking  spot.    Mr. Bannock  advised  that  when  the  bill                                                                  
passes,  DMV will  not have  the plates  on hand.   The  plate                                                                  
will be ordered  and mailed to the addressee.   There is a one                                                                  
time set up fee.                                                                                                                
                                                                                                                                
2:43:18 PM                                                                                                                    
                                                                                                                                
Representative  Thomas voiced  his support  of the troops;  he                                                                  
noted that  he has  a Vietnam  veteran plate  and asked  if he                                                                  
could  purchase  a  second  plate,  placing  it  in  his  back                                                                  
window.    Mr.  Bannock  explained   that  would  not  be  the                                                                  
appropriate   use  of  the  plate.     DMV  is  looking   into                                                                  
alternatives.                                                                                                                   
                                                                                                                                
2:45:39 PM                                                                                                                    
                                                                                                                                
Representative  Hawker expressed concern with  the addition of                                                                  
a  relationship  and dedication  of  money to  an  independent                                                                  
organization.   He asked  what would happen  if the Red  Cross                                                                  
or Boy  Scouts  asked for  similar treatment.   He  emphasized                                                                  
that another  dedicated fund would  be created and  questioned                                                                  
if  there  was  another  mechanism   to  achieve  the  desired                                                                  
results  through  a  more  generic  empowerment   for  receipt                                                                  
supported services.                                                                                                             
                                                                                                                                
2:50:55 PM                                                                                                                    
                                                                                                                                
Co-Chair    Meyer   echoed   the    concerns   expressed    by                                                                  
Representative  Hawker.  He noted that controls  need to be in                                                                  
place.                                                                                                                          
                                                                                                                                
Mr.  Carter  recommended  that  the  appropriation   could  be                                                                  
subject to inspection  of the federal 501(c) (3)  to make sure                                                                  
the  nonprofit  is in  compliance  with the  Internal  Revenue                                                                  
Service  (IRS) regulations.   Representative  Hawker  stressed                                                                  
the  need for  further  due  diligence  and inspection  due  a                                                                  
State procurement  contract.   He added  the myriad of  issues                                                                  
needed to address a contractual relationship.                                                                                   
                                                                                                                                
Mr.  Boyer spoke  in  favor of  the  placing the  language  in                                                                  
statute.   He observed  that  the relationship  would be  law,                                                                  
not  contract   and  that  the   language  is  simple.     The                                                                  
philosophy of the  majority of the states is that  the program                                                                  
would  be  self   policing,  because  the  public   would  not                                                                  
purchase  the   plates  if  the  operation  is   in  question.                                                                  
Charities  and government  are in the  business of  benefiting                                                                  
the  public.     He   maintained  that   the  IRS   supervises                                                                  
charitable operations.                                                                                                          
                                                                                                                                
2:58:10 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer noted  that Minnesota  passed  a similar  law,                                                                  
and  that  the  money was  provided  to  their  Department  of                                                                  
Military and Veterans Affairs and appropriated from there.                                                                      
                                                                                                                                
Mr. Carter  stressed that  the person  spending the extra  $40                                                                  
to support  the charity  might question  the money going  to a                                                                  
State  organization instead  of the  charity.   He also  noted                                                                  
the additional associated costs.                                                                                                
                                                                                                                                
3:00:29 PM                                                                                                                    
                                                                                                                                
Representative  Gara summarized  that  the money  would go  to                                                                  
the General Fund,  rather recommending language  to direct the                                                                  
dollars.                                                                                                                        
                                                                                                                                
Mr.  Boyer  thought  that the  Department  of  Law's  attorney                                                                  
general's   office  would  be   the  best  place   to  examine                                                                  
charitable  funds.  He emphasized  that the bureaucracy  could                                                                  
prevent  the  funds  from  being issued  and  that  there  are                                                                  
complications.   He maintained  that we are "neighbors  trying                                                                  
to  do something  for neighbors"  and  that it  should not  be                                                                  
viewed  as a governmental  association.   He  spoke to  checks                                                                  
and balances  and  noted that  a disbursement  board had  been                                                                  
created,    which   sometimes    uses   existing    charities.                                                                  
Disbursement  decisions are  made based  on paperwork  that is                                                                  
filed  out.   There  is  no one  at  the local  level  writing                                                                  
checks.                                                                                                                         
                                                                                                                                
3:06:00 PM                                                                                                                    
                                                                                                                                
In response  to a question  by Co-Chair Meyer,  Representative                                                                  
Rose noted  that he supported  the disbursement  to go  to the                                                                  
local   disbursement   board  without   moving   through   the                                                                  
Department of Military and Veterans Affairs.                                                                                    
                                                                                                                                
3:08:29 PM                                                                                                                    
                                                                                                                                
Representative  Hawker felt that  a solution could  be crafted                                                                  
through  a   single  department.     He  wanted  to   look  at                                                                  
alternative structures  for Alaska's constitutional  framework                                                                  
to keep the State away from making charitable decisions.                                                                        
                                                                                                                                
3:11:30 PM                                                                                                                    
                                                                                                                                
Representative  Gara  MOVED to  ADOPT  new Amendment  #1,  25-                                                                  
LS0621\K.1, Luckhaupt, 4/23/07.  Co-Chair Meyer OBJECTED.                                                                       
                                                                                                                                
Representative  Gara explained new  Amendment #1, which  would                                                                  
correct  a problem  where people  are  periodically sited  for                                                                  
driving without  insurance when they actually  have it.  Proof                                                                  
of insurance  must be filled out  at the time of accident.   A                                                                  
form must be  sent as a follow up.   The form must  be sent to                                                                  
the registered  address even if  a better address is  given at                                                                  
the scene  of the accident.   The  amendment allows the  forms                                                                  
to  be   sent  to  the  most   recent  address  and   prevents                                                                  
unnecessary  felony charges.    The amendment  also moves  the                                                                  
sentencing language.                                                                                                            
                                                                                                                                
Representative   Roses  stated  he  did  not   object  to  the                                                                  
amendment.                                                                                                                      
                                                                                                                                
Vice  Chair Stoltze  asked  if  it had  been reviewed  by  the                                                                  
Department of Public Safety.                                                                                                    
                                                                                                                                
3:15:51 PM                                                                                                                    
                                                                                                                                
Representative  Gara stated he had  worked with the  sponsor &                                                                  
the Division of  Motor Vehicles.  He added he  could submit it                                                                  
to the  Department  of Public Safety  before  it moves to  the                                                                  
House Floor.  He reiterated that it is technical.                                                                               
                                                                                                                                
3:18:10 PM                                                                                                                    
                                                                                                                                
Mr. Bannock  voiced strong  support for  the new Amendment  1.                                                                  
He added that they also support Amendment 2.                                                                                    
                                                                                                                                
Co-Chair  Meyer requested  that  copies of  the amendments  be                                                                  
distributed to  both the Department of Law and  the Department                                                                  
of Public Safety for their review.                                                                                              
                                                                                                                                
Representative   Gara  WITHDREW   the  MOTION  to   adopt  new                                                                  
Amendment #1.  There being NO OBJECTION, it was withdrawn.                                                                      
                                                                                                                                
HB 184 was HELD in Committee for further consideration.                                                                         
                                                                                                                                
3:22:01 PM                                                                                                                    
SENATE BILL NO. 103                                                                                                           
                                                                                                                                
     An Act authorizing the transfer of land from the Alaska                                                                    
     Railroad Corporation to Eklutna, Inc.; and providing                                                                       
     for an effective date.                                                                                                     
                                                                                                                                
Vice  Chair Stoltze  explained  that  SB 103  and  HB 212  are                                                                  
identical bills.                                                                                                                
                                                                                                                                
REPRESENTATIVE  ANNA  FAIRCLOUGH  understood  that  there  had                                                                  
been  no changes  made in  the Senate.    She reiterated  that                                                                  
they are  identical bills and  that the action would  transfer                                                                  
6.3 acres  to the  Alaska  Railroad Corporation  (ARRC).   The                                                                  
land  has historical  value.    She noted  that  she and  Vice                                                                  
Chair Stoltze  represent  the Village of  Eklutna and  support                                                                  
the transfer, which  benefits the State of Alaska  by bringing                                                                  
forward gravel removal for State highway projects.                                                                              
                                                                                                                                
3:24:30 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  requested  assurance from  the  Native                                                                  
Corporation  of  Eklutna  that  they  are  supportive  of  the                                                                  
transfer.                                                                                                                       
                                                                                                                                
3:25:47 PM                                                                                                                    
                                                                                                                                
BONNIE WOLDSTAD,  (TESTIFIED  VIA TELECONFERENCE),  FAIRBANKS,                                                                  
appreciated  that ARRC  was working with  the property  owners                                                                  
that have prior property rights.                                                                                                
                                                                                                                                
3:27:02 PM                                                                                                                    
                                                                                                                                
KEITH  SANDERS,  (TESTIFIED  VIA  TELECONFERENCE),   SR.  VICE                                                                  
PRESIDENT,  LAND  &  LEGAL  AFFAIRS,  COOK  INLET  REGION  INC                                                                  
(CIRI),  responded   to  concerns  voiced  by   Representative                                                                  
Hawker regarding  Section 7, stating  that CIRI is  supportive                                                                  
of  the  legislation,  noting  there  are  significant  issues                                                                  
regarding  the gravel,  which  has already  been removed  from                                                                  
the site.                                                                                                                       
                                                                                                                                
3:29:17 PM                                                                                                                    
                                                                                                                                
PUBLIC TESTIMONY CLOSED                                                                                                       
                                                                                                                                
3:29:49 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze MOVED  to REPORT SB  103 out of  Committee                                                                  
with  individual  recommendations  and with  the  accompanying                                                                  
fiscal note.  There being NO OBJECTION, it was so ordered.                                                                      
                                                                                                                                
SB  103  was  reported  out of  Committee  with  a  "do  pass"                                                                  
recommendation  and with  zero note  #1 by  the Department  of                                                                  
Commerce, Community & Economic Development.                                                                                     
                                                                                                                                
                                                                                                                                
3:30:57 PM                                                                                                                    
HOUSE BILL NO. 88                                                                                                             
                                                                                                                                
     An Act relating to televisions, monitors, portable                                                                         
     computers, and similar devices in motor vehicles; and                                                                      
     providing for an effective date.                                                                                           
                                                                                                                                
REPRESENTATIVE  CARL  GATTO,  SPONSOR,  noted  that  the  bill                                                                  
stipulates  "No watching television  (TV) while driving".   It                                                                  
has been  corrected from  concerns previous  voiced.   It will                                                                  
protect people;  when a car is  in motion, the driver  can not                                                                  
be  watching TV.   Important  language  was added  to Page  1,                                                                  
Line 11, "in full view".                                                                                                        
                                                                                                                                
3:32:27 PM                                                                                                                    
                                                                                                                                
Co-Chair  Chenault  asked   if  it  would  affect  the  Global                                                                  
Positioning  System  (GPS)  display.    Representative   Gatto                                                                  
responded that  the exemptions are  listed in Section  C, Page                                                                  
2.                                                                                                                              
                                                                                                                                
3:33:34 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze MOVED  to ADOPT  work draft  #25-LS0312\O,                                                                  
Luckhaupt,  3/12/07, as  the version  of the  bill before  the                                                                  
Committee.  There being NO OBJECTION, it was adopted.                                                                           
                                                                                                                                
3:34:25 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  recommended  language  "personal  data                                                                  
devices"    rather   than    "personal    data    assistance".                                                                  
Representative Gatto thought that would be a good change.                                                                       
                                                                                                                                
PUBLIC TESTIMONY CLOSED                                                                                                       
                                                                                                                                
Co-Chair Meyer recommended that  the bill be held in Committee                                                                  
for final review.                                                                                                               
                                                                                                                                
Representative  Hawker referenced  Section 2,  asking why  the                                                                  
definition of physical injury terms had been incorporated.                                                                      
                                                                                                                                
NORM COHEN,  STAFF, REPRESENTATIVE MAX GRUENBERG,  pointed out                                                                  
that on Page  3, Lines 5-7, there is clarifying  language from                                                                  
Title 11 to Title 28, moving the physical injury definition.                                                                    
                                                                                                                                
Representative  Hawker  inquired  if  the  Department  of  Law                                                                  
agreed with that definition of physical injury.                                                                                 
                                                                                                                                
ANNE  CARPENETI, ASSISTANT  ATTORNEY  GENERAL, LEGAL  SERVICES                                                                  
SECTION-JUNEAU, CRIMINAL  DIVISION, DEPARTMENT OF  LAW, stated                                                                  
that the Department does concur with that definition.                                                                           
                                                                                                                                
3:38:22 PM                                                                                                                    
                                                                                                                                
HB 88 was HELD in Committee for further consideration.                                                                          
                                                                                                                                
                                                                                                                                
RECESS:         3:41:28 PM                                                                                                    
RECONVENE:      4:11:29 PM                                                                                                    
                                                                                                                                
^                                                                                                                               
OVERVIEW:                                                                                                                       
PRESENTATION BY SULLIVAN & CROMWELL LLP                                                                                       
                                                                                                                                
FREDERIC C RICH,  PROJECT FINANCE GROUP, SULLIVAN  & CROMWELL,                                                                  
provided members  with a  slide presentation:  Project Finance                                                                  
Workshop, An Introduction to Project  Finance for Oil, Gas and                                                                  
Pipelines  (copy  on  file.)   Sullivan  and  Cromwell  is  an                                                                  
international  law firm  based  in New  York.   Their  project                                                                  
finance practice  focuses on large projects,  averaging over a                                                                  
billion dollars. He  noted that the presentation  was based on                                                                  
a  workshop  with  the Department  Of  Energy,  Treasury,  and                                                                  
Office of Management and Budget  and was intended to give them                                                                  
the  ability  to  understand  in  what  context  federal  loan                                                                  
guarantees would  might be used  and what issues  might arise.                                                                  
The  presentation  was  designed  to  provide  information  on                                                                  
project finance,  as opposed to corporate finance  and provide                                                                  
tools for  risk allocation and  mitigation. He noted  that the                                                                  
presentation  would  cover current  project  finance  markets,                                                                  
building blocks of a typical  project and projects specific to                                                                  
oil, gas and pipelines.                                                                                                         
                                                                                                                                
Mr. Rich observed that there  is little precedent for projects                                                                  
like the Alaskan Natural Gas  Pipeline (page 2). He added that                                                                  
92 percent  of closed  projects are  under a billion  dollars.                                                                  
The largest previous  pipeline financing was  the Alliance Gas                                                                  
project at  $2.6 billion.  He noted  that the largest  project                                                                  
ever  entered  was  $6.7  billion   [Taiwan  High  Speed  Rail                                                                  
Project]. The Alaska Gas pipeline would set a new record.                                                                       
                                                                                                                                
Mr. Rich  observed that there  are many unknowns.  He stressed                                                                  
that what worked  for and applied to other deals  may not work                                                                  
in  Alaska.  He   noted  that  it  is  premature   to  discuss                                                                  
specifics,  but  observed that  he  could  speak to  the  main                                                                  
drivers  of oil,  gas and  pipeline financing  in general.  He                                                                  
stressed  that  bank-ability  does  not  exist.  Lenders  will                                                                  
accept  more if the  economics  are strong.  When there  is so                                                                  
much "hair  on the  dog" lenders  will bulk,  but the  line is                                                                  
hard  to draw. The  process tries  to determine  "hair on  the                                                                  
dog".                                                                                                                           
                                                                                                                                
4:21:35 PM                                                                                                                    
                                                                                                                                
Mr. Rich  spoke to slide  3. Project finance  is distinguished                                                                  
by a  project entity  that provides  a product  or service  to                                                                  
buyers.  A portion  of the sales  proceeds  are used to  repay                                                                  
debt. Before the project is  operational the equity portion of                                                                  
the  capital costs  comes  from  the sponsors.  "Sponsors"  in                                                                  
Alaska are generally  identified with the producer  group, but                                                                  
"sponsor" is  a term  of art in  project finance,  which means                                                                  
whoever  owns  the  project   entity.  Project  financing  has                                                                  
previously  been  applied  to   power  plants.  Today  project                                                                  
financing  is not a  single financing  product, but  different                                                                  
products  for  different  markets.  He  cautioned  members  to                                                                  
beware of generalizations.                                                                                                      
                                                                                                                                
4:24:23 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  noted  that  project   finance  is  different  from                                                                  
corporate  finance. Project  finance is  tailored to the  risk                                                                  
profile  of the individual  project, it  is highly  structured                                                                  
and  engineered, non-diversified  credit, and  is green  field                                                                  
(once  the loan  is dispersed  there is  no way  to repay  the                                                                  
loan; there is no credit.) Project  finance is cash-flow based                                                                  
credit (unlike real estate). Payments  only occur if cash flow                                                                  
is generated  such as  gas going  through a pipeline.  Project                                                                  
Finance is generally based on  contractual commitments because                                                                  
project  lenders are  not willing  to take  the risk that  the                                                                  
cash flow  will be generated.  Contracts must be  shown. There                                                                  
is limited recourse; the single  purpose entity does not share                                                                  
the loan.                                                                                                                       
                                                                                                                                
Project finance  is tailored. Lenders design  the financing to                                                                  
reflect  the economic  profile  of the  project. Financing  is                                                                  
tailored to  the project  cash flow and  risk profile  for the                                                                  
specific project. Lenders are  focused on repayment. The whole                                                                  
project finance field is based on what could go wrong.                                                                          
                                                                                                                                
4:29:37 PM                                                                                                                    
                                                                                                                                
Mr. Rich spoke  to the structure. The product  credit is based                                                                  
on  completion support,  who took  the risk  that the  project                                                                  
would be finished, who took the  risk for overruns and delays,                                                                  
how  was  the cash  flow  captured,  what  were the  off  take                                                                  
commitments,   what  did   the  contracts   say  (under   what                                                                  
circumstances  do  those  taking  the product  have  to  pay),                                                                  
security interests, remedies  if the loan is not  repaid or is                                                                  
in  trouble; and  project covenants  and structured  remedies.                                                                  
The structure is made as needed  to reflect the risks inherent                                                                  
in the project.                                                                                                                 
                                                                                                                                
Mr.  Rich noted  that project  finance  starts with  reserves;                                                                  
someone  is the  shipper; someone  pays a  tariff (the  tariff                                                                  
that they paid  to the pipeline company is the  only source of                                                                  
debt  service). These  things are  non-diversified, but  every                                                                  
project must  be reviewed for  what is in  and what is  out of                                                                  
the  project:  How is  credit  defined? What  recourse  exits?                                                                  
Repayment  is  dependent  on  how those  outside  the  project                                                                  
fulfill their commitments. Structural  issues are created when                                                                  
things out side the project are needed for repayment.                                                                           
                                                                                                                                
4:33:18 PM                                                                                                                    
                                                                                                                                
Mr. Rich  explained "Greenfield"  (page 12), which  means when                                                                  
the loan  is disbursed,  the business  does  not exist.  It is                                                                  
relatively rare. The  question is would the  project get built                                                                  
on  time,  with  in  budget and  will  it  work  as  promised,                                                                  
minimizing  likelihood  of force.  Lenders  do  not take  this                                                                  
risk. At  completion the loans  would be non-recourse.  Before                                                                  
that time  the project  can not  provide repayment  because it                                                                  
hasn't demonstrated  its ability to repay.  Completion support                                                                  
is virtually  always required  in project finance.  Completion                                                                  
guarantees  occur  from the  sponsor  or shareholders  of  the                                                                  
project entity;  they guarantee the debt until  completion. If                                                                  
completion does  not occur by  the "drop dead"  date repayment                                                                  
would   be  required.   The  guarantees   are  released   once                                                                  
completion has been certified. He  maintained that this is the                                                                  
main  reason  why  good  projects  don't  occur  and  provided                                                                  
examples.                                                                                                                       
                                                                                                                                
4:37:30 PM                                                                                                                    
                                                                                                                                
Mr. Rich spoke  to federal guarantees for  completion support.                                                                  
He   explained  that   the   guarantees   are  guarantees   of                                                                  
completion.   Section  1(16)   of  federal  statute   requires                                                                  
completion  support and  guarantees.  The  debt is  guaranteed                                                                  
until the  completion test is  met. There is precedent  in the                                                                  
pipeline world for completion support  that falls short of the                                                                  
guarantee. In the case of Alliance,  the owners of the project                                                                  
company  had to tell  the lenders  that they  would commit  to                                                                  
putting in additional equity into  the project up to an agreed                                                                  
level if  necessary to fund overruns  (30 percent of  the base                                                                  
case capital costs).                                                                                                            
                                                                                                                                
4:39:45 PM                                                                                                                    
                                                                                                                                
Mr. Rich  spoke to pre-completion  and post  completion, which                                                                  
are  treated differently.  During pre-completion  shareholders                                                                  
or sponsors are putting in equity  and the lenders are putting                                                                  
in loans and paying construction costs. During post-                                                                            
completion sales proceeds go in  and operation costs and taxes                                                                  
are  paid   first;  then  debt   service.  Owners   receive  a                                                                  
distribution   if  there  is   anything  left   over.  Lenders                                                                  
proscribe the order that cash can be used.                                                                                      
                                                                                                                                
The main metric  used in project finance is  called "cash-flow                                                                  
available for  debt service". The contract produces  cash flow                                                                  
revenues,  which are  projected.  Taxes  are fixed.  Operating                                                                  
costs are  projected. The balance  is the  cash-flow available                                                                  
for  debt  service.  Lenders  require that  the  cash-flow  be                                                                  
positive for  every 6 months.  The measure of the  strength of                                                                  
the credit is how positive the  cash flow. If the ratio is 1/0                                                                  
there would only be enough cash-flow  to pay the debt. A ratio                                                                  
of 3/0  means there is  three times  more cash then  needed to                                                                  
pay the debt. This is the cushion  against the unexpected, and                                                                  
against higher than anticipated  operating costs. Curtailments                                                                  
and  interruptions are  operating risks  for pipelines.  There                                                                  
would  be  zero  cash-flow  during  interruptions;  therefore,                                                                  
lenders protect themselves by requiring funded cash reserves.                                                                   
                                                                                                                                
4:44:21 PM                                                                                                                    
                                                                                                                                
Mr.  Rich discussed  page 14,  contractual commitments.  There                                                                  
will  be   some  projects  without  contractual   commitments,                                                                  
especially in the  oil industry or in merchant  risk. However,                                                                  
project  finance  is  based on  contractual  commitments.  The                                                                  
credit worth  of the parties  making the commitment,  terms of                                                                  
the  commitment, and  the underlying  fundamentals  of a  long                                                                  
term project  are considered. Contractual commitments  are, in                                                                  
general, an  amount sufficient  to cover  debt service  and an                                                                  
agreed cushion, for  a term no shorter than the  term of debt.                                                                  
Terms  of  the  commitment are  reviewed,  as  are  underlying                                                                  
fundamentals.                                                                                                                   
                                                                                                                                
4:46:23 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  noted  that "limited  recourse"  means  that  after                                                                  
completion  "you"  can  look  only to  the  project.  He  Rich                                                                  
observed that  there is only  one reason for  project finance:                                                                  
for funding. Project finance often  occurs in the oil business                                                                  
as a  tool to mitigate risk  or for opportunistic  reasons. If                                                                  
something  goes wrong  it  hits the  equity.  If partners  are                                                                  
brought  in, they  share the  risk, which  limits the  owner's                                                                  
loss.                                                                                                                           
                                                                                                                                
4:48:56 PM                                                                                                                    
                                                                                                                                
In response to a question by  Representative Samuels, Mr. Rich                                                                  
explained that the shareholders are on the hook during pre-                                                                     
completion   through   their  completion   guarantees.   After                                                                  
completion  the lenders  can only  look  to the  asset of  the                                                                  
project, which  includes a contract. Lenders  can force owners                                                                  
to  enforce  contracts.  The  off   take  contract  is  not  a                                                                  
guarantee,  but a commercial  agreement  that provides  that a                                                                  
certain price  at certain  times under certain  circumstances,                                                                  
with  certain  exceptions.  The  person  making  an  off  take                                                                  
contract  takes the  risk  of their  own  business. A  utility                                                                  
takes the risk that their customers  will need the electricity                                                                  
in  the  case  of  a utility  that  enters  into  a  long-term                                                                  
contract to  buy electricity  from a  power plant. They  still                                                                  
have to  pay if  their demand  forecast is  wrong. If  a power                                                                  
plant goes  bad: doesn't get  their environmental  permits, or                                                                  
is built  wrong or is not working  right, the risk  is born by                                                                  
the  lenders. The  contract is  only  one part  of the  entire                                                                  
package that the lender considers.                                                                                              
                                                                                                                                
4:52:07 PM                                                                                                                    
                                                                                                                                
Mr. Rich  spoke to  19, risk  allocation and mitigation.  Risk                                                                  
allocation  and  mitigation  starts  by keeping  in  mind  the                                                                  
difference between  debt and equity. "Sponsors"  refers to the                                                                  
shareholders. Leverage is of  great importance to lenders; the                                                                  
more equity  the better. The concept  is to have "skin  in the                                                                  
game".  Lenders look  at  the percentage  and  quantum of  the                                                                  
equity.  Equity is  the  first  layer of  loss  in a  project.                                                                  
Equity  suffers losses  before  the  debt. In  the  case of  a                                                                  
billion dollar of debt on an  $800 million dollar project, the                                                                  
debt receives all the value.                                                                                                    
                                                                                                                                
Mr. Rich  observed that  lawyers make  sure that projects  are                                                                  
non-recourse  post completion,  but  that  bankers have  every                                                                  
expectation that the  owners will come in and  fix the problem                                                                  
due to their "skin  in the game". He referred  to a project in                                                                  
the  Caspian Sea.  Underwriters  used Chevron's  logos on  the                                                                  
bond  issuance  prospectus  to  emphasize  that,  even  though                                                                  
Chevron did  not owe the money,  it was a Chevron  project and                                                                  
they had a billion dollar of  "skin in the game". Lenders look                                                                  
at shareholders  through their equity  stake as for  risk, the                                                                  
lower  the gearing,  the lower  the leverage.  A project  with                                                                  
50%/50%  equity/debt is  more attractive  than a project  with                                                                  
20%/80% equity/debt.                                                                                                            
                                                                                                                                
4:56:14 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  spoke   to  risk  allocation.  There   is  no  risk                                                                  
allocation from the equity. Every  risk is born by the equity,                                                                  
but  within the  debt portion,  risks  are allocated.  Project                                                                  
financing  is more about  risk allocation  than fund  raising,                                                                  
since it allows "you" to make  a list everything that could go                                                                  
wrong and  allocate who bears  the risk.  In a gas  market the                                                                  
lenders  require others  through committed  contracts to  bear                                                                  
the  risk. Tax  and regulatory  risk  is often  shifted to  or                                                                  
assumed by the host government through stability insurances.                                                                    
                                                                                                                                
Mr. Rich reviewed  risk allocation and mitigation  (slide 22).                                                                  
The focus is  on completion risk because lenders  look at risk                                                                  
in   two  stages.   Mitigation  answers   the  question:   Has                                                                  
everything  been done  to mitigate the  risk? Completion  risk                                                                  
(the risk that it is going to  get done on time and on budget)                                                                  
looks at:  quality and  feasibility that the  work will  be on                                                                  
budget;  contracting  strategy   (if  available);  quality  of                                                                  
project execution; and budgeted  contingency. He observed that                                                                  
with the Alliance project, 87  percent of the costs were under                                                                  
fixed cost  contract for  procurement: pipe, heavy  equipment.                                                                  
With fixed cost  contracts the supplier is taking  a risk that                                                                  
prices will increase.  The Alliance project  still required 30                                                                  
percent in  overrun commitments from shareholders  even though                                                                  
87 percent  of the costs  were fixed. Contracting  strategy is                                                                  
not  usually an  option on  big projects.  Quality of  project                                                                  
execution, the  track record of the project  shareholders, the                                                                  
size  of the  budgeted contingency  and pre-committed  overrun                                                                  
financing  are mitigates. Lenders  will not  take the  risk if                                                                  
there are cost  overruns in excess of the  amount of available                                                                  
funds; the  allocation is  through sponsor completion  support                                                                  
or  guarantees.  Risk  is  allocated   away  from  lenders  to                                                                  
shareholders.                                                                                                                   
                                                                                                                                
5:00:55 PM                                                                                                                    
                                                                                                                                
Mr. Rich discussed the risk matrix.  The risk matrix, in which                                                                  
risk  is identified  and mitigation  considered  is the  first                                                                  
step and determines risk allocation.                                                                                            
                                                                                                                                
5:02:47 PM                                                                                                                    
                                                                                                                                
Mr. Rich explained that any project  starts with the reserves,                                                                  
which are  either there or not.  Decisions can be made  in the                                                                  
area  of:  project  structure,   commercial  and  governmental                                                                  
arrangements,   and   contractual   commitments.   All   these                                                                  
decisions  affect  the  mitigation   and  define  the  project                                                                  
credit. There  is a natural  (givens) a synthetic  credit (due                                                                  
to the  decisions made).  Financing terms  and conditions  can                                                                  
only be tailored once the credit is identified.                                                                                 
                                                                                                                                
5:04:40 PM                                                                                                                    
                                                                                                                                
Mr. Rich noted  that the guarantor (federal or  other), to the                                                                  
extent of the  guarantee, is the lender and has  the same debt                                                                  
as the  owner. The lender (and  worrier) is the  government if                                                                  
the debt  in a  project is  fully guaranteed  [by the  federal                                                                  
government]. He  gave examples of federal  guarantee criteria:                                                                  
reasonable insurance of repayment  of the guaranteed debt, and                                                                  
the  terms and  conditions  must  provide adequate  terms  and                                                                  
security to  appropriately protect the financial  interests of                                                                  
the United  States. The federal  government hires  bankers and                                                                  
commercial  advisors   to  tell  it  what  is   required.  The                                                                  
existence of a federal guarantee  does not change anything. If                                                                  
the  entity defaults,  the federal  government  would pay  the                                                                  
lender and  then own  the asset  and would  have all  the same                                                                  
rights  as   the  lender,  to   create  a  change   in  lender                                                                  
transactions.   All  the   conditions   remain.  The   federal                                                                  
government has responsibilities to  be fiscally responsible as                                                                  
an  arms length  transaction. From  the borrowers  perspective                                                                  
there would be no change.                                                                                                       
                                                                                                                                
5:09:05 PM                                                                                                                    
                                                                                                                                
Mr. Rich discussed  the global finance market on  page 27. Oil                                                                  
and gas  is growing in the  market. Oil and gas  pipelines are                                                                  
still  a small  portion.  Distribution  changes  from year  to                                                                  
year. The size of the market  changes dramatically as there is                                                                  
high volatility  and is driven  by demand. He referred  to the                                                                  
graph  on  page 28.  Small  projects  can  be completed  in  6                                                                  
months,  which  provides greater  odds  that  the market  will                                                                  
remain  in the  same proportion.  Mega projects  have no  idea                                                                  
what the market  will look like by the time  the project comes                                                                  
to   completion.  Today's   markets  are   good  for   project                                                                  
financing, but it  is impossible to predict  the future. Large                                                                  
projects  are based  on market  neutral  decisions. Only  15.7                                                                  
percent is  domestic US  value. The  global market  is largely                                                                  
outside of  the US. The  [AGIA] project  is not going  to lead                                                                  
the  market incrementally  into new  territory; it  will be  a                                                                  
quantum  leap.  AGIA  would  be  a  multiple  of  the  largest                                                                  
financing done to  date. It would be an  incremental leap that                                                                  
is unprecedented. What is necessary  to make it bankable? Some                                                                  
things may  be easier because  it is a high  profile strategic                                                                  
project; some things will be hard because of the size.                                                                          
                                                                                                                                
5:14:15 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  reviewed  slide  30.   Project  finance  is  market                                                                  
dependent. The  bond market is  considered more  desirable for                                                                  
large projects.  Capital markets are deep.  Large liquid bonds                                                                  
are attractive. The  bank market is generally a 10  to 12 year                                                                  
market. Large  projects beyond 15  years are almost  forced to                                                                  
be done  in the bond market.  The capacity of the  bank market                                                                  
has increased, but depending on  the length of maturity it may                                                                  
be the  only option.  The bond market  is even  more volatile.                                                                  
They may be  times when the bond market is  not available. The                                                                  
general approach  is for multi  track finance plan to  make it                                                                  
work  for  both  the  bank   and  bond  markets.  The  federal                                                                  
guarantee would make the bond market almost irresistible.                                                                       
                                                                                                                                
5:16:59 PM                                                                                                                    
                                                                                                                                
Mr.  Rich   explained  that   the  statutes  state   that  the                                                                  
Department of Energy  (DOE) may guarantee up to  80 percent of                                                                  
the  total project  costs. The  intent  of the  statute is  to                                                                  
provide an incentive. He maintained  that the DOE should cover                                                                  
100 percent of  the debt portion subject to the  limit that it                                                                  
can't be  more than 80 percent  of the project  cost. Standard                                                                  
practice in  the federal government  is for 80 percent  of the                                                                  
debt. The  federal government wants  the lender to  have "skin                                                                  
in  the  game";  it's an  insurance  deductible.  The  federal                                                                  
government would  have the entire burden for  making decisions                                                                  
regarding  financing, what's  adequate and  required, what  is                                                                  
good enough  and what the risk  is, and the  administration of                                                                  
the loan  if the  federal government  guarantees 100  percent.                                                                  
This is  enormous. The uncovered  portion of 80 percent  of 80                                                                  
percent could be the largest  oil and gas financing ever done.                                                                  
Other projects have tried to  engineer a federal guarantee for                                                                  
the uncovered portion  through bonds and trusts,  but this has                                                                  
now  been outlawed.  He  concluded  that there  are  a lot  of                                                                  
different  forks  in the  road,  but  the 80  percent  federal                                                                  
guarantee is one of the largest.                                                                                                
                                                                                                                                
5:20:02 PM                                                                                                                    
                                                                                                                                
Mr. Rich discussed  slide 31. The S&P credit was  found to be,                                                                  
in  general, better  than  anyone thought.  Any  owner of  the                                                                  
pipeline  would want  the guarantees  to  be appropriated,  in                                                                  
which the  U.S government  pays the price  of the  credit risk                                                                  
through appropriation  or the borrower  has to pay.  Any owner                                                                  
would want  the guarantees appropriated  or the price  paid to                                                                  
be the lowest possible.                                                                                                         
                                                                                                                                
5:21:29 PM                                                                                                                    
                                                                                                                                
Representative  Samuels  referred  to  the 80  percent  of  80                                                                  
percent and questioned  if the federal determination  has been                                                                  
made. Mr. Rich noted that it  is yet to be determined if it is                                                                  
80 percent of 80 percent of  the total costs. The statute does                                                                  
not answer  the question; the  statute simply gives  a maximum                                                                  
and  is  silent  on  what  percentage   of  the  debt  can  be                                                                  
guaranteed.   He  felt  that  allow 100  percent  would be  in                                                                  
keeping with legislative intent,  but cautioned that universal                                                                  
practice is 80 percent of the debt.                                                                                             
                                                                                                                                
5:23:14 PM                                                                                                                    
                                                                                                                                
Senator Therriault  questioned if anything could  be read into                                                                  
the lack of clarity in statute.  Mr. Rich could not comment on                                                                  
the  politics, but  felt  it  was a  big  problem and  creates                                                                  
uncertainty.  The  ability  to  fully  understand  the  issues                                                                  
awaits clarification.                                                                                                           
                                                                                                                                
Representative Doogan  referred to slide  28 and asked  how an                                                                  
Alaska gas pipeline  would compete. Mr. Rich  pointed out that                                                                  
only a  small portion of  oil and gas  projects only  $15.7 of                                                                  
the $180  billion was U.S. domestic.  The ANGA is  larger than                                                                  
the entire  relevant market. The  issue is complicated.  A 100                                                                  
percent  federal guarantee  has  different risk,  since it  is                                                                  
liquid and deep  and large. It would be a  challenge under any                                                                  
scenario  without the  federal 100  percent guarantee.  Market                                                                  
conditions are important. People  tend to tackle each point as                                                                  
they can. Low prices equate to  low tariffs, which is good for                                                                  
everyone.  There  is complete  alignment  on  the things  that                                                                  
reduce pricing. "In  a normal mega project  what everyone does                                                                  
is just  gets as many  of them as they  can and tries  to make                                                                  
sure they have  the best possible product,  the best mitigates                                                                  
to those risks, when they approach the financing markets."                                                                      
                                                                                                                                
Representative Doogan  summarized that  if the money  is there                                                                  
it's not  a good deal. Mr.  Rich added that there  could still                                                                  
be  a scenario  with market  challenges  even if  it's a  good                                                                  
deal.  Unlike  other project  financings  that  happen all  at                                                                  
once,   the   construction   period  for   the   pipeline   is                                                                  
considerable. The  demand for capital would be  sequenced over                                                                  
a period. The entire $18 billion  would occur over a series of                                                                  
years.                                                                                                                          
                                                                                                                                
5:28:58 PM                                                                                                                    
                                                                                                                                
Mr.  Rich explained  the  three phases  of  a typical  project                                                                  
financing: structuring of the  project, finance plan (when the                                                                  
project  and  risk   is  known  and  the  best   financing  is                                                                  
determined),  financing  project  (the actual  execution).  He                                                                  
noted the  process is  complicated and  gave examples  of pass                                                                  
through structures. Pass-through  structures tend to be highly                                                                  
tax efficient,  from a federal prospective.  Multi shareholder                                                                  
projects are common with: utilities,  gas merchants, producers                                                                  
and  pipeline   development  companies.  Each   has  different                                                                  
objectives, tax consequences and  different ways of looking at                                                                  
the world. In  the oil and gas business severalty  tends to be                                                                  
key, so  that they are  not locked into  a single entity  or a                                                                  
single set of  decisions. A lot of time is  spent figuring out                                                                  
what  the  project  is.  There   is  generally  some  kind  of                                                                  
government  agreement at  the  base such  as: concessions  and                                                                  
resource   project  for   infrastructure   like  toll   roads;                                                                  
investment  agreements,  and  investment  incentives.  Federal                                                                  
legislation  successfully mitigates  licensing and  permitting                                                                  
risks. The  project has  structure, agreements  and commercial                                                                  
contracts. The model  can't be designed until  these items are                                                                  
known.  Agreements  between  the  participants  can  be  quite                                                                  
complicated.                                                                                                                    
                                                                                                                                
5:32:56 PM                                                                                                                    
                                                                                                                                
Mr. Rich spoke to leverage and  how the debt is raised and how                                                                  
much. Questions  about leverage  and gearing  are part  of the                                                                  
FERC methodology,  which are assumptions made  for calculating                                                                  
the returns and  the rate base. The assumption  does not equal                                                                  
the real world.  The optimum model for project  financing is a                                                                  
complicated question;  it is not always the  highest degree of                                                                  
leverage. The cash flow model  determines how much debt can be                                                                  
borrowed and  over what  period it  can be borrowed.  Leverage                                                                  
and  debt   are  computed   based  on   the  ability   of  the                                                                  
shareholders to  bear the completion  risk, based on  the down                                                                  
side scenarios and  other factors. The leverage  or gearing in                                                                  
a project  can not be  assumed to be  the leverage  or gearing                                                                  
permitted for regulatory purposes.                                                                                              
                                                                                                                                
5:35:00 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  spoke  financing  plans.  Strategic  projects  have                                                                  
special  challenges. He  questioned if  it would  ever be  the                                                                  
right  thing to  allow lenders  to  take the  project off  the                                                                  
market.  There  are  a  whole  set  of  reasons  in  strategic                                                                  
projects why a  typical finance plan might not  work, which is                                                                  
not good for  lenders, because it is not  the typical package.                                                                  
The challenge is  to design a finance plan  that produces "our                                                                  
relatively  un-hairy dog,"  meets  state  and federal  statute                                                                  
restraints, and  is acceptable to all concerned  including the                                                                  
federal guarantor if there is one.                                                                                              
                                                                                                                                
5:36:42 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  discussed  the  "waterfall":   slide  41.  All  the                                                                  
projects assets  are required  to be set  aside in  a separate                                                                  
account, in  which the lenders  have an interest.  The lenders                                                                  
or trustees that  act for them set the rules  for how the cash                                                                  
flow  will be  applied. Distributions  to  owners occur  after                                                                  
these operating costs, taxes,  and large debt service reserves                                                                  
have been met.                                                                                                                  
                                                                                                                                
The  upstream  and midstream  might  be  financed  separately.                                                                  
Pipeline  lenders will  not  get a  penny  unless upstream  is                                                                  
brought into production;  the upstream lenders will  not get a                                                                  
penny  unless  the  pipeline  is  built and  the  gas  can  be                                                                  
transported  to  market.  Waterfalls   are  considered  on  an                                                                  
integrated   basis.   The   upstream    lenders   are   always                                                                  
subordinated  to the  mid-stream  lenders. The  super-priority                                                                  
for the  upstream lender is to  pay the tariff.  Everything is                                                                  
embedded  in the  tariff; all  of the  midstream waterfall  is                                                                  
embedded  in the tariff  and is  a priority  in the  upstream.                                                                  
Transportation  costs  have  to  be  paid  first.  The  tariff                                                                  
constitutes   a   pass  through.   Midstream   lenders   think                                                                  
holistically because  they are not paid until  the upstream is                                                                  
a  success. The  likelihood  of payment  is  dependent on  the                                                                  
success of the project.                                                                                                         
                                                                                                                                
5:40:26 PM                                                                                                                    
                                                                                                                                
Mr. Rich explained that additional  debt is one of the hardest                                                                  
fought  covenants in  any project  financing,  since the  only                                                                  
thing  left after  the completion  guarantee  is the  project.                                                                  
Additional  debt  adds  a burden  that  was  not  anticipated.                                                                  
Lender consent is the norm. Capital  markets get sometimes get                                                                  
objective tests based on pro  forma of debt cover and leverage                                                                  
tests. He gave examples based  on borrowing for expansion. The                                                                  
maturity of the  debt cannot be shorter. The  weighted average                                                                  
life cannot be  faster, and an independent debt  model must be                                                                  
run.  The  model  must  demonstrate  that  the  expansion  and                                                                  
expansion debt will not inhibit  the payment of existing debt.                                                                  
Project  shareholders want  maximum  flexibility, but  lenders                                                                  
want protection.                                                                                                                
                                                                                                                                
5:42:54 PM                                                                                                                    
                                                                                                                                
Mr. Rich  observed that another  hard fought component  of the                                                                  
finance  plan  is the  completion  test, which  has  physical,                                                                  
operational,   and   financial   elements   (slide   43).   An                                                                  
independent  engineer  checks  the project  from  the  startup                                                                  
period.  The financial  test  must  demonstrate  that the  off                                                                  
takers are  still credit worthy.  Assumptions on the  off take                                                                  
contracts are based on credit.  Credit ratings are examined on                                                                  
those involved before the guarantee is removed.                                                                                 
                                                                                                                                
The  form of  the  shareholder  completion  support is  highly                                                                  
negotiated. Ten years  ago there was little  worry about large                                                                  
projects, but  unexpected blowouts have occurred.  The current                                                                  
market  focuses  strongly  on completion  support.  He  didn't                                                                  
think  a  deal such  as  Alliance's  with 30  percent  overrun                                                                  
commitments could be negotiated in the current climate.                                                                         
                                                                                                                                
The  federal  statute  requires  the DOE  to  have  completion                                                                  
support and  guarantees. He expected financial  and commercial                                                                  
advisers  to  the DOE  aspect  to  be  among the  toughest  in                                                                  
negotiations. It is in the interest  of the shareholder not to                                                                  
have  guarantees,  since  normal   completion  guarantees  are                                                                  
guarantees  of  indebtedness  and   go  on  to  the  financial                                                                  
statements.  They would  result in  a huge  debt load  through                                                                  
completion,  since they  only  fall away  when the  completion                                                                  
test is met. The agreement is  to pay back the entirety of the                                                                  
debt if completion  is not reached. On the  other hand, equity                                                                  
overrun  commitment support  is limited  risk, since  it is  a                                                                  
capped amount.  He anticipated that pipeline  developers would                                                                  
prefer to make equity overrun commitments.                                                                                      
                                                                                                                                
Representative  Kelly asked  how  the  federal guarantee  ties                                                                  
into the  debt. Mr.  Rich explained that  the language  in the                                                                  
statute referred  to "completion  support and  guarantees". He                                                                  
interpreted the statute  to mean one or the  other: either the                                                                  
debt is  guaranteed until  the completion test  is met  or the                                                                  
debt is not guaranteed, but an  additional amount of equity is                                                                  
guaranteed in  the case of overruns.  He stated that  it would                                                                  
be rare  to do both. He  suggested that DOE  regulations could                                                                  
clarify market practice. He noted  that 30 percent of the base                                                                  
case capital  cost is more  than the entire  capitalization of                                                                  
most of the players in the market.  The need for the financial                                                                  
engineering  around  meeting  the  completion  requirement  is                                                                  
formidable.  The guarantee  doesn't  change  anything and  the                                                                  
ability  to deal with  the completion  support requirement  is                                                                  
what allows projects  to succeed or causes them  to fail. Good                                                                  
projects  fail due  to  an inability  to  meet the  completion                                                                  
support requirement.                                                                                                            
                                                                                                                                
Representative Coghill  concluded that the supports  that fall                                                                  
away after the completion can  carry their own costs; supports                                                                  
fall on  companies that needed to  put up the equity  prior to                                                                  
completion.                                                                                                                     
                                                                                                                                
5:51:56 PM                                                                                                                    
                                                                                                                                
In response  to a question  by Representative Kelly,  Mr. Rich                                                                  
explained  that,  if  there are  completion  guarantees,  pre-                                                                  
completion the margin  on the loan reflects  the person giving                                                                  
the guarantee.  A higher  margin is  paid in post  completion.                                                                  
The  federal  government  could  give  100  percent  guarantee                                                                  
either after completion or on  day one. The federal government                                                                  
would require  the completion guarantee from  the shareholders                                                                  
of the  pipeline company  if their  guarantee occurred  on day                                                                  
one.  Under the  first alternative  (the  guarantee occurs  on                                                                  
completion) the  borrower pays the  cost of the  credit. Under                                                                  
the second  alternative (the  guarantee occurs from  the first                                                                  
day)  the borrower  only pays  the lowest  cost because  it is                                                                  
covered  by the guarantee.  The cost  difference results  from                                                                  
the  federal  charge  for its  risk.  The  federal  government                                                                  
places a value  on the guarantee depending on  the strength of                                                                  
the completion  guarantee. The U.S.  tax payer bears  the cost                                                                  
if the guarantee  is appropriated. The project  company should                                                                  
pay  a higher  price pre-completion  if the  guarantee is  not                                                                  
appropriated.                                                                                                                   
                                                                                                                                
5:55:16 PM                                                                                                                    
                                                                                                                                
Mr. Rich  explained that  the Department  of Energy  (DOE) put                                                                  
out a NOI (notice of inquiry)  asking if regulations should be                                                                  
promulgated; the  DOE decided not to  do so at this  point. He                                                                  
recommended  that  financing  regulations remain  flexible  to                                                                  
allow whoever the  owners are to go to the DOE  and try to get                                                                  
a guarantee that they can actually use.                                                                                         
                                                                                                                                
Mr. Rich observed  that it is not easy to put  together a mega                                                                  
project  financing plan.  Success depends  on good  management                                                                  
and leadership; the  financial costs are high.   He advised an                                                                  
early start.  The cost of delay in a mega project is huge.                                                                      
                                                                                                                                
5:59:54 PM                                                                                                                    
                                                                                                                                
Mr.  Rich referenced  Page 48:  Why  lenders like  oil, gas  &                                                                  
pipeline  projects.  He  observed that  past experiences  have                                                                  
been good;  lenders like resource  based lending  for upstream                                                                  
projects   and  contractual   based  lending  for   pipelines;                                                                  
technologies are usually well proven;  there is clarity in the                                                                  
cash  flow; and  the upstream  has  commodity products.  Price                                                                  
risk is the  main concern, however, lenders  believe that risk                                                                  
can be  understood and  priced with the  use of  engineers and                                                                  
other  advisors.  Lenders also  like  the sponsors:  big  oil.                                                                  
Strategic projects are preferred.                                                                                               
                                                                                                                                
Mr.  Rich reviewed  Page 49  - upstream  versus the  midstream                                                                  
pipelines. Upstream  projects are simple. Gas  projects depend                                                                  
on available transportation and  markets. The fundamentals are                                                                  
the same  for upstream  and mid stream.  Lenders want  to know                                                                  
about  reserves and  markets. Gas  is harder  to finance  than                                                                  
oil.                                                                                                                            
                                                                                                                                
6:03:01 PM                                                                                                                    
                                                                                                                                
Mr.  Rich   addressed  the  midstream   credits  -   Page  50.                                                                  
Midstream  is often developed  in an  integrated fashion  with                                                                  
the upstream (outside  of North America).  A  lot of midstream                                                                  
is developed separately, but  with producers as owners (either                                                                  
in whole  or part). It is important  to look at the  nature of                                                                  
the links on the upstream.   Downstream adds a layer of credit                                                                  
risk.  He  spoke to the nature of  transportation commitments.                                                                  
Projects  where the downstream  buyers  are the shippers  look                                                                  
different  to  lenders  than  commitments  from  the  upstream                                                                  
producers. The  downstream adds another layer  of credit risk.                                                                  
The  nature  of  the  transportation  commitments  and  tariff                                                                  
structure must also be considered.                                                                                              
                                                                                                                                
6:06:39 PM                                                                                                                    
                                                                                                                                
Mr.  Rich  referenced  Page   51  -  main  pipeline  financing                                                                  
approaches.  Pressure   for  integration  [of   midstream  and                                                                  
upstream] comes from both sides.  Producers worry about timely                                                                  
development  of transportation,  control  of construction  and                                                                  
operating  costs,  and  reliability.   Many  of  the  overseas                                                                  
projects are  done on an intergraded  basis, where the  up and                                                                  
mid streams are  developed as part of a single  project or the                                                                  
upstream  producers play  a large  role in  the ownership  and                                                                  
development of  the midstream. Lenders  have a similar  set of                                                                  
concerns  because  they  are  dependent on  the  upstream  and                                                                  
reserves.  The  contracts  are   the  only  link  between  the                                                                  
midstream lenders  and upstream producers. All  the risks that                                                                  
lenders want mitigated have to be in the contracts.                                                                             
                                                                                                                                
Mr. Rich spoke  to Dual Project Risk - Page  52. In this case,                                                                  
the lenders to the midstream  are exposed to the upstream risk                                                                  
without  being  in  their  projects.   Representation  of  the                                                                  
upstream  reserves is  important for  lenders. The  completion                                                                  
test  will determine  if the  upstream  has been  successfully                                                                  
developed  and produced because  "if it  isn't they  don't get                                                                  
paid". Unless there  is a guarantee there is no  "hook" into a                                                                  
corporate credit. The contract  is the beginning of the story.                                                                  
Lenders  look  at  the  credit behind  the  contract  and  the                                                                  
circumstances under  which the contract would or  would not be                                                                  
performed.  Credit risk is the amount paid when owed.                                                                           
                                                                                                                                
Representative Samuels  asked if the lender would  look at the                                                                  
depth of the  worldwide pockets where a pipeline  entity had a                                                                  
shipping contract.   Mr. Rich  replied that the  lenders would                                                                  
ascertain  the  identity  of  the company,  their  assets  and                                                                  
credit,  guarantees and  the rate  to which  they allow  their                                                                  
affiliates to fail.   The second question is how  likely, as a                                                                  
commercial  matter,  that  it  would  be  economical  for  the                                                                  
contract to be  performed. These calculations  on the upstream                                                                  
are  the heart  of  the midstream  credit  determination.   He                                                                  
concluded that the Alaska project  would need to be economical                                                                  
for the next 30 years.                                                                                                          
                                                                                                                                
Representative Kelly  asked if the project was  a double green                                                                  
field project.  Mr. Rich replied  that it has the qualities of                                                                  
a green field project.  Representative  Kelly asked if he knew                                                                  
of  any projects  that  were economical  based  solely on  the                                                                  
midstream component.  Mr. Rich replied that he did not.                                                                         
                                                                                                                                
6:17:28 PM                                                                                                                    
                                                                                                                                
Mr. Rich highlighted Page 53,  transportation agreements.  The                                                                  
length  of transportation  commitments should  be longer  than                                                                  
the length of the debt. Volume,  shipper credit, force majeure                                                                  
and federal  guarantees  are reviewed.  Blended credit  is the                                                                  
starting point for the credit  analysis. The percentage of the                                                                  
total capacity  and credit  rating behind  each commitment  is                                                                  
reviewed  and are  calculated  on an  average weighted  blend.                                                                  
"The strength  of the credit  they are  looking for will  be a                                                                  
function of how  they perceive the risk of the  project and in                                                                  
particular the  tenor of the  loan".  Overall, they  will look                                                                  
for the cost structure.  The  pressure will be greater if they                                                                  
are  looking  at 30  years  rather  than  10  - 15  years.  He                                                                  
observed  that the  general  FERC scheme  is  to pass  through                                                                  
costs  in  the  rate  base.   The  netback  and  the  economic                                                                  
viability  of the  whole scheme  are considered.  In terms  of                                                                  
cash  flow available  for debt  coverage, they  will focus  on                                                                  
whether the cost  lands in the mid or up  stream; overall they                                                                  
are looking  for cost reduction  in a total cost  picture that                                                                  
demonstrates that  the whole enterprise is  sustainable. There                                                                  
are occasions when  shippers prefer not to  enter into shipper                                                                  
pay commitments. They are not  required overseas and there are                                                                  
instances where  pipeline developers  cannot get  producers to                                                                  
take these types of risk.                                                                                                       
                                                                                                                                
6:21:11 PM                                                                                                                    
                                                                                                                                
Mr. Rich reviewed  force majeure. Force majeure is  one of the                                                                  
circumstances in  which the firm transportation  contract, buy                                                                  
it's terms, doesn't  provide cash flow to pay  the debt. These                                                                  
contracts are  intended to not  forgive the shippers  (in this                                                                  
case the  producer) for problems  with the  upstream reservoir                                                                  
if the  reserves or market are  not present.  They  do forgive                                                                  
the  shipper   if  the  pipeline   has  been   interrupted  or                                                                  
curtailed.  Lenders  to  the midstream  are  taking  pipeline,                                                                  
technical  performance  risk  over  a  long  period  of  time.                                                                  
Assumptions  have  to  be  made  about  the  people  who  have                                                                  
engineered  and   developed  or  will  operate   the  project.                                                                  
Implementation varies by contract.  Shippers are not obligated                                                                  
to pay if the midstream cannot accept the gas.                                                                                  
                                                                                                                                
6:22:54 PM                                                                                                                    
                                                                                                                                
Representative  Doogan   provided  a  hypothetical   situation                                                                  
regarding   firm  transportation   contracts:   one  with   an                                                                  
independent  pipeline company  and  the other  with a  limited                                                                  
liability  corporation  connected to  the  parent company.  He                                                                  
questioned which  would be more  bankable. Nr.  Rich explained                                                                  
that  the later  would be  more bankable.  The projects  would                                                                  
still be separate in regards  to regulation. The owners of the                                                                  
upstream would  be shareholders  in the pipeline,  which would                                                                  
add  confidence to  the project.  The  big upstream  companies                                                                  
would  be in  a  position  to make  sure  the  mid stream  was                                                                  
developed  in  a   timely  way  with  the   least  cost.  Risk                                                                  
allocation, allocates the risk to  the parties that are in the                                                                  
position to control  the risk. Capital cost of  the project is                                                                  
one of the  biggest risks born by the shippers,  since it goes                                                                  
right  into the  tariff. Shippers  are  not in  a position  to                                                                  
control  the midstream  if  they  are not  shareholders.  They                                                                  
would prefer shareholding as a lending manner.                                                                                  
                                                                                                                                
6:26:10 PM                                                                                                                    
                                                                                                                                
Representative Doogan  understood that integration  would come                                                                  
if production and pipeline construction  were the same company                                                                  
or if there  were some other legal connection,  but questioned                                                                  
where the market would get its  confidence in the case where a                                                                  
limited liability company or  other free standing company were                                                                  
created  in order to  build a  pipeline.   Mr. Rich  explained                                                                  
that   project   finance   is  based   on   expectations   and                                                                  
calculations of  what will motivate  people in the  future and                                                                  
the percentage  of ownership. In some instances,  lenders have                                                                  
required upstream owners to retain  at least 51 percent in the                                                                  
midstream. They were  counting that the upstream  would have a                                                                  
controlling position. The mentality  is: Are those bearing the                                                                  
economic risk in the position to exercise control?                                                                              
                                                                                                                                
6:28:35 PM                                                                                                                    
                                                                                                                                
Representative Samuels  noted that in some  foreign companies,                                                                  
shippers  are  not  required  to  pledge  firm  transportation                                                                  
commitments  and  questioned   if  governments  finance  these                                                                  
projects. Mr.  Rich explained  that the circumstance  would be                                                                  
rare. There  are some  circumstances where  the reserves  have                                                                  
been sufficiently guaranteed, but it is not normal.                                                                             
                                                                                                                                
Senator Steadman questioned if  downstream utilities have ever                                                                  
financed  a   mega  project  without  a   firm  transportation                                                                  
commitment.   Mr. Rich responded  that there was a  period (in                                                                  
the lower 48 states) when it  was normal for the utilities and                                                                  
downstream   users  to   be   the  parties   contracting   for                                                                  
transportation  services for  smaller projects.  None of  them                                                                  
were mega projects.                                                                                                             
                                                                                                                                
6:31:16 PM                                                                                                                    
                                                                                                                                
Representative  Coghill asked  for more information  regarding                                                                  
the  scope  of other  mega  projects  with a  midstream  force                                                                  
majeure. Mr. Rich could not speak  to current events. He noted                                                                  
that concerns  during force majeure contracts  are curtailment                                                                  
and  interruption  from uninsured  events,  environmental  and                                                                  
permitting    problems,    and   technical    and    operating                                                                  
difficulties: anything  that could result in  the pipeline not                                                                  
being in a position to except volume from the upstream.                                                                         
                                                                                                                                
Representative Coghill  surmised that  they would look  at the                                                                  
track  record  and  credit worthiness.  Mr.  Rich  noted  that                                                                  
operating  reputation,  track  record and  capability  of  the                                                                  
midstream  operators   make  a  large  difference   since  the                                                                  
midstream lenders  are not covered by the  firm transportation                                                                  
commitments.  All  project  financing  bets  on  the  sponsors                                                                  
(project   shareholders   and    promoters.)   The   technical                                                                  
reputation and track record of  the developers is considered a                                                                  
risk mitigant.                                                                                                                  
                                                                                                                                
Representative Coghil spoke to  international issues. Mr. Rich                                                                  
observed  that   firm  transportation  commitments   are  very                                                                  
commercially  sensitive  and  confidential,  and  are  heavily                                                                  
negotiated. The contract has the  effect of having the lenders                                                                  
bear the  risk. Operating  agreements will  work hard  to make                                                                  
sure the pipeline entity is engaged in superior expertise.                                                                      
                                                                                                                                
6:38:12 PM                                                                                                                    
                                                                                                                                
Representative  Samuels  spoke   to  the  firm  transportation                                                                  
contracts, which  are written  between the shipping  companies                                                                  
and the  midstream companies.  Mr. Rich noted  that guarantees                                                                  
are  critical.   There  is   a  tension  with   commerciality.                                                                  
Everything  is a  trade off.  Without Dual  project risk,  the                                                                  
shipper, utility or producer is  in a commercial agreement and                                                                  
is not part of the financing process.                                                                                           
                                                                                                                                
6:41:08 PM                                                                                                                    
                                                                                                                                
Mr.  Rich reviewed  page 56,  cross  boarder pipelines.  Cross                                                                  
board   pipelines   create  interesting   structural   issues.                                                                  
Alliance had  two separate  partnerships, each  borrowed their                                                                  
own  money,  but both  are  dependent  on the  other.  Lenders                                                                  
reintegrated the Canada and U.S.  portions. Lenders don't care                                                                  
that it crosses a border. Lenders  consider the financial risk                                                                  
for the  entire project. Single  financing is  preferred since                                                                  
separation would add to the level of complexity.                                                                                
                                                                                                                                
6:43:18 PM                                                                                                                    
                                                                                                                                
Mr.  Rich discussed  slide  57,  the 10  largest  oil and  gas                                                                  
pipeline project financings. The  Alliance Pipeline Project is                                                                  
the  largest at  $2.59  billion  of debt  on  a $3.73  billion                                                                  
project. Project shareholders are  a mix of upstream merchants                                                                  
and developers.  The slide shows that some  shareholder groups                                                                  
are  dominated  by upstream  oil  companies.  The #10  project                                                                  
contained  $480 million in  debt. The  big projects  have been                                                                  
entirely out of  the U.S., with the exception  of Alliance and                                                                  
the Kern River Expansion.                                                                                                       
                                                                                                                                
6:44:52 PM                                                                                                                    
                                                                                                                                
Co-Chair Chenault noted that the project is a mega project.                                                                     
                                                                                                                                
Senator Huggins  referred to the  world market and  its affect                                                                  
on procurement issues. Mr. Rich  noted that the number of mega                                                                  
projects  around the world  has created  stress on  resources,                                                                  
especially the steel industry.                                                                                                  
                                                                                                                                
6:47:00 PM                                                                                                                    
                                                                                                                                
Representative Coghill  noted that mega projects  create their                                                                  
own economy. He  asked if the focus is narrow.  Mr. Rich noted                                                                  
that banks are always looking  at opportunities to make money.                                                                  
Banks look  at soft factors  including strategic  and economic                                                                  
fundamentals. However,  they also look  at the benefit  of the                                                                  
project   to   the  local   economy   and  the   support   and                                                                  
sustainability of the project.                                                                                                  
                                                                                                                                
Representative  Coghill  observed   that  once  a  project  is                                                                  
formulated a  value can be  attached, but questioned  if there                                                                  
is value  from pre-completion.  Mr. Rich explained  that there                                                                  
must  be  a  bottom  line of  cash  flow  available  for  debt                                                                  
service.                                                                                                                        
                                                                                                                                
6:49:38 PM                                                                                                                    
                                                                                                                                
Senator Elton  asked if it is  fair to look at the  debt ratio                                                                  
and conclude that lenders typically  define "skin in the game"                                                                  
as between  50 -  65 percent.  Mr. Rich  stressed that  lender                                                                  
expectations  are driven by  what is  possible. He noted  that                                                                  
people do project  financing for a variety  of factors. Normal                                                                  
leverage varies by  country and market. He agreed  that from a                                                                  
pure "skin in  the game" perspective, 30 percent  is okay, but                                                                  
added  that the more,  the better.  More equity  can make  the                                                                  
difference in difficult projects.                                                                                               
                                                                                                                                
6:51:52 PM                                                                                                                    
                                                                                                                                
In response  to a question by  Senator Thomas, Mr.  Rich noted                                                                  
that the  first financing for  the Canadian  Alliance Pipeline                                                                  
project was in the early to mid  90's. It was quite successful                                                                  
and had  multiple refinancing.  Senator Thomas noted  that the                                                                  
Alaskan pipeline would be 10  times the cost. He questioned if                                                                  
Alaska is dreaming too big. Mr.  Rich was not in a position to                                                                  
comment.  He  conceded  that  it is  the  most  ambitious  and                                                                  
challenging project that he has  encountered. He felt that the                                                                  
project would doable with the right legal framework.                                                                            
                                                                                                                                
Senator Thomas  questioned where  the money  came from  on the                                                                  
top 10 projects. Mr. Rich observed  that the money came from a                                                                  
variety of  areas and that it  is a completely  global market,                                                                  
which  is dominated  by non U.S.  banks. It  is impossible  to                                                                  
predict  where the  money  would  come from  [in  terms of  an                                                                  
Alaska gas  pipeline project],  but he did  not think  that it                                                                  
would be exclusively from U.S. banks.                                                                                           
                                                                                                                                
6:56:40 PM                                                                                                                    
                                                                                                                                
Senator Therriault  noted that the FT commitments  are heavily                                                                  
negotiated. Mr. Rich stressed  that open seasons are different                                                                  
and it is hard to predict when  it would occur, but emphasized                                                                  
that lenders  would not simply  accept contracts put  in front                                                                  
of them.                                                                                                                        
                                                                                                                                
In response to a question by  Senator Thomas, Mr. Rich did not                                                                  
know of an expiration date for federal loan guarantees.                                                                         
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 6:58 PM                                                                                            
                                                                                                                                
                                                                                                                                

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