Legislature(2007 - 2008)HOUSE FINANCE 519

05/01/2007 01:30 PM FINANCE

Download Mp3. <- Right click and save file as

Audio Topic
01:49:03 PM Start
01:50:02 PM HB177
03:55:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
Presentations by:
- David Van Tuyl, Gas Commercialization
Manager, BP Exploration - Alaska
- Ron Brintnell, Alaska Gas Project
Manager, Enbridge
- Former Governor Walter (Wally) Hickel
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 1, 2007                                                                                             
                         1:49 p.m.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Chenault called the House Finance Committee meeting                                                                    
to order at 1:49:03 PM.                                                                                                       
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Harry Crawford                                                                                                   
Representative Richard Foster                                                                                                   
Representative Les Gara                                                                                                         
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Mary Nelson                                                                                                      
Representative Bill Thomas, Jr.                                                                                                 
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
David Van Tuyl,  Director, Gas Commercialization  Manager, BP                                                                   
Exploration-Alaska;   Ron  Brintnell,   Alaska  Gas   Project                                                                   
Manager,  Enbridge;  Former  Governor  Walter  Hickel;  David                                                                   
Gottstein,  Co-Chair,  Backbone;   Representative  Bob  Buch;                                                                   
Representative Anne Fairclough                                                                                                  
PRESENT VIA TELECONFERENCE                                                                                                    
HB 177    "An Act relating to the Alaska Gasline Inducement                                                                     
          Act;  establishing  the Alaska  Gasline  Inducement                                                                   
          Act  matching contribution  fund; providing  for an                                                                   
          Alaska Gasline  Inducement Act coordinator;  making                                                                   
          conforming   amendments;  and   providing  for   an                                                                   
          effective date."                                                                                                      
          CSHB 177 (RES) was heard and HELD in Committee for                                                                    
          further consideration.                                                                                                
1:50:02 PM                                                                                                                    
HOUSE BILL NO. 177                                                                                                            
     "An Act relating  to the Alaska Gasline  Inducement Act;                                                                   
     establishing the Alaska Gasline  Inducement Act matching                                                                   
     contribution  fund;  providing  for  an  Alaska  Gasline                                                                   
     Inducement    Act   coordinator;    making    conforming                                                                   
     amendments; and providing for an effective date."                                                                          
Co-Chair Chenault pointed out an error in the previous CS to                                                                    
HB 177.                                                                                                                         
Co-Chair Meyer MOVED to ADOPT the work draft to HB 177,                                                                         
labeled 25-GH1060\O.                                                                                                            
Representative Gara OBJECTED.  He asked if the motion was to                                                                    
adopt Version O in order to make the one change.  Co-Chair                                                                      
Chenault replied that it was.                                                                                                   
Representative Gara WITHDREW his objection. There being NO                                                                      
OBJECTION, it was so ordered.                                                                                                   
FORMER GOVERNOR WALTER HICKEL testified in support of HB                                                                        
     Our  North  Slope  natural   gas  is  Alaska's  greatest                                                                   
     opportunity to guarantee  the long-term viability of our                                                                   
     state. And Alaska  is on the right course to  make a gas                                                                   
     line a reality in this generation.  It's a large project                                                                   
     and  worthy of  our great  state.  I am  just back  from                                                                   
     Moscow where  I have been  working with Russian  leaders                                                                   
     on  two  other  great  projects.   The  opening  of  the                                                                   
     Northern Sea  Route to the world - a decision  that will                                                                   
     link the Pacific  and the Atlantic oceans. It  will be a                                                                   
     breakthrough of the same  dimension as the Panama Canal.                                                                   
     The second great project  is a tunnel beneath the Bering                                                                   
     Strait, linking the U.S.  and Russia. Those who attended                                                                 
     the  Conference  last  Tuesday  in  Moscow  realize  how                                                                   
     serious the  Russians are about this  visionary concept.                                                                   
     This link between the United  States and Russia is going                                                                   
     to happen, and it's going to change the world.                                                                             
     Alaska's  immediate  opportunity   is  our  North  Slope                                                                   
     natural  gas. And  it is  up  to our  Governor and  this                                                                   
     legislature  to make  sure it  is used  for the  maximum                                                                   
     benefit of our people, as  mandated by our constitution.                                                                   
     Keep in  mind that  the people of  Alaska. -  the voters                                                                   
     who elected  you - are the  owners of this gas.  You and                                                                   
     Governor  Palm are  the trustees  of their  inheritance,                                                                   
     won in our statehood battle and our Statehood Act.                                                                         
     The  companies   who  hold   Prudhoe  Bay  leases   have                                                                   
     purchased the right to "produce"  our gas. That's why we                                                                   
     call them the  "producers." But they don't  own the gas.                                                                   
     And they are required, through  the leases they hold, to                                                                   
     sell our gas  if they can earn a "reasonable  profit. So                                                                   
     let's get started.                                                                                                         
     Governor  Sarah  Palm's plan  is  a  good one.  She  has                                                                   
     thrown  open the  process to  make sure  that the  State                                                                   
     finds the  very best and  most timely project.  Her team                                                                   
     has designed  legislation to  put the needs  of Alaskans                                                                   
     first. It  means revenues for state government,  gas for                                                                   
     our  homes, gas  for  our businesses,  and  gas for  our                                                                   
     remote   villages  that   are  in   desperate  need   of                                                                   
     affordable energy.                                                                                                         
     It means making sure that the valuable gas liquids are                                                                     
     available for in-state processing  to create high-paying                                                                   
     legacy  jobs for  generations  of Alaskans.  It means  a                                                                   
     pipeline  that encourages  exploration by the  producers                                                                   
     and  by other companies,  large  or small, that  believe                                                                   
     they  can   find  more  gas.   Belief  is  the   key  to                                                                   
     prospecting and it is the key to life.                                                                                     
     Believe me, we haven't begun  to explore the natural gas                                                                   
     potential  of our  state. And  we need  a pipeline  that                                                                   
     will accommodate the discoveries  of those believers. In                                                                   
     my view,  this does  NOT mean  shipping our gas  through                                                                   
     Canada. Any  Canadian route has to resolve  First Nation                                                                   
     land  claims, treaty  problems,  and  a long,  expensive                                                                 
     route, legal issues among  competing Canadian interests,                                                                   
     and one bidder  who wants to use our gas  in the Alberta                                                                   
     tar  sands  to  produce  oil,  an  outrageous  plan  for                                                                   
     trillions of  cubic feet of  clean Alaska gas  so needed                                                                   
     by our nation and the world.                                                                                               
     In my view and in the view  of the majority of Alaskans,                                                                   
     "maximum  benefit"  means  an All  Alaska  Gasline  from                                                                   
     Prudhoe to  Valdez. It means  a pipeline  started sooner                                                                   
     and completed sooner. It  means an energy source for our                                                                   
     villages and cities. It means  feedstock for value-added                                                                   
     industries and jobs in Alaska.                                                                                             
     We addressed  the same issue  in the 1960's and  70's on                                                                   
     the North Slope  oil. We had to force  the oil companies                                                                   
     to drill at Prudhoe Bay.  When I was elected Governor in                                                                   
     1966, BP  had already  given up. So  had all  the others                                                                   
     except  Atlantic Richfield.  In  early 1967,  I flew  to                                                                   
     Prudhoe to meet with their  head geologist Harry Jamison                                                                   
     and  he announced  that they,  too, were  going to  pull                                                                   
     out. I said, "If you don't drill, I will."                                                                                 
     In 1968,  that rig discovered  the biggest oil  field in                                                                   
     the history  of North  America. But  two years  later as                                                                   
     Interior Secretary,  I had to take Exxon to  the mat, or                                                                   
     there wouldn't have been a trans-Alaska oil pipeline.                                                                      
     Now we  have another Governor  who is ready to  stand up                                                                   
     and do  what has to be  done. And the people  are behind                                                                   
     her.  Ladies and  gentlemen  of the  State  Legislature,                                                                   
     this is your moment to step  forward and stand with her.                                                                   
     The people of  Alaska want a gas line  now. Together you                                                                   
     can  make history,  and Alaska will  long remember  this                                                                   
     generation of leadership.                                                                                                  
1:59:00 PM                                                                                                                    
Representative Gara thanked Governor Hickel for supporting                                                                      
early efforts toward having a gas pipeline.                                                                                     
DAVID GOTTSTEIN,  CO-CHAIR, BACKBONE, spoke in  support of HB                                                                   
177.  He related  that he and Former Governor  Walter Hickel,                                                                   
Co-Chair the  group Backbone.   He thanked the  committee for                                                                   
their  efforts in  working through  the details  of AGIA.  He                                                                   
focused on  the broad issues that  sometimes get lost  in the                                                                   
     Backbone is in support of  AGIA and its major components                                                                   
     because it  provides for a competitive  process, creates                                                                   
     material  incentives, and  attempts to  provide for  the                                                                   
     maximum  benefit  to the  residents  of  Alaska. Even  a                                                                   
     recent Dittman  poll indicates that the  public, by more                                                                   
     than  two to  one, believe  the  $500 million  incentive                                                                   
     package is worthwhile.                                                                                                     
     My  biggest caution  to you  today is  to be very,  very                                                                   
     careful  as  to  whom  you   listen  to.  What  we  know                                                                   
     undeniably  is that  the  representatives  of the  North                                                                   
     Slope producers  are paid  to persuade and  convince you                                                                   
     that what is good for them  is good for the State. It is                                                                   
     simply   paid  advertising   without   any  checks   and                                                                   
     balances.  As a result,  much of what  they say  must be                                                                   
     Let  me offer  some  examples. They  say  that only  the                                                                   
     producers  are  capable  of  financing  and  building  a                                                                   
     pipeline  of this  magnitude. That  couldn't be  further                                                                   
     from the truth,  and we trust that Alaska's  leaders are                                                                   
     smart enough not to believe it.                                                                                            
     Even  if  the  likes  of  TransCanada,  Mid-America  and                                                                   
     Sempra  weren't  already at  our doorsteps,  each  fully                                                                   
     capable and experienced enough  to bring the appropriate                                                                   
     parties to  the table with  bona-fida bids,  the private                                                                   
     equity markets  alone have over a trillion,  yes that is                                                                   
     a trillion dollars of money  under management constantly                                                                   
     looking for deals. And with  the forecasted price of gas                                                                   
     and the  Federal loan guarantees,  they, along  with the                                                                   
     investment  banking community  will be  chomping at  the                                                                   
     bit  to  get  a  piece  of   such  an  investment  grade                                                                   
     investment  opportunity.  So  don't let  the  producer's                                                                   
     spin  doctors convince  you  otherwise.  The only  thing                                                                   
     that is necessary  to get a pipeline financed  and going                                                                   
     is access  to a  sufficient quantity of  gas to  make it                                                                   
     economical.  Point Thomson  and our  royalty gas  alone,                                                                   
     does that.                                                                                                                 
     In football  it's touchdowns, in baseball  it's runs, in                                                                   
     the  North  Slope  producers   attempt  to  control  the                                                                   
     process,   maintain  a  monopoly   grip,  and   own  the                                                                   
     pipeline, it's  propaganda and influence  peddling. This                                                                   
     is a standard practice all  over the world when it comes                                                                   
     to big companies  and big profit opportunities.  If they                                                                   
     can't control  it, they want to stop the  process, or at                                                                   
     least slow it down as much as possible.                                                                                    
     Let's  dispel another fabrication;  that AGIA's  process                                                                   
     is an exclusive  one. As I read it, it is  come one come                                                                   
     all, and  is not  exclusive at all.  The main  beauty of                                                                   
     AGIA is  that it is  a defined competitive  process that                                                                   
     will result  in a pipeline sooner rather  than later. It                                                                   
     will provide  more to our residents, as  it will attract                                                                   
     a  more vibrant  bidding  pool that  by definition  will                                                                   
     require  more from  the winning,  bidding  participants.                                                                   
     AGIA   doesn't  preclude   the   chosen  licensee   from                                                                   
     enriching their  pipeline proposal by  adding additional                                                                   
     participants  and  aspects after  a  successful bid,  as                                                                   
     long as it doesn't mean less to the State.                                                                                 
     The State  has so much  at stake,  and is in  a powerful                                                                   
     position to choose what is  in the best interests of our                                                                   
     state,  that it  would be  a shame to  abdicate that  in                                                                   
     favor  of what  is truly  an exclusive,  non-competitive                                                                   
     process  of  dealing  just   with  the  producers,  just                                                                   
     because  the foxes say  they know what  is best  for the                                                                   
     Do we really  want to repeat the mistake  of putting our                                                                   
     fiscal  future in  the hands  of those  with a long  and                                                                   
     proven history of overcharging  on the oil pipeline, and                                                                   
     only paying up  when the court of last  resort rules so,                                                                   
     or after a successful negotiation  for a fraction of the                                                                   
     dollars   at  stake,   as  a  result   of  a   political                                                                   
     settlement?  Can we really  take what the  producers say                                                                   
     seriously when they won't  even attempt to engage in any                                                                   
     truly honest and meaningful dialogue?                                                                                      
     But it  gets worse. They  keep saying they own  the gas.                                                                   
     They don't. They have strong  economic rights to produce                                                                   
     the   gas    conditioned   upon   certain    performance                                                                   
     requirements.  All  you  have  to do  is  reference  our                                                                   
     constitution and  the Mineral Leasing Act  setting forth                                                                   
     our rights and obligations to understand that.                                                                             
     The sincerity in which these  hyperboles are put forward                                                                   
     has me believe  that the presenters believe  it, because                                                                   
     their bosses  want them to believe it. When  in fact, we                                                                   
     own  the resources,  and  when our  tenant violates  the                                                                   
     lease, we not  only have a right, but a  duty to wrestle                                                                   
     control  back of our  vast gas  resources and  make them                                                                   
     available to a hungry nation.                                                                                              
     But there's  more; the North Slope producers,  through a                                                                   
     slight of  hand amendment  gimmickry, are attempting  to                                                                   
     accomplish  with  amendments what  they  are failing  to                                                                   
     accomplish  with  their  aforementioned  propaganda,  by                                                                   
     asking you to provide for  non-conforming bids and or to                                                                   
     require  their upstream  participation.  This would  put                                                                   
     them right back in control of our destiny.                                                                                 
     I think  your esteemed  colleague Representative  Doogan                                                                   
     might have said it best about  the producer's attempt to                                                                   
     build a pipeline when he  said, "If they wanted to build                                                                   
     one,  they'd   be  building  one.  They   are  immensely                                                                   
     profitable   companies.   The  federal   government   is                                                                   
     offering  loan guarantees.  And  they  control the  most                                                                   
     important chips in the entire  game, the North Slope gas                                                                   
     that  makes a  pipeline possible.  They have  everything                                                                   
     they  need to  build a  pipeline.  They aren't  building                                                                   
     one.  The only  logical conclusion  is  that they  don't                                                                   
     want to build one."                                                                                                        
     I believe  Representative Doogan  is right, or  at least                                                                   
     the three  producers won't be  able to get  together and                                                                   
     agree  to  a project  to  more  forward anytime  in  the                                                                   
     foreseeable  future.  The  North  Slope  producers  were                                                                   
     offered  everything imaginable  under  the Stranded  Gas                                                                   
     Act, and still  chose defiance. The people  spoke in the                                                                   
     last   election,   recognizing    the   Murkowski   plan                                                                   
     represented a  huge giveaway. Why should we  think if we                                                                   
     offer them less, that they will do more now?                                                                               
     We  are  in a  game  of  chicken  with the  North  Slope                                                                   
     producers, and we lose if  we don't have the backbone to                                                                   
     secure access to  our gas and offer it in  a free market                                                                   
     and  open  process.  The   nanosecond  that  a  line  is                                                                   
     approved,  I  believe the  producers  will  participate,                                                                   
     rather  than  being  left  out of  one  of  the  biggest                                                                   
     investment  opportunities in  U.S. history, risk  losing                                                                   
     their  leases due  to obvious  non-performance, or  face                                                                   
     the wrath  of Congress for their intransigence.  We urge                                                                   
     you  to  limit  amendments  to ones  that  increase  the                                                                   
     likelihood of  a successful open season  process, rather                                                                   
     than ones that tilt in favor of producer control.                                                                          
     The sad thing  is that the corporate heads  of the North                                                                   
     Slope producers  are spending  all their time  trying to                                                                   
     lean  us   back  to  their  own  exclusive   sole-source                                                                   
     process, instead  of trying to be competitive.  They are                                                                   
     gambling that  propaganda is a  cheaper way to  get what                                                                   
     they want than the cost of  being competitive. In a time                                                                   
     when our  legislative and  public processes  are subject                                                                   
     to  heightened  federal  judicial  scrutiny due  to  the                                                                   
     potential  of conflicts  of interest,  let's prove  them                                                                   
     wrong.   Let's  pass  AGIA   with  the  few   meaningful                                                                   
     amendments  that,  in  your wisdom,  will  increase  the                                                                   
     chances  of a  good pipeline  route  sooner than  later.                                                                   
     Don't force a special session,  and thereby increase the                                                                   
     risk of failure to act.                                                                                                    
     No one  in the world gets  fiscal certainty. If  we were                                                                   
     to go  to the  North Slope  producers and demand  fiscal                                                                   
     certainty,  and  say,  for   example,  if  you  build  a                                                                   
     pipeline  and own it,  we absolutely  need the  value of                                                                   
     $70 per barrel  no matter what the value  in the market,                                                                   
     they  would laugh  at  us.  There is  no  such thing  as                                                                   
     fiscal certainty.  It's just another ploy  on their part                                                                   
     to control the mechanism.                                                                                                  
2:07:51 PM                                                                                                                    
DAVID   VAN   TUYL,   GAS   COMMERCIALIZATION   MANAGER,   BP                                                                   
EXPLORATION-ALASKA,  referred to  a handout entitled  "Alaska                                                                   
Natural Gas  Pipeline Project -  Testimony on AGIA"  (copy on                                                                   
file.)    He   addressed  Slide  2  -  the   opportunity  and                                                                   
challenge: BP wants  and needs a gas pipeline.   The pipeline                                                                   
should be  built for a  low capital cost  and to  be operated                                                                   
cost  efficiently.   Low costs  would  provide incentive  for                                                                   
further exploration.   The gas  project would extend  the oil                                                                   
production life in Alaska.  The  project remains commercially                                                                   
2:11:51 PM                                                                                                                    
Mr.  Van  Tuyl  referred  to Slide  3  -  BP  Disagrees  with                                                                   
Administration's  Economics.    He voiced  concern  that  the                                                                   
administration's  economic   analysis  is  misleading.     He                                                                   
maintained that the  project is not wildly profitable.   Firm                                                                   
commitments must be accounted  for in project economics.  The                                                                   
upstream pays  for the midstream.  Long-term  cash generation                                                                   
is  highly  important.    There   is  a  need  for  a  common                                                                   
understanding  of  the  project  to determine  the  best  way                                                                   
Representative Gara  questioned if Mr. Van Tuyl  is referring                                                                   
to an analysis  by Econ One last year.  Mr.  Van Tuyl said he                                                                   
was referring to that analysis.                                                                                                 
Mr.  Van  Tuyl   continued  to  explain  that   without  firm                                                                   
transportation (FT) commitments,  a binding legal obligation,                                                                   
there  is  no  project.    The  core  issue  is  whether  the                                                                   
commitments  require the  producer to  absorb the  risk.   He                                                                   
emphasized  that long-term  cash  flow is  highly  important.                                                                   
The FT commitments need to be for well beyond 10 years.                                                                         
2:18:35 PM                                                                                                                    
Mr. Van  Tuyl delved  into what  is so  important about  FT -                                                                   
Slide 4.  Firm transportation  commitments by resource owners                                                                   
are needed for  a gas pipeline company to get  financing.  FT                                                                   
is  a  binding  financial obligation.    FT  requires  multi-                                                                   
billion  dollar commitments  by resource  owners.   Long-term                                                                   
commitments  represent real risk.   The  two risks  are price                                                                   
risk  and supply  risk  and are  borne  by  those making  the                                                                   
Mr. Van  Tuyl addressed Slide  5 - Project Risk  Resides with                                                                   
the  Resource   Owners.    He  detailed  the   various  risks                                                                   
depicted: price,  fiscal, production, toll,  fiscal schedule,                                                                   
cost, and  finance.  All risks  are either borne  directly by                                                                   
the  resource owners  or passed  to  them via  the market  or                                                                   
toll.   Those bearing  a risk  are commercially motivated  to                                                                   
manage that risk.                                                                                                               
2:24:42 PM                                                                                                                    
Mr. Van Tuyl  turned to AGIA -  Slide 6.  He  maintained that                                                                   
AGIA   needs  significant   modification  to   result   in  a                                                                   
successful  project.   As drafted,  BP  will not  be able  to                                                                   
submit a  bid that conforms  to the requirements  under AGIA.                                                                   
As drafted,  it is difficult  to envision circumstances  that                                                                   
would allow BP to make a firm  transportation commitment to a                                                                   
licensed project under AGIA.   The negotiated rate protection                                                                   
is unavailable upon expansion.   Subsidization of competitors                                                                   
is   commercially   unreasonable.      Resource   terms   are                                                                   
insufficient to justify FT commitment.   BP intends to bid if                                                                   
AGIA is appropriately modified.                                                                                                 
Mr.  Van Tuyl  listed Key  Concerns Preventing  BP Bid  Under                                                                   
AGIA -  Slide 7.   He listed sections  of the bill  that have                                                                   
problems for BP.  Slide 8 continues  the list of unacceptable                                                                   
conditions in HB 177.                                                                                                           
2:32:32 PM                                                                                                                    
Mr. Van Tuyl discussed Slide 9  - How AGIA can help deliver a                                                                   
successful project:   address areas of key  concern listed on                                                                   
prior  slides, allow  applicants  to respond  to the  state's                                                                   
objectives,  avoid  exclusivity  to ensure  a  pipeline  gets                                                                   
built,  address  fiscal  terms to  encourage  FT  commitments                                                                   
needed for  a successful  project, and  allow due process  of                                                                   
appeal,  remove  potential  Order 2004  conflict,  and  other                                                                   
clarifying edits.                                                                                                               
2:34:33 PM                                                                                                                    
Mr. Van Tuyl communicated BP's  Vision for Alaska - Slide 10.                                                                   
He related BP's long history in  Alaska and looked into a 50-                                                                   
year future, which is only possible  with a gas pipeline.  BP                                                                   
wants  to  bid under  AGIA  and  hopes  it will  be  modified                                                                   
Mr.  Van Tuyl  discussed What  a Successful  Gasline Means  -                                                                   
Slide 11.   It  means jobs for  Alaskans, additional  revenue                                                                   
for future generations, increased  economic activity, and new                                                                   
businesses  created.  It  also means  a long-term gas  supply                                                                   
opportunity for  Alaskans and a more diversified  economy for                                                                   
Co-Chair Chenault  asked if BP  would submit a bid  that does                                                                   
not conform  to AGIA.   Mr. Van  Tuyl said  BP would  like to                                                                   
work within the framework of AGIA.                                                                                              
2:38:45 PM                                                                                                                    
Representative Gara asked about  other subsidies that benefit                                                                   
BP.   He  questioned BP's  role as  a gas  developer and  the                                                                   
relation to  last year's  PPT break.   Mr. Van Tuyl  asked if                                                                   
midstream  costs are  what Representative  Gara is  referring                                                                   
to.  He  voiced concern about  the tax rate of  22.5 percent.                                                                   
Representative Gara  said he is talking about  upstream field                                                                   
development costs.   The producer  is allowed a  22.5 percent                                                                   
deduction of all gas field development  costs from oil taxes,                                                                   
and a  credit for  upstream costs.   According  to Econ  One,                                                                   
whoever  owns  Point  Thomson  would have  to  pay  about  $3                                                                   
billion to  develop, with the  state paying about  $1 billion                                                                   
of  that  amount.   Mr.  Van  Tuyl said  any  upstream  field                                                                   
investments  would  be  included.   Prudhoe  Bay  is  already                                                                   
developed;  Point Thomson would apply.                                                                                          
Representative  Gara  wondered  about rolled-in  rates  as  a                                                                   
subsidy.   Mr.  Van Tuyl  said  AGIA could  result in  higher                                                                   
shipping rates  for initial shippers.   It does  reference 15                                                                   
percent,  but  the  mechanics  of  how  that  language  works                                                                   
doesn't  limit the  increase of  the initial  shippers to  15                                                                   
percent.   It  depends  on the  rate the  very  first day  of                                                                   
production.  The Federal Energy  Regulatory Commission (FERC)                                                                   
said if the initial  rate goes down as a result  of the roll-                                                                   
in, that is not a subsidy.  BP  suggests that FERC be allowed                                                                   
to adjudicate rates.                                                                                                            
Representative Gara asked if BP  accepts rolled-in rates such                                                                   
as are done in Canada.  Mr. Van  Tuyl reported that rolled-in                                                                   
rates are  the norm and  not the concern.   If the  rolled-in                                                                   
rates   result   in   a  subsidy,   that   is   of   concern.                                                                   
Representative  Gara gave  a hypothetical  example.   Mr. Van                                                                   
Tuyl said that  is the regulation in Canada;  however, in the                                                                   
United States FERC adjudicates rates.                                                                                           
2:45:47 PM                                                                                                                    
RON  BRINTNELL,   ALASKA  GAS   PROJECT  MANAGER,   ENBRIDGE,                                                                   
provided a  handout entitled,  "Alaska Natural Gas  Pipeline"                                                                   
(copy  on file.)    He  shared background  information  about                                                                   
Enbridge.    He maintained  that  Alaska  gas is  needed  and                                                                   
expediency is important  and real progress needs  to be made.                                                                   
He  commented on  the market  window and  degradation of  the                                                                   
market window.   He  noted that  the demand  for oil  and gas                                                                   
continues to grow.  He stressed  that volatility is an issue.                                                                   
Mr. Brintnell began  his slide overview. He noted  on Slide 2                                                                   
that  Enbridge is  an international  company  that has  grown                                                                   
steadily with 50,000  miles of pipelines.  Enbridge  owns and                                                                   
operates the  world's longest liquid petroleum  pipeline, and                                                                   
delivers 70 percent of WCSB crude  oil.  He highlighted areas                                                                   
served by Enbridge  lines.  Mr. Brintnell  noted transmission                                                                   
lines deep  in the Gulf of Mexico.   They own and  operate in                                                                   
Inuvik, which has taught them about Arctic conditions.                                                                          
Mr. Brintnell turned to Slide  3 - Unparalleled Experience in                                                                   
Recent Pipeline  Development.   He observed that  Enbridge is                                                                   
one of  the global 100 most  sustainable corporations  in the                                                                   
world.   He noted that  they will have  $15 billion  worth of                                                                   
pipeline projects  over the  next 10  years.  These  projects                                                                   
will  provide   unmatched  experience   in  managing   labor,                                                                   
construction,  procurement,  environmental,   regulatory  and                                                                   
cost-control  challenges.    He stressed  support  for  local                                                                   
hiring.  He  noted that pipeline construction  has changed in                                                                   
the last  5 - 10  years.  He maintained  that the  market has                                                                   
changed  with   Enron  and  now  there  is   more  regulatory                                                                   
oversight.  Utilities no longer  play a large role in project                                                                   
development.  He reported that  Enbridge is currently working                                                                   
with FERC and  the National Energy Board coordinating  all of                                                                   
the  cross border  permits.   Enbridge is  also working  with                                                                   
environmental groups, as well  as with Canadian First Nations                                                                   
and the Lower 48 Indian Bands.                                                                                                  
2:56:26 PM                                                                                                                    
Mr. Brintnell  noted that they  are working with a  number of                                                                   
groups and have  first-hand knowledge to face  the challenges                                                                   
proposed by the Alaska gas pipeline.                                                                                            
Mr. Brintnell  spoke to the Alliance  pipeline - Slide  4. He                                                                   
noted that it was the brainchild  of producers.  Enbridge was                                                                   
a small  part of the  initial project.   Producers  wanted to                                                                   
understand the  costs and risks  and concluded that  they did                                                                   
not need to be part of the pipeline ownership.                                                                                  
Mr.  Brintnell referred  to statements  regarding Moving  the                                                                   
Project Forward  Requires Producer Alignment  - Slide 5.   He                                                                   
addressed the  statement "no producers  - no pipelines".   He                                                                   
argued that  North Slope producers  are in the  best position                                                                   
to assume the risk and make shipping commitments.                                                                               
2:59:48 PM                                                                                                                    
In  response  to  a  question  by  Representative  Gara,  Mr.                                                                   
Brintnell noted that  if no one steps up to  be the shippers,                                                                   
there is no pipeline.  He did  not feel it would be necessary                                                                   
for the producers to own the pipeline,  but acknowledged that                                                                   
it would make sense for them to want to.                                                                                        
Mr. Brintnell  stressed that Enbridge  wants to be part  of a                                                                   
consortium  and  believes that  they  can  add value  to  the                                                                   
project.   They will  not submit  an application under  AGIA.                                                                   
The project is too risky for Enbridge  without the producers.                                                                   
Mr.  Brintnell  observed that  there  is a  relatively  small                                                                   
group of  pipeline companies.   He  maintained that  when the                                                                   
numbers add up, the gas will flow.   Economics will result in                                                                   
commitments.   He stressed  that potential  buyers of  Alaska                                                                   
gas have heard for a long time  that a project was geared up,                                                                   
which  did   not  occur.  He   concluded  that   this  causes                                                                   
3:04:11 PM                                                                                                                    
Co-Chair Meyer questioned how  much time the state would have                                                                   
to develop the  gas.  Mr. Brintnell noted that  it would take                                                                   
at least a couple of years for  the producers to come to open                                                                   
season.   He expressed concern  with potential  hurricanes in                                                                   
the  Gulf.    Co-Chair  Meyer  questioned  the  viability  of                                                                   
alternative supplies such as coal.   Mr. Brintnell noted that                                                                   
environmental  issues  are  a concern,  but  emphasized  that                                                                   
companies will find a way to be competitive.                                                                                    
Mr.  Brintnell  discussed  Slide   6  -  Moving  the  Project                                                                   
Forward; Don't Just  Focus On the Pipeline.   He acknowledged                                                                   
the work of the Governor, but  expressed concern with the way                                                                   
AGIA is  drafted.  He  noted that the  major focus is  on the                                                                   
pipeline, not on the producer/shipper.                                                                                          
Mr. Brintnell spoke to legislation.   He compared discussions                                                                   
on AGIA to trying  to discuss a bill and noted  that language                                                                   
must be  drafted before a  bill can be  heard.   He concluded                                                                   
that  AGIA   adds  unnecessary  regulatory   complexity  with                                                                   
respect to rolled-in rates.                                                                                                     
3:09:33 PM                                                                                                                    
Mr.  Brintnell  addressed  shipping   commitments.    When  a                                                                   
utility  commits to  a  supply of  gas,  they are  committing                                                                   
their customers.   In 15-20 years the costs  may increase for                                                                   
the "moms and dads" due to the addition of other shippers.                                                                      
3:11:14 PM                                                                                                                    
In  response  to  a  question  by  Representative  Gara,  Mr.                                                                   
Brintnell  noted  that  the  risk is  the  same  for  vintage                                                                   
pipelines in  Canada.  Newer  lines have negotiated  tariffs.                                                                   
He acknowledged that rates move,  but explained that they are                                                                   
capped.  The National Energy Board  prefers negotiated rates.                                                                   
Representative  Gara clarified  that the rates  can go  up at                                                                   
the end of the 15-year period.   Mr. Brintnell explained that                                                                   
after 15 years, shippers would be solicited.                                                                                    
Co-Chair  Chenault  summarized  that current  shippers  would                                                                   
have to renegotiate after 15 years.   Mr. Brintnell explained                                                                   
that current shippers  in the Alliance pipeline  could extend                                                                   
the contract,  at the  same rates,  but if  they do  not, new                                                                   
rates could be negotiated.                                                                                                      
3:14:12 PM                                                                                                                    
Representative Kelly  observed that FERC left  Alaska with an                                                                   
ambiguous  rolled-in rate.   He  argued that  the 15  percent                                                                   
would be  a bonus.  Mr.  Brintnell explained that there  is a                                                                   
presumption of rolled-in, but  that shippers would have to go                                                                   
to the  regulators to  go up without  a rebuttal  assumption.                                                                   
As AGIA is written, original shippers  would have to agree to                                                                   
the  rate increase;  there is  no  rebuttal.   Representative                                                                   
Kelly pointed out that they would be in nominal dollars.                                                                        
Representative Gara  summarized that the old  pipeline system                                                                   
utilizes rolled-in  rates; under  the new system,  negotiated                                                                   
rates are allowed.  Mr. Brintnell  expected that negotiations                                                                   
with customers  would occur at the  end of the 15 years.   If                                                                   
vintage pipelines  are expanded,  then rolled-in  rates would                                                                   
occur.  The Alliance pipeline would be competitive.                                                                             
Representative Gara concluded  that the Alliance pipeline has                                                                   
a negotiated  rate,  which could  result in  a loss of  their                                                                   
3:19:21 PM                                                                                                                    
Mr.  Brintnell  discussed  Slide   7  -  Moving  the  Project                                                                   
Forward.     He  voiced  concern  about   Section  43.90.130,                                                                   
Application requirements,  on page 3  of the bill.   Enbridge                                                                   
does not understand why the legislature  would want to create                                                                   
a process  that  might stymie  innovation and  result in  the                                                                   
best project not moving forward.                                                                                                
Mr. Brintnell  noted that Enbridge  competes on  a day-to-day                                                                   
basis  in  a   variety  of  manners.    He   maintained  that                                                                   
competition  would result  in more  money to  the state.   He                                                                   
stressed  that there might  be different  options that  would                                                                   
provide  as good of  results,  but that AGIA  does not  allow                                                                   
alternatives.  He provided an analogy.                                                                                          
3:23:09 PM                                                                                                                    
Mr.  Brintnell  turned  to  Slide  8  -  Canadian  Oil  Sands                                                                   
Development   Valuable  Lessons.     He  observed   that  the                                                                   
potential  could be huge  in Alaska,  but there  has to  be a                                                                   
pipeline.  He referred to the  Canadian Oil Sands Development                                                                   
in  Alberta for  valuable  lessons.   He  did  not think  the                                                                   
Alaskan project would succeed in its current form.                                                                              
Mr.  Brintnell  highlighted  Slide  9 -  Moving  the  Project                                                                   
Forward; Understanding What Is  Achievable.  He stressed that                                                                   
it might  seem reasonable  that the  shippers would  turn up,                                                                   
but  that  they  feel  it  is  a  risky  venture.    Shipping                                                                   
commitments will  have conditions.   He did not think  it was                                                                   
reasonable  to get  unconditional  commitments  to build  the                                                                   
3:26:19 PM                                                                                                                    
Mr.  Brintnell  pointed to  Slide  10  - Moving  the  Project                                                                   
Forward -  Understand Canada.   He  stressed that no  company                                                                   
has the exclusive  right to build a pipeline  to ship Alaskan                                                                   
gas in  Canada.  The  market should  decide who develops  the                                                                   
Canadian  portion of  the line.   He referred  to a  document                                                                   
that is  Enbridge's assessment  of issues  pertaining  to the                                                                   
Canadian portion of the Alaska pipeline (copy on file.)                                                                         
Representative Gara  asked if there would be  rolled-in rates                                                                   
if the  Alaska pipeline goes  through Canada.   Mr. Brintnell                                                                   
did not  think there would  be rolled-in rates;  the National                                                                   
Energy  Board  (NEB)  prefers negotiated  settlements.    NEB                                                                   
would have  to look at the  proposed shipping  agreements and                                                                   
3:29:07 PM                                                                                                                    
Representative Crawford observed  that the difference between                                                                   
the existing  and new pipelines  is competition.   In Alaska,                                                                   
there  will  be no  competition.    He suggested  that  there                                                                   
should be some protections for  new explorers.  Mr. Brintnell                                                                   
observed   that   pipeline   development   was   considerably                                                                   
different 30  years ago in Canada.   He referred to  a recent                                                                   
pipeline to show an example of  competition.  He stressed the                                                                   
need to get the pipeline going first.                                                                                           
Representative  Crawford stated  that  his goal  would be  to                                                                   
have action in  Prudhoe Bay.  In Louisiana,  producers can no                                                                   
longer  own the pipelines.   He  maintained that  competition                                                                   
3:34:13 PM                                                                                                                    
Mr.  Brintnell reiterated  that  the best  people  to make  a                                                                   
pipeline flow  are the shippers.   He acknowledged  that they                                                                   
may not remain in the long-term.   He added that FERC and the                                                                   
National Energy  Board have stronger  controls than  they did                                                                   
30  years   ago.    The  rolled-in   rate  issue  is   not  a                                                                   
preferential  treatment.   The  issue is  should the  shipper                                                                   
have to pay more for someone to come in later.                                                                                  
3:35:50 PM                                                                                                                    
Representative Crawford questioned  if smaller producers come                                                                   
to  the table  and commit  to  the pipeline,  would they  not                                                                   
benefit.     Mr.  Brintnell  acknowledged  that   they  would                                                                   
benefit, but stressed  that no one would benefit  if there is                                                                   
not a project.                                                                                                                  
Representative Gara concluded  that the rolled-in rates are a                                                                   
battle between  the shippers and  owners and have more  to do                                                                   
with  the economics  of the  pipeline.   Mr. Brintnell  spoke                                                                   
from a shipper's perspective and  stressed that it is was not                                                                   
Representative Gara noted that  the fear is that if rolled-in                                                                   
rates are used,  the tariff would raise to such  a point that                                                                   
no new  shippers would  come in.   Mr. Brintnell  agreed, but                                                                   
stated that  he could  not speak  for a  future shipper.   He                                                                   
pointed  out that  the initial  shippers are  being asked  to                                                                   
bear risk for a future shipper.                                                                                                 
3:40:37 PM                                                                                                                    
Mr. Brintnell  spoke  to Slide  11 - Understand  Canada.   He                                                                   
listed the  five principals  that Canada  would apply  to all                                                                   
pipeline decisions:  the market  will decide; decisions  must                                                                   
be supportive of a modern regulatory  regime; there must be a                                                                   
project   management   approach;   pipelines   must   support                                                                   
Aboriginal  economic  development;  and  the  decisions  must                                                                   
ensure that  Canadian benefits are  realized.  There  must be                                                                   
more benefits than costs.                                                                                                       
Mr. Brintnell concluded  with Slide 12 - Final  thoughts.  He                                                                   
said that  Enbridge believes  that outstanding fiscal  issues                                                                   
are the  "elephant in the living  room".  He  maintained that                                                                   
an unconditional  commitment is not achievable.   He stressed                                                                   
that  creativity  must  be  allowed;  innovation  drives  the                                                                   
market  place.    Government   financial  assistance  is  not                                                                   
essential.   The  government can  achieve  key goals  without                                                                   
adding to the regulatory process.   He maintained that Canada                                                                   
will be ready  for the project.   He urged Alaska not  to put                                                                   
in place regulations that are all about process.                                                                                
3:45:36 PM                                                                                                                    
Representative  Gara spoke to  "must haves" contained  in the                                                                   
legislation.  He did not feel  that any of them were onerous.                                                                   
Mr.  Brintnell stated  that  the rolled-in  rate  is a  large                                                                   
issue.  Open season is another.   He did not think that there                                                                   
would be  a binding  open season.   Typically there  would be                                                                   
discussions  with  shippers  before  a  binding  open  season                                                                   
occurred.  He further  noted that the 10% tax  issue is not a                                                                   
pipeliner's   issue,  unless  the   producers  are   not  the                                                                   
3:49:01 PM                                                                                                                    
Representative Gara countered  that open season is necessary.                                                                   
Mr.  Brintnell  addressed  the  economics  from  a  shipper's                                                                   
perspective.  He  further noted that the only  way to resolve                                                                   
the issue is to  negotiate with the producers.   He said that                                                                   
AGIA language is  not acceptable to producers right  now.  He                                                                   
underlined  the importance  of further  discussions with  the                                                                   
Representative Kelly  summed up the testimony  by saying that                                                                   
the state  can wait  and the  producers will  come.   Or, the                                                                   
legislature can support the governor's  proposal.  He further                                                                   
noted  that he felt  the "must  haves" outlined  in AGIA  are                                                                   
reasonable.   He  asked Mr.  Brintnell his  opinion on  which                                                                   
direction the legislature should go.                                                                                            
3:55:15 PM                                                                                                                    
Mr. Brintnell  said he thought  Alaska should not give  up on                                                                   
negotiations.    He  recommended  that AGIA  be  modified  to                                                                   
provide for flexibility.   He went on to say the  way AGIA is                                                                   
written now, Enbridge's  application would not  abide by what                                                                   
is outlined in AGIA.                                                                                                            
Representative Gara asked if,  when looking at profit margins                                                                   
in  gas development,  producing  gas  would be  a  profitable                                                                   
Mr. Brintnell said he could not  speak for producers as he is                                                                   
not one.  He  said he believes that the producers  do want to                                                                   
move the project forward.  He  concluded that he is defending                                                                   
the producers  because  Enbridge wants  this project  to move                                                                   
The meeting was adjourned at 3:59 PM.                                                                                           

Document Name Date/Time Subjects