Legislature(2011 - 2012)HOUSE FINANCE 519

04/04/2011 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 142 PRESUMPTION AGIA PROJECT IS UNECONOMICAL TELECONFERENCED
Heard & Held
<Bill Held Over from 8:30 am>
+ HB 121 LOAN FUNDS:CHARTERS/MARICULTURE/MICROLOAN TELECONFERENCED
Moved CSHB 121(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 4, 2011                                                                                            
                         1:32 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:32:57 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Vice-chair  Fairclough called  the  House Finance  Committee                                                                    
meeting to order at 1:32 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Co-Chair                                                                                        
Representative Anna Fairclough, Vice-Chair                                                                                      
Representative Mia Costello                                                                                                     
Representative Mike Doogan                                                                                                      
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Mike Hawker (alternate)                                                                                          
Representative Reggie Joule                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative    Alan   Austerman;    Representative   Mike                                                                    
Chenault;  Representative  Eric Feige;  Representative  Kurt                                                                    
Olson;   Tony  Palmer,   Vice   President,  Major   Projects                                                                    
Development,    TransCanada;     Curtis    Thayer,    Deputy                                                                    
Commissioner, Commerce, Community  and Economic Development;                                                                    
Susan  K.   Bell,  Commissioner,  Department   of  Commerce,                                                                    
Community and Economic  Development; Wanetta Ayers, Division                                                                    
Director,  Economic  Development,  Department  of  Commerce,                                                                    
Community   and   Economic  Development;   Rodger   Painter,                                                                    
President,  Alaska  Shellfish Growers  Association,  Juneau;                                                                    
Rick    Harris,   Executive    Vice   President,    Sealaska                                                                    
Corporation,  Juneau; Paul  Fuhs,  PAC  Alaska, Juneau;  Joe                                                                    
Balash,   Deputy   Commissioner,   Department   of   Natural                                                                    
Resources.                                                                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Ken   L.  Larson,   Prince   William   Sound  Charter   Boat                                                                    
Association,  Fairbanks; Patrick  Bookey, Sr.,  Luck of  the                                                                    
Irish  Charters,  North  Pole; Mark  Stearns,  Alaskan  Wood                                                                    
Moulding, Anchorage.                                                                                                            
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 121    LOAN FUNDS: CHARTERS/MARICULTURE/MICROLOAN                                                                            
                                                                                                                                
          CSHB 121(FIN)  was REPORTED out of  committee with                                                                    
          a  "do pass"  recommendation  and  with three  new                                                                    
          fiscal  notes  by   the  Department  of  Commerce,                                                                    
          Community,  and Economic  Development and  one new                                                                    
          fiscal  note by  the House  Finance Committee  for                                                                    
          the   Department  of   Commerce,  Community,   and                                                                    
          Economic Development.                                                                                                 
                                                                                                                                
HB 142    PRESUMPTION AGIA PROJECT IS UNECONOMICAL                                                                              
                                                                                                                                
          HB  142  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 142                                                                                                            
                                                                                                                                
     "An  Act  relating  to the  creation  of  a  rebuttable                                                                    
     presumption that the project  licensed under the Alaska                                                                    
     Gasline  Inducement   Act  is  uneconomic   because  of                                                                    
     insufficient  firm  transportation  commitments  during                                                                    
     the first open season."                                                                                                    
                                                                                                                                
1:34:09 PM                                                                                                                    
                                                                                                                                
TONY  PALMER, VICE  PRESIDENT,  MAJOR PROJECTS  DEVELOPMENT,                                                                    
TRANSCANADA, discussed  that TransCanada did not  support HB                                                                    
142  and   that  he  would   provide  a  status   report  on                                                                    
TransCanada's project.  He detailed that four  years earlier                                                                    
the  legislature had  passed the  Alaska Gasline  Inducement                                                                    
Act (AGIA). In  the fall of 2007 the  legislature had issued                                                                    
a Request  for Proposal (RFP)  for companies to apply  for a                                                                    
license  to   advance  the   pipeline  project   in  Alaska.                                                                    
TransCanada had been selected to  receive the license in the                                                                    
fall of 2008.  He explained that TransCanada  had provided a                                                                    
work plan  and project  schedule as required.  The documents                                                                    
had outlined TransCanada's  obligations, the commitments the                                                                    
company would take on, and  certain benefits provided to the                                                                    
company  under the  license. He  relayed that  questions had                                                                    
arisen regarding  what information TransCanada  had provided                                                                    
to the state.  He explained that the company  had provided a                                                                    
significant amount  of information  on a regular  basis. The                                                                    
company   had  biweekly   calls  with   the  administration,                                                                    
monitors conducted onsite progress  reviews with the project                                                                    
team on  a monthly  basis, and the  administration published                                                                    
detailed  semi-annual progress  reports that  were available                                                                    
to the  public. He emphasized  that a substantial  amount of                                                                    
information  about   the  project   had  been   made  public                                                                    
throughout the entire process.                                                                                                  
                                                                                                                                
Representative  Doogan  wondered  whether  "biweekly"  meant                                                                    
twice a  week or  every two weeks.  Mr. Palmer  replied that                                                                    
the calls occurred every two weeks.                                                                                             
                                                                                                                                
1:40:04 PM                                                                                                                    
                                                                                                                                
Mr.  Palmer  addressed   a  PowerPoint  presentation  titled                                                                    
"Alaska Pipeline Project" [APP]. He  read from Page 3 titled                                                                    
"Alaska Gasline Inducement Act":                                                                                                
                                                                                                                                
     The purpose of the chapter [AS 43.90.010] is to                                                                            
     encourage expedited construction of a natural gas                                                                          
     pipeline that:                                                                                                             
                                                                                                                                
        · Facilitates commercialization of North Slope gas                                                                      
          resources in the state                                                                                                
                                                                                                                                
        · Promotes exploration and development of oil and                                                                       
          gas resources on the North Slope in the state                                                                         
                                                                                                                                
        · Maximizes benefits to the people of the state                                                                         
          from the development of oil and gas resources in                                                                      
          the state                                                                                                             
                                                                                                                                
        · Encourages oil and gas lessees and other persons                                                                      
          to commit to ship natural gas from the North                                                                          
          Slope to a gas pipeline system for transportation                                                                     
          to markets in this state or elsewhere                                                                                 
                                                                                                                                
Mr.  Palmer discussed  that  AGIA required  pre-construction                                                                    
work to proceed while  commercial agreements were negotiated                                                                    
(Page  4). He  elaborated  that despite  the company's  open                                                                    
season  the  prior  summer  it  would  continue  to  advance                                                                    
towards   filing  with   FERC  [Federal   Energy  Regulatory                                                                    
Commission] in  the fall  of 2012.  The timeline  meant that                                                                    
ongoing work  was required  prior to  the conclusion  of the                                                                    
open season.  The alternative  would have  been to  pace the                                                                    
construction  in proportion  to  commercial progress,  which                                                                    
would  have meant  a  delay  in the  work  and the  schedule                                                                    
resulting  in  later  revenues  for  the  state;  therefore,                                                                    
TransCanada  had filed  an aggressive  schedule and  had met                                                                    
the  statutory target  dates and  was on  track to  meet its                                                                    
FERC application date  in the fall of 2012.  The company had                                                                    
contemplated   having   firm   transportation   commitments,                                                                    
project financing,  and regulatory approval for  the project                                                                    
in  2016.  He  addressed  the "AGIA  Commitments"  that  the                                                                    
company  had   undertaken  (Page   5).  He   explained  that                                                                    
ExxonMobil,  the company's  partner  on the  project, had  a                                                                    
"distinct   firewall"    between   the    partnership   with                                                                    
TransCanada, the  advancement of  the pipeline  project, and                                                                    
its producer entity  that would be the  potential shipper on                                                                    
the  project. He  discussed that  TransCanada had  effective                                                                    
communication  with the  state AGIA  team and  had taken  on                                                                    
opportunities  for  in-state  gas access.  The  company  was                                                                    
committed  to indicating  a number  of "off-take"  points on                                                                    
the project and  had conducted an in-state gas  study on the                                                                    
potential  demand  of  gas in  the  state.  TransCanada  had                                                                    
received multiple  bids when it  held the first  open season                                                                    
in the history of the North Slope.                                                                                              
                                                                                                                                
1:44:56 PM                                                                                                                    
                                                                                                                                
Mr.  Palmer  relayed  that in  recognition  that  world  gas                                                                    
markets  were  becoming  more competitive,  TransCanada  had                                                                    
improved its  offer to  customers by  $500 million  per year                                                                    
for every year  that the project was in  service relative to                                                                    
the approved terms  of the license. The  company had lowered                                                                    
its rate of return and  had deferred the recovery of certain                                                                    
components of its depreciation in  order to make the project                                                                    
more  competitive.   TransCanada  was  working   towards  an                                                                    
October  2012   filing  and  had  advanced   initiatives  to                                                                    
maximize  the  use of  Alaskan  businesses  and workers.  He                                                                    
communicated that to date the  state had met its commitments                                                                    
to  TransCanada and  ExxonMobil.  TransCanada believed  that                                                                    
because of  AGIA that  an Alaskan  gas pipeline  project had                                                                    
advanced  further than  ever before  and was  positioned for                                                                    
ongoing progress.                                                                                                               
                                                                                                                                
Representative Gara wondered whether  TransCanada had made a                                                                    
reduction to  the profit  margin that it  could make  on the                                                                    
transportation of natural gas set by FERC.                                                                                      
                                                                                                                                
Mr. Palmer  replied that the  company had made  a commitment                                                                    
to  the State  of Alaska  that included  a variable  rate of                                                                    
return that would have been a  14 percent rate of return. He                                                                    
communicated  that  TransCanada  had  lowered  the  rate  of                                                                    
return to 12  percent in its open  season application, which                                                                    
required FERC approval.                                                                                                         
                                                                                                                                
Representative Gara  thought that  a reduced rate  of return                                                                    
would  decrease  the  tariff  amount  and  would  ultimately                                                                    
reduce the price  of gas to consumers.  Mr. Palmer responded                                                                    
that  it would  reduce tariffs  and would  improve economics                                                                    
for the customers.                                                                                                              
                                                                                                                                
1:48:02 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough  wondered whether there had  been more                                                                    
than  two bids  received in  the  first open  season on  the                                                                    
North Slope. Mr. Palmer responded in the affirmative.                                                                           
                                                                                                                                
Mr.  Palmer relayed  that TransCanada's  license application                                                                    
had identified  2014 as the  end of the  project development                                                                    
phase, which  provided up to  six years for  the acquisition                                                                    
of firm  transportation commitments (Page 6).  He noted that                                                                    
until a  committee meeting  earlier in the  day that  HB 142                                                                    
had  required TransCanada  to have  firm commitments  by the                                                                    
upcoming summer.  He detailed that  the decision  to proceed                                                                    
and  final investment  decision  regarding  the project  was                                                                    
expected to be made at the  end of the development phase. At                                                                    
that time the  company would know whether  it had regulatory                                                                    
approval,  firm transportation  commitments, and  financing,                                                                    
all of  which were  required for  a successful  project. The                                                                    
project's  scope,  magnitude,  and financial  risk  required                                                                    
multiple years to  complete the work that  was necessary for                                                                    
shippers  to make  the decision  to commit  $100 billion  in                                                                    
transportation   commitments.    He   stressed    that   the                                                                    
legislature's  approval  of  the license  had  ratified  the                                                                    
timeline.  He  acknowledged  that TransCanada  had  projects                                                                    
with shorter schedules; however,  none of the other projects                                                                    
were as complex or challenging as the one at hand.                                                                              
                                                                                                                                
Mr.  Palmer read  from Page  7  titled: "HB  142 Appears  to                                                                    
Violate AGIA License Agreement":                                                                                                
                                                                                                                                
     APP is opposed to HB 142:                                                                                                  
                                                                                                                                
        · Effectively amends key provisions of AGIA License                                                                     
          Agreement                                                                                                             
        · Raises uncertainty of the state's support for                                                                         
          AGIA at a critical time                                                                                               
                                                                                                                                
        · Undercuts efforts to achieve alignment of all                                                                         
         parties necessary for successful project                                                                               
                                                                                                                                
     HB 142 unilaterally would change the contract between                                                                      
     the state and the AGIA Licensee:                                                                                           
                                                                                                                                
        · AGIA presumes that the project is economic unless                                                                     
          the Licensee agrees or arbitrators rule that it                                                                       
          is not                                                                                                                
                                                                                                                                
             o HB 142 reverses that key presumption                                                                             
                                                                                                                                
        · AGIA mandates a viable work plan and timeline for                                                                     
          developing the project, but does not mandate a                                                                        
          specific     deadline     for    securing     firm                                                                    
          transportation commitments                                                                                            
                                                                                                                                
             o HB 142 imposes an arbitrary and non-viable                                                                       
               work plan and timeline by establishing a                                                                         
               specific deadline for firm transportation                                                                        
               commitments                                                                                                      
                                                                                                                                
Mr.  Palmer explained  that the  company was  in negotiation                                                                    
with  potential  customers  and   that  the  bill  presented                                                                    
uncertainty that  could harm the negotiations.  He had heard                                                                    
earlier in  the day that the  firm transportation commitment                                                                    
requirement   would   be   changed  to   require   precedent                                                                    
agreements by  the upcoming summer.  The bill  also required                                                                    
the company to  have financing for the  project; however, he                                                                    
did not  believe that  anyone would  seek financing  for the                                                                    
project three years in advance  and that it was not possible                                                                    
to secure financing without firm transportation agreements.                                                                     
                                                                                                                                
1:52:56 PM                                                                                                                    
                                                                                                                                
Mr. Palmer  continued to read  reasons that  TransCanada was                                                                    
opposed to the legislation (Page 7):                                                                                            
                                                                                                                                
     · AGIA contains a defined process for joint                                                                                
        State/Licensee determination of whether the Project                                                                     
        is economic                                                                                                             
                                                                                                                                
          o HB 142 alters that process by directing                                                                             
             commissioners to take action that is reserved                                                                      
             to their discretion under AGIA                                                                                     
                                                                                                                                
Representative  Hawker disagreed  with some  of the  remarks                                                                    
made  by Mr.  Palmer.  He asked  Mr. Palmer  to  point to  a                                                                    
specific  area  in  the bill  in  which  commissioners  were                                                                    
required  to take  action that  was reserved  to them  under                                                                    
AGIA.                                                                                                                           
                                                                                                                                
Mr. Palmer  replied that HB  142 directed  the commissioners                                                                    
to inform the  legislature before August 1  whether they had                                                                    
been  told by  July 15,  2011 if  transportation commitments                                                                    
had been  disclosed and whether  there were  sufficient firm                                                                    
transportation agreements to support  the development of the                                                                    
project. He relayed that the  provision was not currently in                                                                    
the AGIA statute.                                                                                                               
                                                                                                                                
Representative Hawker wondered how  the progress report that                                                                    
commissioners  were  to  provide to  the  legislature  would                                                                    
require  commissioners  to  take action  reserved  to  their                                                                    
discretion  under  AGIA.  He   wondered  how  the  provision                                                                    
violated AGIA. Mr. Palmer replied  that the bill stated that                                                                    
the project would be presumed  uneconomic if TransCanada had                                                                    
not provided evidence of  firm transportation commitments by                                                                    
July 15.                                                                                                                        
                                                                                                                                
Representative Hawker  wondered where the  language mandated                                                                    
the  administration  to  execute  actions  reserved  to  its                                                                    
discretion.  He  stressed  that the  rebuttable  presumption                                                                    
created  a  hypothetical  that   the  legislature  wanted  a                                                                    
response from the administration.                                                                                               
                                                                                                                                
Mr. Palmer answered that to have  the State of Alaska make a                                                                    
statement  to the  public that  the  project was  uneconomic                                                                    
because  TransCanada   did  not  have   firm  transportation                                                                    
commitments  three  years  prior  to the  beginning  of  the                                                                    
project  was  in contravention  with  the  AGIA statute.  He                                                                    
cited language  in the  bill that  "nothing in  this section                                                                    
precludes  an agreement  between the  commissioners and  the                                                                    
licensee  that the  project  is  uneconomic," and  explained                                                                    
that  it  was  never   contemplated  that  the  project  was                                                                    
uneconomic  unless a  "high-bar  test" was  applied per  the                                                                    
statute. He  explained that the  high-bar test was  meant to                                                                    
hold  TransCanada and  the state  to  their obligations.  He                                                                    
emphasized that that two and  a half years after the company                                                                    
received  the  license  that there  would  be  a  rebuttable                                                                    
presumption that  the project was  uneconomic due to  a lack                                                                    
of transportation commitments.                                                                                                  
                                                                                                                                
Representative Hawker  wondered where a duty  was imposed on                                                                    
TransCanada   in    the   legislation   to    provide   firm                                                                    
transportation commitments  or a precedent agreement  as was                                                                    
written on  Page 7 of  the presentation. He  reiterated that                                                                    
the   bill  only   established   a   dialogue  between   the                                                                    
legislature and  the administration  if the  commitments had                                                                    
not occurred  by July  15. He  communicated that  that there                                                                    
was nothing  in the legislation  that violated the  terms of                                                                    
AGIA.                                                                                                                           
                                                                                                                                
1:58:54 PM                                                                                                                    
                                                                                                                                
Mr.   Palmer  responded   that  TransCanada   had  met   its                                                                    
obligation to  continue to advance  the project  under AGIA.                                                                    
He relayed that the company  had never contemplated that the                                                                    
state would propose legislation  that would deem the project                                                                    
uneconomic if  firm transportation commitments had  not been                                                                    
made by  the summer of  2011. He  stated that it  had always                                                                    
been at the discretion  of the commissioners and TransCanada                                                                    
to take  the approach if  either party believed  the project                                                                    
was  uneconomic.  He  believed  that the  bill  appeared  to                                                                    
provide  guidance  to  commissioners  that  had  never  been                                                                    
discussed.  He  stated  that  if   HB  142  passed  and  the                                                                    
legislature  had  a  sense that  the  project  was  presumed                                                                    
uneconomic that  it would be incumbent  on the commissioners                                                                    
to  consider the  presumption.  The  commissioners would  be                                                                    
required to walk  through the terms of AGIA.  He opined that                                                                    
any  party  interested  in  entering  a  contract  with  the                                                                    
legislature  would look  at the  legislation as  potentially                                                                    
impacting its future.                                                                                                           
                                                                                                                                
Representative Hawker wondered  whether Mr. Palmer disagreed                                                                    
with  legislative legal  counsel that  had testified  to the                                                                    
opposite  earlier in  the day.  He thought  that TransCanada                                                                    
was offering an opinion and not a fact.                                                                                         
                                                                                                                                
Mr. Palmer responded that he  was not present to provide the                                                                    
company's legal opinion.  He was present to  discuss what he                                                                    
believed  the  bill  would  do from  the  perspective  of  a                                                                    
businessman. TransCanada would examine  the law to determine                                                                    
its legal view if the legislation passed.                                                                                       
                                                                                                                                
2:03:11 PM                                                                                                                    
                                                                                                                                
Representative   Gara   asked   whether  the   state   would                                                                    
jeopardize  its chance  of finding  another  partner on  the                                                                    
pipeline project  if it breached  the current  contract with                                                                    
TransCanada.  He discussed  that  the project  would be  the                                                                    
largest  pipeline  project  in North  American  history.  He                                                                    
believed   that  the   new  date   of  July   15  for   firm                                                                    
transportation commitments changed  the presumption that did                                                                    
not exist in the original  law and breached the contract the                                                                    
state  had  signed.  He  recalled  that  legal  counsel  Don                                                                    
Bullock had initially  said it was not a breach,  but he had                                                                    
later  said that  it would  be something  for the  courts to                                                                    
decide.                                                                                                                         
                                                                                                                                
Mr. Palmer responded that any  business person would look to                                                                    
the  State  of Alaska  as  the  counter party  to  determine                                                                    
whether it had  honored its contracts. He  believed that any                                                                    
company  that  conducted  due diligence  on  a  counterparty                                                                    
would examine  the certainty of  the counterparty  and would                                                                    
see whether  that counterparty had  changed the  rules after                                                                    
signing a  contract in the  past. It was something  that the                                                                    
company took  very seriously  and they  were happy  that the                                                                    
state  had taken  the component  very seriously  up to  that                                                                    
point as  well. He  assured the committee  that a  change in                                                                    
the rules made by the  state would impact all future gasline                                                                    
projects that involved working with a third party.                                                                              
                                                                                                                                
Representative  Gara wondered  whether the  current timeline                                                                    
for  the  project and  firm  commitments  was normal  for  a                                                                    
project  of  its  size.  He  was  concerned  that  the  bill                                                                    
jeopardized current and future gasline projects.                                                                                
                                                                                                                                
Mr.  Palmer replied  that it  was  not in  a company's  best                                                                    
interest to have a longer  than necessary development period                                                                    
and the company had carefully  examined the timeline when it                                                                    
had submitted  its application for the  project. TransCanada                                                                    
believed  that  the  2014  timeline  was  realistic  and  in                                                                    
alignment with  obtaining regulatory approval  and financing                                                                    
for the  project. The project was  extremely complex, large,                                                                    
and  challenging and  the company  had pursued  it for  more                                                                    
than thirty years  as had the state.  TransCanada would meet                                                                    
its obligations,  but the success  of the project  relied on                                                                    
the advancement of components from other involved parties.                                                                      
                                                                                                                                
2:09:31 PM                                                                                                                    
                                                                                                                                
Representative Wilson wondered  whether TransCanada had ever                                                                    
changed the  scope of a  project based on the  occurrence of                                                                    
new developments.  She did not  think that  the conversation                                                                    
would have  occurred if  there an abundance  of gas  had not                                                                    
been discovered  in the  Lower 48.  Mr. Palmer  replied that                                                                    
the company had  changed the scope of its  projects based on                                                                    
marketplace events.                                                                                                             
                                                                                                                                
Representative  Wilson  wondered   whether  the  legislature                                                                    
should  not  have  concern  about how  the  discovery  of  a                                                                    
significant amount  of gas  in the Lower  48 may  impact the                                                                    
economic viability of the current project.                                                                                      
                                                                                                                                
Mr.  Palmer  answered  that TransCanada  and  its  potential                                                                    
customers  regularly  examined   the  decision  to  continue                                                                    
forward with  a project  and it  had the  right to  stop the                                                                    
project  if it  determined the  project was  uneconomic. The                                                                    
company was aware  of what had occurred in  the shale market                                                                    
and  of the  change in  some gas  price forecasts.  Assuming                                                                    
TransCanada's  transportation costs  were accurate,  the EIA                                                                    
[U.S.  Energy  Information  Administration]  had  forecasted                                                                    
potential  returns  of $2.00  in  the  first five  years  of                                                                    
service beginning in 2021. He  explained that some forecasts                                                                    
were less  and some were over  $3.00. He stated that  it was                                                                    
up  to  the  customers  to  determine  whether  prices  were                                                                    
adequate.  He had  followed gas  price forecasting  for more                                                                    
than  25  years and  there  was  a very  strong  correlation                                                                    
between the  price forecast  and the  current price  of gas.                                                                    
One   important   factor   that  producers   and   customers                                                                    
considered prior  to committing  gas to  a project  was what                                                                    
they believed  the gas price  would be. An  important factor                                                                    
that did not involve TransCanada  was related to how much of                                                                    
the price  would go  to the producers  account and  how much                                                                    
would go to the state's  account. He believed that the state                                                                    
and  the   producers  were  aware  that   the  issue  needed                                                                    
resolution.   Factors  that   needed  resolution   and  that                                                                    
potential  customers examined  when  determining whether  to                                                                    
commit  their  gas  were gas  price,  fiscal,  Pt.  Thompson                                                                    
ownership,  and the  project  financing  terms. The  federal                                                                    
government had  put forward  legislation that  proposed loan                                                                    
guarantees for  the project;  however, there  were currently                                                                    
no  interest  rate or  repayment  plan  regulations for  the                                                                    
guarantee. The  company remained hopeful that  the state and                                                                    
producers would  resolve the issues, the  federal government                                                                    
would  establish  regulations  and improve  a  federal  loan                                                                    
guarantee, and that customers would  believe that gas prices                                                                    
would  be high  enough to  make  the project  a success.  He                                                                    
emphasized  that  AGIA  stipulated   that  the  project  was                                                                    
economic  and   that  TransCanada   also  believed   in  the                                                                    
project's economic viability.                                                                                                   
                                                                                                                                
2:16:04 PM                                                                                                                    
                                                                                                                                
Representative Wilson wondered whether  it was possible that                                                                    
the current  issues may  not be resolved  and that  the same                                                                    
discussion  would still  be  taking place  in  four to  five                                                                    
years.  She was  concerned that  Alaska was  the number  one                                                                    
group that needed the gas and  while the state was hoping to                                                                    
sell gas to the Lower  48 its residents were leaving because                                                                    
of  their  lack   of  access  to  gas.   She  clarified  her                                                                    
understanding that TransCanada had  not done anything wrong,                                                                    
but that the  market place had changed and the  Lower 48 may                                                                    
not have been as dependent on Alaska for gas.                                                                                   
                                                                                                                                
Mr.  Palmer replied  it was  possible that  in two  or three                                                                    
years the project would not  succeed. He emphasized that the                                                                    
project would  not succeed if  it was stopped  presently. He                                                                    
elaborated  that unfortunately  the future  would always  be                                                                    
uncertain  until there  were customers  that  had made  firm                                                                    
transportation  commitments,  regulatory approval  had  been                                                                    
obtained, and  financing was secured. He  explained that the                                                                    
factors were always required for a project to succeed.                                                                          
                                                                                                                                
Representative  Wilson remarked  that she  was hopeful  that                                                                    
the Interior  would always have  access to diesel even  if a                                                                    
large gasline  was not successful. Mr.  Palmer believed that                                                                    
any project,  including an in-state gasline  would face some                                                                    
of the  same challenges  that a big  gasline had.  He listed                                                                    
necessary factors for an  instate gasline: fiscal resolution                                                                    
in order for producers to  commit their gas; the third party                                                                    
hired  to  construct   the  line  would  need   to  have  an                                                                    
arrangement with the state and  to know that the state would                                                                    
to stick  to the  deal on  a long-term  basis; a  70 percent                                                                    
debt loan would require proof  of instate customers in order                                                                    
to obtain financing;  and, the state would  need to convince                                                                    
the equity sponsors to commit their equity to the project.                                                                      
                                                                                                                                
Vice-chair Fairclough  asked whether  the company  was still                                                                    
on schedule  for the  construction of  the project  in 2020.                                                                    
Mr. Palmer  replied in the  affirmative. He  reiterated that                                                                    
there were a number of factors  that needed to take place in                                                                    
order to achieve the current timeline.                                                                                          
                                                                                                                                
Vice-chair Fairclough wondered  whether precedent agreements                                                                    
had been in  place for the project with  the FERC agreement.                                                                    
Mr.  Palmer  asked  Vice-chair  Fairclough  to  clarify  the                                                                    
question.                                                                                                                       
                                                                                                                                
Vice-chair  Fairclough asked  why  precedent agreements  had                                                                    
not been reached on the pipeline in the FERC agreement.                                                                         
                                                                                                                                
Mr.  Palmer responded  that when  TransCanada  had made  its                                                                    
open season  filing it  had specified  that the  open season                                                                    
would  be held  from the  end of  April through  the end  of                                                                    
July.  The  company then  indicated  that  its goal  was  to                                                                    
complete the  negotiation of the  project conditions  by the                                                                    
end of  2010. He  relayed that TransCanada  had not  met the                                                                    
goal, but that it had  not been a statutory obligation under                                                                    
AGIA. The company  had not met the target date  for a number                                                                    
of  reasons including:  customers had  requested changes  to                                                                    
the commercial  arrangements, which the company  was working                                                                    
on;  and,  customers  had  stipulated  that  there  must  be                                                                    
advancements   in   particular    areas   such   as   fiscal                                                                    
arrangements and Pt. Thompson ownership.                                                                                        
                                                                                                                                
2:22:44 PM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough   wondered  whether   the  discussion                                                                    
regarding changes  in Alaska's fiscal policy  helped or hurt                                                                    
AGIA in firming up  transportation commitments. She referred                                                                    
to  Mr.  Palmer's  statement  that  one  of  the  customers'                                                                    
requested  changes could  be related  to  Pt. Thompson.  She                                                                    
shared that the  House had passed legislation  to reduce oil                                                                    
taxation policy.  Mr. Palmer replied  that customers  on the                                                                    
gas side of  the business were looking to know  what the gas                                                                    
taxes would  be for the  gas they committed to  the project.                                                                    
He  relayed that  the company  was not  privy to  additional                                                                    
detail on the subject.                                                                                                          
                                                                                                                                
Representative   Hawker  wondered   whether  the   company's                                                                    
responsibilities  or  the administration's  responsibilities                                                                    
under AGIA were altered  by the legislation. He communicated                                                                    
that  he appreciated  Mr.  Palmer's  willingness to  discuss                                                                    
project  economics;   however,  the   bill  was   about  the                                                                    
administration's  accountability  to  the  legislature.  Mr.                                                                    
Palmer responded that from his  perspective as a businessman                                                                    
that the passage  of the bill would amend  provisions of the                                                                    
license, would raise uncertainty  of the state's support for                                                                    
AGIA  at a  critical  time, and  would  undercut efforts  to                                                                    
achieve the alignment of all  parties that was necessary for                                                                    
a successful project. He noted  that he was not qualified to                                                                    
provide a legal opinion.                                                                                                        
                                                                                                                                
Representative  Hawker  wondered  whether the  bill  legally                                                                    
altered  the   relationship  between   the  state   and  the                                                                    
TransCanada/ExxonMobil  project.  He  wondered  whether  the                                                                    
committee could get a legal  opinion from the companies. Mr.                                                                    
Palmer responded that  TransCanada was not in  a position to                                                                    
provide their legal  opinion on a piece  of legislation. The                                                                    
company  would  deal  with  facts  and  not  a  hypothetical                                                                    
circumstance.                                                                                                                   
                                                                                                                                
Representative Hawker believed that the  bill was a fact and                                                                    
that it  was important to  hear from TransCanada  on whether                                                                    
it believed  its legal responsibilities would  be altered as                                                                    
a result of the bill.                                                                                                           
                                                                                                                                
Vice-chair Fairclough  noted that  a press release  had been                                                                    
issued by TransCanada on the subject.                                                                                           
                                                                                                                                
2:27:50 PM                                                                                                                    
                                                                                                                                
Mr.  Palmer  read from  Page  8  titled "AGIA  Reimbursement                                                                    
Process":                                                                                                                       
                                                                                                                                
     AGIA reimbursement process working as intended and                                                                         
     funding qualified activities                                                                                               
                                                                                                                                
     Qualified activities:                                                                                                      
                                                                                                                                
        · Pursuing firm transportation commitments                                                                              
                                                                                                                                
        · Securing financing                                                                                                    
                                                                                                                                
        · Obtaining a Certificate of Public Convenience and                                                                     
          Necessity from FERC                                                                                                   
                                                                                                                                
        · Satisfying a requirement of an agency with                                                                            
          jurisdiction over the project                                                                                         
                                                                                                                                
     All expenditures submitted for reimbursement subject                                                                       
     to a due diligence review and audit                                                                                        
                                                                                                                                
     State reimbursement:                                                                                                       
                                                                                                                                
        · As of 3Q of 2010: $50M reimbursed (additional                                                                         
          assessments pending)                                                                                                  
                                                                                                                                
        · Forecasted reimbursement FY 2011: $125M                                                                               
                                                                                                                                
        · Governor's proposed budget FY 2012: $160M                                                                             
                                                                                                                                
     AGIA funding supporting real work  to advance an Alaska                                                                    
     natural   gas  pipeline;   TC   [TransCanada]  and   EM                                                                    
     [ExxonMobil] committing their  own funds in combination                                                                    
     with the state                                                                                                             
                                                                                                                                
Mr.  Palmer clarified  that the  actual state  reimbursement                                                                    
that the  company had received as  of the end of  March 2011                                                                    
was  $50 million  and not  the  $136 million  that had  been                                                                    
cited earlier in  the day. He stressed  that TransCanada and                                                                    
ExxonMobil had spent $240 million on the project to date.                                                                       
                                                                                                                                
Vice-chair  Fairclough wondered  how  much of  TransCanada's                                                                    
commitment was available for  reimbursement under the terms.                                                                    
Mr.  Palmer  responded  that TransCanada  had  received  $50                                                                    
million  and should  receive  a total  of  $100 million  for                                                                    
money incurred through the end of March 2011.                                                                                   
                                                                                                                                
Vice-chair Fairclough  asked whether the $100  million would                                                                    
be paid towards  the money that the sponsors  had spent. Mr.                                                                    
Palmer replied  that after the  sponsors received  the total                                                                    
payment of  $100 million that  they would have  $140 million                                                                    
remaining out of pocket.                                                                                                        
                                                                                                                                
Mr. Palmer read Page 9 titled "Path to Success":                                                                                
                                                                                                                                
    Project exceptionally large, complex and important                                                                          
                                                                                                                                
     2010 very productive for APP:                                                                                              
                                                                                                                                
        · Conducted first open season in North Slope                                                                            
          history                                                                                                               
                                                                                                                                
        · Making good progress on multiple fronts                                                                               
                                                                                                                                
        · Diligently conducting the work needed to advance                                                                      
          the project                                                                                                           
                                                                                                                                
        · AGIA working as intended and commitments being                                                                        
          met                                                                                                                   
                                                                                                                                
     To succeed we must:                                                                                                        
                                                                                                                                
        · Attract customers                                                                                                     
                                                                                                                                
        · Obtain regulatory approvals                                                                                           
                                                                                                                                
        · Achieve project financing                                                                                             
                                                                                                                                
        · Secure and maintain the support and active                                                                            
          engagement of all key parties                                                                                         
                                                                                                                                
Representative  Hawker  referred   to  a  TransCanada  press                                                                    
release  and the  Annual U.S.  Congressional  Report on  the                                                                    
gasline progress  that had stated that  bids for significant                                                                    
volumes of  gas had been  received. He wondered  whether the                                                                    
bids  had contained  sufficient  volumes of  gas that  would                                                                    
enable  the  company  to advance  the  project.  Mr.  Palmer                                                                    
replied  that  TransCanada   was  bound  by  confidentiality                                                                    
agreements  and  could not  divulge  the  actual volume.  He                                                                    
added  that the  company was  still working  to resolve  the                                                                    
conditions and  that it was  important for other  parties to                                                                    
do the same to have success on the project.                                                                                     
                                                                                                                                
Representative Hawker asked whether  the legislature and the                                                                    
State  of  Alaska  should not  be  concerned  about  whether                                                                    
TransCanada  had  received  sufficient  commitments  in  its                                                                    
initial  open season.  Mr. Palmer  understood that  Alaskans                                                                    
and other bidders all wanted  to know what the volumes were;                                                                    
however,  that   was  not  the  practice   in  the  pipeline                                                                    
industry.  The  company  could  not  reveal  the  number  of                                                                    
commitments   until   they   were   secured   in   precedent                                                                    
agreements.  He noted  that the  confidentiality clause  was                                                                    
laid out in FERC rules.                                                                                                         
                                                                                                                                
Representative Hawker  clarified that  he was  interested in                                                                    
the  magnitude of  commitments and  whether TransCanada  had                                                                    
received  sufficient  commitments  to declare  a  successful                                                                    
open season. He wondered  whether TransCanada still believed                                                                    
that  the  project had  the  potential  to be  as  extremely                                                                    
profitable  as the  legislature  had been  told three  years                                                                    
earlier during AGIA discussions.  Mr. Palmer did not believe                                                                    
that the cited testimony was his own.                                                                                           
                                                                                                                                
Representative Hawker  believed the testimony had  been from                                                                    
the administration.  He wondered whether Mr.  Palmer thought                                                                    
that "the  administration's assertion  three years  ago that                                                                    
this    project   was    wildly    profitable   under    all                                                                    
circumstances," was an accurate statement.                                                                                      
                                                                                                                                
Mr. Palmer replied that he did  not have a comment about the                                                                    
administration's testimony. He  relayed that TransCanada had                                                                    
been careful  in its testimony  three years earlier  and had                                                                    
utilized  the  EIA  gas  price   forecast  as  it  had  been                                                                    
directed.  He  relayed  that different  parties  would  have                                                                    
different responses  when asked if the  project was "wildly"                                                                    
profitable or economic. Factors  included how a party viewed                                                                    
gas prices going forward, the  arrangement with the State of                                                                    
Alaska  regarding   gas  taxes,  the  availability   of  Pt.                                                                    
Thompson gas for  the project, and the  resolution of issues                                                                    
between the pipeline company and potential customers.                                                                           
                                                                                                                                
2:38:26 PM                                                                                                                    
                                                                                                                                
Mr.   Palmer   continued   to   answer   a   question   from                                                                    
Representative Hawker.  He explained that the  project would                                                                    
be  economic for  a  pipeline company  if  it could  attract                                                                    
credit worthy  customers that were  in a position  to commit                                                                    
their gas.  He added that customers  would decide separately                                                                    
whether the project was economic for them.                                                                                      
                                                                                                                                
Representative Hawker explained  that the legislation sought                                                                    
to  ask  the  administration  the questions  that  had  been                                                                    
illustrated by  Mr. Palmer  and to  hold it  accountable for                                                                    
statements that it had made in the past.                                                                                        
                                                                                                                                
Representative Doogan reminded the  committee that the topic                                                                    
had been voted on in the  past and he encouraged new members                                                                    
to go back and study the record.                                                                                                
                                                                                                                                
Mr. Palmer  continued on  Page 10  titled "Progress:  Use of                                                                    
Alaska   Resources,"  and   explained   that   one  of   the                                                                    
requirements  under AGIA  was  that  TransCanada use  Alaska                                                                    
resources. He  relayed that the  sponsors had  completed the                                                                    
milestone  of  one million  work  hours  with no  incidents.                                                                    
There  were  approximately  115 TransCanada  and  ExxonMobil                                                                    
employees working  on the project across  the continent. The                                                                    
prior summer there had been 400  workers on the field and as                                                                    
of  the  end  of  the  first quarter  2011  a  total  of  40                                                                    
companies and  470 Alaskans  had worked  on the  project. He                                                                    
highlighted  that  the  sponsors  continued  to  use  Alaska                                                                    
businesses  and workers  to advance  the development  of the                                                                    
project.                                                                                                                        
                                                                                                                                
2:42:14 PM                                                                                                                    
                                                                                                                                
Mr.  Palmer discussed  Page  11  titled "Progress:  Training                                                                    
Alaskan Workers," that outlined  the company's commitment to                                                                    
the  state to  work  on  training Alaskans  to  work on  the                                                                    
project:                                                                                                                        
                                                                                                                                
     Working with the State of Alaska Department of Labor                                                                       
     and Workforce Development in their efforts to develop                                                                      
     and implement training programs for Alaskan workers:                                                                       
                                                                                                                                
        · APP is active member of the Alaska Gas Pipeline                                                                       
          Training Plan Committee                                                                                               
                                                                                                                                
             o Participating with state, contractors, labor                                                                     
               organizations, University of Alaska and                                                                          
               others                                                                                                           
                                                                                                                                
             o Implementing    Alaska   Gasline    Strategic                                                                    
               Training Plan                                                                                                    
                                                                                                                                
        · Initial focus: Identifying future APP workforce                                                                       
          needs and skills requirements                                                                                         
                                                                                                                                
        · Leading to development and implementation of                                                                          
          training plans                                                                                                        
                                                                                                                                
        · APP donated large diameter pipe to Fairbanks                                                                          
          pipeline training school to aid in pipe handling                                                                      
          and welding training                                                                                                  
                                                                                                                                
     Accomplishment: Taking the necessary steps to prepare                                                                      
     the Alaskan workforce for pipeline construction and                                                                        
     operations jobs                                                                                                            
                                                                                                                                
Mr. Palmer moved to Page 12 titled "Progress: Attracting                                                                        
Customers":                                                                                                                     
                                                                                                                                
     APP's open season concluded on July 30, 2010                                                                               
                                                                                                                                
        · Received conditional bids from major industry                                                                         
          players and other parties                                                                                             
                                                                                                                                
        · Conditions included proposed changes to APP's                                                                         
          commercial terms, as well as issues requiring                                                                         
          resolution between Shippers/Producers and the                                                                         
          State                                                                                                                 
                                                                                                                                
     APP has progressed negotiations with potential                                                                             
     Shippers following the close of the Open Season                                                                            
                                                                                                                                
        · Good progress in addressing proposed amendments                                                                       
          to commercial terms                                                                                                   
                                                                                                                                
        · APP continuing engagement with potential shippers                                                                     
                                                                                                                                
Mr. Palmer continued on Page 13 ("Progress: Attracting                                                                          
Customers"):                                                                                                                    
                                                                                                                                
     The resolution of State and Shipper/Producer issues is                                                                     
     fundamental to progress APP and to underpin the                                                                            
     shippers' substantial investment                                                                                           
                                                                                                                                
        · Would   be   the    largest   privately   financed                                                                    
          construction project in the history of North                                                                          
          America                                                                                                               
                                                                                                                                
        · Issues will need to be concurrently advanced in                                                                       
          order to secure signed precedent agreements                                                                           
                                                                                                                                
     Accomplishment: APP continuing to progress the                                                                             
     commercial process, but:                                                                                                   
                                                                                                                                
        · Success will require all parties--including                                                                           
          Shippers/Producers, State, and APP--to actively                                                                       
          engage to realize a mutually beneficial outcome                                                                       
                                                                                                                                
2:45:06 PM                                                                                                                    
                                                                                                                                
Mr. Palmer addressed Page 14 titled "Progress: Obtaining                                                                        
Regulatory Approvals":                                                                                                          
                                                                                                                                
     Advancing essential regulatory work for securing                                                                           
     permits:                                                                                                                   
                                                                                                                                
        · Aligning with regulators on path forward                                                                              
                                                                                                                                
        · Completed extensive environmental field studies                                                                       
          in 2010 and initiating major program for 2011                                                                         
                                                                                                                                
             o Archeology and cultural resources; wetlands                                                                      
               delineation; fish habitat surveys                                                                                
                                                                                                                                
        · Actively engaging public along pipeline route:                                                                        
                                                                                                                                
             o Met with 32 Alaska communities in 2010--                                                                         
               project updates and listening for their                                                                          
              issues; similar program in 2011                                                                                   
                                                                                                                                
             o Continuing communications with First Nations                                                                     
               in Yukon and British Columbia                                                                                    
                                                                                                                                
        · Progressing socioeconomic assessment                                                                                  
                                                                                                                                
             o Interviews with Alaskan community leaders on                                                                     
               potential impacts of large-diameter gas                                                                          
               pipeline                                                                                                         
                                                                                                                                
        · Secured land access for field studies on public                                                                       
          land; progressing for private lands in 2011                                                                           
                                                                                                                                
     Accomplishment: On schedule to complete the work                                                                           
     needed to submit FERC certificate application and                                                                          
     commence NPA compliance filings by Oct. 2012                                                                               
                                                                                                                                
Mr.  Palmer added  that  there had  been  many more  private                                                                    
lands than  had been  expected. The company's  due diligence                                                                    
had found  state records to  be out  of date and  there were                                                                    
many more private lands along  the right-of-way, which meant                                                                    
extra work and cost for the company.                                                                                            
                                                                                                                                
Representative  Guttenberg  wondered whether  Fairbanks  had                                                                    
been added  to the  list of  communities where  the sponsors                                                                    
planned  to  hear  commentary  from  residents.  Mr.  Palmer                                                                    
responded that  there was a  meeting scheduled  in Fairbanks                                                                    
on April 26, 2011.                                                                                                              
                                                                                                                                
Mr.  Palmer detailed  that the  sponsors  had conducted  the                                                                    
range of  work needed to  secure financing for  the project:                                                                    
"Progress: Financing the Project" (Page 15):                                                                                    
                                                                                                                                
        · Developed preliminary finance plan, with input                                                                        
          from leading financial institutions, for open                                                                         
          season rate design                                                                                                    
                                                                                                                                
        · On-going discussions with U.S. Department of                                                                          
          Energy on use of Federal Loan Guarantees (FLGs)                                                                       
                                                                                                                                
             o Successful use of FLGs means lower financing                                                                     
               cost for the project                                                                                             
                                                                                                                                
             o Reduces rates to shippers; enhances economic                                                                     
               value to all stakeholders                                                                                        
                                                                                                                                
        · Collaborating with Senate Committee on Energy and                                                                     
          Natural                                                                                                               
        · Resources   on   amendments    to   2004   statute                                                                    
          authorizing FLGs for AK gas pipeline project                                                                          
                                                                                                                                
             o If passed by Congress, will increase FLGs                                                                        
               from $18B to $30B, and allow access to                                                                           
               Federal Financing Bank                                                                                           
                                                                                                                                
     Accomplishments:  Developed  preliminary  finance  plan                                                                    
     that supports open  season negotiations through reduced                                                                    
     rates   and  enhanced   value   to  all   stakeholders;                                                                    
     positioned for further financing enhancements                                                                              
                                                                                                                                
Mr. Palmer noted that the sponsors had spoken with 13                                                                           
domestic and international financial institutions in order                                                                      
to advance discussions regarding a finance plan.                                                                                
                                                                                                                                
2:49:34 PM                                                                                                                    
                                                                                                                                
Mr. Palmer pointed to Page 16 titled "Progress: Pipeline                                                                        
Engineering & Technology":                                                                                                      
                                                                                                                                
     Progressing pipeline engineering and technology work                                                                       
     in the lab and in the field:                                                                                               
                                                                                                                                
        · Advancing the project design                                                                                          
                                                                                                                                
             o Geotechnical     design;    hydraulic     and                                                                    
               geothermal  modeling; geo-hazard  assessment;                                                                    
               materials   engineering;   pipeline   design;                                                                    
               facilities   engineering;  construction   and                                                                    
               logistics planning                                                                                               
                                                                                                                                
        · Conducting engineering field work in Alaska,                                                                          
          Yukon and British Columbia                                                                                            
                                                                                                                                
             o LiDAR [Light Detection and Ranging] and                                                                          
               aerial  photo;  routing;  fault  delineation;                                                                    
               watercourse      crossing     reconnaissance;                                                                    
               borehole and bulk  soil sampling; borrow site                                                                    
               reconnaissance                                                                                                   
                                                                                                                                
        · Permafrost studies--includes research program                                                                         
          with University of Alaska                                                                                             
                                                                                                                                
Mr. Palmer stressed that all of the factors outlined on                                                                         
Page 16 were critical to an accurate assessment of work                                                                         
needed to ensure the advancement of a project.                                                                                  
                                                                                                                                
Mr. Palmer read from Page 17 titled "Progress: Pipeline                                                                         
Engineering & Technology":                                                                                                      
                                                                                                                                
     Conducting   full-scale   testing   of   project   pipe                                                                    
     (48"/X80)                                                                                                                  
                                                                                                                                
        · Objective is to validate models used to predict                                                                       
          pipe tensile and compressive strain capacity                                                                          
                                                                                                                                
        · Test program is designed to simulate strains                                                                          
         caused by frost heave and thaw settlement                                                                              
                                                                                                                                
        · Testing facility will be fully operational by May                                                                     
          2011                                                                                                                  
                                                                                                                                
        · Several mills providing pipe to be tested                                                                             
                                                                                                                                
     Accomplishment: Conducting ongoing series of studies                                                                       
     and planning to advance design of pipeline facilities                                                                      
     in alignment with commercial and regulatory schedules                                                                      
                                                                                                                                
Mr. Palmer noted that the project pipe was standard size                                                                        
and that all items listed on Page 17 were necessary for                                                                         
project advancement.                                                                                                            
                                                                                                                                
Mr. Palmer directed attention to Page 18 titled "Progress:                                                                      
Gas Treatment Plant":                                                                                                           
                                                                                                                                
          · Optimization and development studies underway                                                                       
             in all areas of work                                                                                               
                                                                                                                                
               o Process planning; engineering; regulatory                                                                      
                  requirements; project execution                                                                               
                                                                                                                                
               o Studies have identified cost savings and                                                                       
                  improvements in plant lay-out                                                                                 
                                                                                                                                
          · Conducting on-site evaluations of major North                                                                       
             American and Asian fabrication facilities to                                                                       
             review   capabilities   and    further   refine                                                                    
             construction planning                                                                                              
                                                                                                                                
        Accomplishment: Completed  latest  phase of  studies                                                                    
        and planning to advance design of GTP [gas treatment                                                                    
        plant] facilities-in  alignment with  commercial and                                                                  
        regulatory schedules                                                                                                    
                                                                                                                                
Mr. Palmer communicated that the companies continued to do                                                                      
the work listed in the presentation as the items were                                                                           
necessary for any pipeline project.                                                                                             
                                                                                                                                
Mr. Palmer concluded the presentation with Page 19 titled                                                                       
"Next Steps":                                                                                                                   
                                                                                                                                
     All APP teams conducting the work needed to:                                                                               
                                                                                                                                
        · Attract customers                                                                                                     
                                                                                                                                
             o APP working diligently to resolve remaining                                                                      
               issues                                                                                                           
                                                                                                                                
             o Essential that issues outside of APP's                                                                           
               control also be resolved                                                                                         
                                                                                                                                
        · Obtain regulatory approvals                                                                                           
                                                                                                                                
             o APP will submit FERC and major NPA filings                                                                       
               in 2012                                                                                                          
                                                                                                                                
        · Achieve project financing                                                                                             
                                                                                                                                
     Project can only advance with support and active                                                                           
     engagement of all key parties                                                                                              
                                                                                                                                
        · Shippers/Producers                                                                                                    
                                                                                                                                
        · State of Alaska                                                                                                       
                                                                                                                                
        · U.S. and Canadian governments                                                                                         
                                                                                                                                
        · Communities along the pipeline route                                                                                  
                                                                                                                                
     Each party has a vital role in ensuring the effective                                                                      
    commercialization of Alaska's natural gas resources                                                                         
                                                                                                                                
2:53:30 PM                                                                                                                    
                                                                                                                                
Representative Gara  wondered how  the AGIA  requirements on                                                                    
debt/equity  ratio helped  to keep  transportation costs  as                                                                    
low as possible in order for  the project to be economic for                                                                    
producers. Mr.  Palmer replied that  the AGIA statute  had a                                                                    
very  high  debt  requirement  relative  to  other  pipeline                                                                    
projects and directed  an applicant to have a  minimum of 70                                                                    
percent debt  and 30 percent  equity. He detailed  that once                                                                    
the  project  was  through  construction  and  service  that                                                                    
ExxonMobil had  committed to 75  percent debt.  He explained                                                                    
that from  a customer's standpoint that  debt was preferable                                                                    
as  it was  a much  cheaper  form of  financing. Debt  costs                                                                    
could be five  percent to seven percent and  taxes were paid                                                                    
on  return  on equity  that  was  twelve percent  which  was                                                                    
effectively compounded from the standpoint of a customer.                                                                       
                                                                                                                                
Representative Gara  asked whether  it was correct  that the                                                                    
higher the  debt meant the  lower the tariff rate  that FERC                                                                    
would approve. Mr. Palmer replied in the affirmative.                                                                           
                                                                                                                                
Representative Gara  asked whether the tariff  rate would be                                                                    
reduced and  margin would be  freed up for producers  if the                                                                    
state invested  20 percent to  40 percent into  the pipeline                                                                    
but only requested an 8 percent rate of return.                                                                                 
                                                                                                                                
Mr. Palmer replied  that customers would pay  lower tolls if                                                                    
an  additional  party  took  30  percent  ownership  of  the                                                                    
project and  required a lower  rate of return.  He discussed                                                                    
that TransCanada  and ExxonMobil had  come down from  a rate                                                                    
of return expectancy of 14 percent to 12 percent.                                                                               
                                                                                                                                
Representative  Gara wondered  whether the  rolled in  rates                                                                    
provision  in  AGIA made  it  more  likely that  independent                                                                    
explorers  would help  contribute  gas to  the pipeline.  He                                                                    
explained that the provision required  all shippers to share                                                                    
the costs of an expansion that  was needed by a new shipper.                                                                    
The  provision would  be  lost if  the  current project  was                                                                    
lost. He  noted that BP  and ConocoPhillips were  opposed to                                                                    
the requirement and  thought that the new  shipper should be                                                                    
required to fund the expansion.                                                                                                 
                                                                                                                                
Mr. Palmer  responded that  the statute had  a limit  of 115                                                                    
percent   of  the   original  tolls   for  roll   in  tolls.                                                                    
Historically  when  tolls  increased   as  a  result  of  an                                                                    
expansion  a rolled  in structure  generally encouraged  new                                                                    
parties to commit their gas;  whereas, current customers may                                                                    
have held an alternate view.                                                                                                    
                                                                                                                                
3:00:17 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:07:27 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-chair Fairclough OPENED and CLOSED public testimony.                                                                       
                                                                                                                                
HB  142  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
[Note:  HB  142  was  heard again  during  the  meeting  and                                                                    
appears later in the minutes.]                                                                                                  
                                                                                                                                
HOUSE BILL NO. 121                                                                                                            
                                                                                                                                
     "An Act  establishing the commercial  charter fisheries                                                                    
     revolving  loan fund,  the  mariculture revolving  loan                                                                    
     fund, and the Alaska  microloan revolving loan fund and                                                                    
     relating  to those  funds and  loans from  those funds;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
3:08:50 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze MOVED  to ADOPT  CSHB 121(FIN)  Work Draft                                                                    
27-GH1728\X (Kane, 4/1/11).                                                                                                     
                                                                                                                                
Representative Doogan OBJECTED for purpose of discussion.                                                                       
                                                                                                                                
Vice-chair Fairclough asked for an explanation of the CS.                                                                       
                                                                                                                                
CURTIS THAYER, DEPUTY  COMMISSIONER, COMMERCE, COMMUNITY AND                                                                    
ECONOMIC  DEVELOPMENT, discussed  the changes  that appeared                                                                    
in the  CS. He relayed  that there  was a title  change that                                                                    
deleted the  language "relating to loans  made to commercial                                                                    
fisherman under the commercial fishing  loan act for product                                                                    
quality,  improvements,  and  energy  efficiency  upgrades."                                                                    
Section  1 on  Page 1  had  been deleted  from the  previous                                                                    
version that would have allowed  the Department of Commerce,                                                                    
Community,  and  Economic  Development (DCCED)  to  give  an                                                                    
interest   rate  reduction   to   commercial  fishing   loan                                                                    
borrowers if  50 percent  of the loan  was spent  on product                                                                    
produced or  manufactured in  Alaska. Language  was inserted                                                                    
on Page 3,  Line 17 that required an applicant  to provide a                                                                    
document   to  the   department  from   a  state   financial                                                                    
institution  that showed  the applicant  had  been denied  a                                                                    
loan  or that  the loan  was contingent  upon the  applicant                                                                    
receiving a  loan from the  Alaska Microloan  Revolving Loan                                                                    
Fund. Page 3,  Line 19 included new language  related to the                                                                    
"turndown"  provision that  an applicant  had been  denied a                                                                    
loan  for  the same  purpose  or  a  loan from  a  financial                                                                    
institution was contingent on an  applicant receiving a loan                                                                    
from  the  fund. He  explained  that  there was  a  turndown                                                                    
provision  for  the  microloan  that  was  mirrored  by  the                                                                    
charter boat fisheries loan. The  floor of the interest rate                                                                    
had  been increased  from 3  percent  to 6  percent for  the                                                                    
charter boat fishery  program (Page 6, Lines 4  and 14). The                                                                    
total balance of the outstanding  charter fisheries loan had                                                                    
been reduced  from $300,000 to  $200,000 (Page 4,  Line 16).                                                                    
Changes  to the  legislation had  been made  in consultation                                                                    
with  the  industry  to  ensure that  the  program  was  not                                                                    
competitive with other financial  institutions. The goal was                                                                    
to provide  bridge funding between  what the  private sector                                                                    
was  and was  not able  to finance  and to  produce economic                                                                    
development for the State of Alaska.                                                                                            
                                                                                                                                
There being NO OBJECTION the CS was ADOPTED.                                                                                    
                                                                                                                                
SUSAN  K.   BELL,  COMMISSIONER,  DEPARTMENT   OF  COMMERCE,                                                                    
COMMUNITY  AND ECONOMIC  DEVELOPMENT,  underscored that  the                                                                    
legislation  had resulted  from  extensive  outreach to  the                                                                    
economic  advisory  council,   trade  organizations,  Alaska                                                                    
Native   Claims   Settlement   Act   (ANCSA)   corporations,                                                                    
community leaders,  the financing community, and  other. She                                                                    
relayed that the goal was  to help diversify the economy and                                                                    
to  facilitate job  creation. The  department had  been made                                                                    
aware of the need for  increased access to capital in select                                                                    
areas  and  industry  sectors.  The  first  of  three  major                                                                    
components   included   the   facilitation   of   year-round                                                                    
mariculture  industry  development in  coastal  communities.                                                                    
She  discussed  that out  of  67  farms  that only  25  were                                                                    
currently producing (10 in Southeast  and 15 in Southcentral                                                                    
Alaska).  The  second  component   was  to  help  commercial                                                                    
charter operators  in Southcentral  and Southeast  Alaska to                                                                    
acquire charter  halibut permits that were  needed to comply                                                                    
with  new  federal  regulation.   She  emphasized  that  the                                                                    
department  anticipated over  500  permitees  with over  800                                                                    
applications.  The department's  objective was  to encourage                                                                    
Alaska ownership  and to increase  the economic  benefits of                                                                    
the  communities  where  permit holders  resided  through  a                                                                    
recirculation of  the earnings.  The third component  was to                                                                    
spur small  business development  through the creation  of a                                                                    
microloan program. Alaska was one  of the few states without                                                                    
a  microloan program  and funds  could be  used for  startup                                                                    
business costs,  working capital, inventory  expansion, etc.                                                                    
She communicated that the  programs complimented the state's                                                                    
small business  loan programs and provided  additional tools                                                                    
to diversify the economy and to sustain economic growth.                                                                        
                                                                                                                                
Representative  Costello  wondered whether  the  legislation                                                                    
would  compete  with  the   Alaska  Commercial  Fishing  and                                                                    
Agriculture Bank (CFAB).                                                                                                        
                                                                                                                                
WANETTA  AYERS,  DIVISION  DIRECTOR,  ECONOMIC  DEVELOPMENT,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
responded that  the CFAB lending  practices were  similar to                                                                    
other private  banking institutions and that  there had been                                                                    
turndowns   for    commercial   fishing   loans    in   some                                                                    
circumstances.  She detailed  that  borrowers  that did  not                                                                    
qualify for a CFAB loan  would be considered under the loans                                                                    
in the legislation.                                                                                                             
                                                                                                                                
3:16:31 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  how  many of  the states  with                                                                    
microloan  programs used  private  banks  compared to  state                                                                    
financing.  Ms. Ayers  responded  that  the legislation  was                                                                    
modeled  after  the   Small  Business  Administration  (SBA)                                                                    
Microloan Program  and the loans were  typically provided by                                                                    
non-governmental organizations such  as economic development                                                                    
districts or non-profit community development corporations.                                                                     
                                                                                                                                
Representative  Wilson  asked  whether   the  loans  in  the                                                                    
legislation would  be operated  and funded  by the  State of                                                                    
Alaska. Ms. Ayers replied in the affirmative.                                                                                   
                                                                                                                                
Representative  Doogan  wondered  where  commercial  charter                                                                    
fishermen had  previously obtained loans. Ms.  Ayers replied                                                                    
that the loan  fund had been proposed to  help fishermen due                                                                    
to new  federal requirements  on limited entry  permits. The                                                                    
new requirement  presented a barrier  to entry that  most of                                                                    
the businesses had  not faced in the past.  She relayed that                                                                    
although a  business may qualify  for an asset loan  that it                                                                    
was unlikely a business  would qualify for private financing                                                                    
on a permit because it was a new requirement.                                                                                   
                                                                                                                                
Representative Doogan  wondered how much a  loan would cost.                                                                    
Ms. Ayers  replied that  the department  had heard  that the                                                                    
charter halibut permit  for a "six pack"  license would cost                                                                    
up to $80,000.                                                                                                                  
                                                                                                                                
Representative  Guttenberg wondered  where  the interest  of                                                                    
the  state   would  be   met  and   whether  the   loan  was                                                                    
specifically intended  to provide funding to  people who had                                                                    
been denied by another financial institution.                                                                                   
                                                                                                                                
3:19:53 PM                                                                                                                    
                                                                                                                                
Ms. Ayers  responded that the state's  interest in providing                                                                    
a  loan  to  a  qualified  borrower  was  satisfied  by  the                                                                    
creation  of a  greater public  good. She  relayed that  the                                                                    
objective  was to  concentrate Alaskan  ownership to  ensure                                                                    
that the  economic benefits accrued from  the activity would                                                                    
remain  in  Alaska.   She  noted  that  there   had  been  a                                                                    
significant   level  of   non-resident  charter   operations                                                                    
ownership in Southcentral and Southeast Alaska in the past.                                                                     
                                                                                                                                
Representative  Guttenberg wondered  about  the surety  that                                                                    
the  debt would  be repaid  to the  state and  how the  loan                                                                    
requirements differed  between the state loan  and a private                                                                    
institution loan.  Ms. Ayers replied  that a  private lender                                                                    
would generally  have a lower  risk tolerance;  however, the                                                                    
state  would  still  require the  loan  to  be  sufficiently                                                                    
collateralized to secure the loan  value. She added that the                                                                    
state typically had a higher  risk tolerance and was able to                                                                    
exercise more  patience regarding  repayment terms  in order                                                                    
to meet the public purpose objectives of the fund.                                                                              
                                                                                                                                
Representative Guttenberg  was supportive  of the  goals. He                                                                    
wondered  about  the history  of  repayment  and default  on                                                                    
loans  provided by  the state.  Ms. Ayers  replied that  the                                                                    
default rate was  very low and it was less  than one percent                                                                    
in the past fiscal year.                                                                                                        
                                                                                                                                
Representative Gara  supported the legislation.  He wondered                                                                    
whether  the  standards in  the  loan  program were  similar                                                                    
those in  other loan  programs. Ms.  Ayers replied  that the                                                                    
same best practices  that were used on other  loans would be                                                                    
used.                                                                                                                           
                                                                                                                                
Representative Gara asked whether  overall the state did not                                                                    
lose money on the loan funds  as a result of the low default                                                                    
rate. Ms.  Ayers replied in  the affirmative.  She explained                                                                    
that in  the past  the state  had offered  extremely patient                                                                    
terms  under  certain  loan funds,  such  as  the  Fisheries                                                                    
Enhancement Revolving  Loan Fund,  and tended to  make loans                                                                    
in  the  commercial  fishing industry  because  historically                                                                    
there had  been a  lack of private  sector financing  in the                                                                    
area.  The state  had helped  the  fishing industry  through                                                                    
some  very  challenging times  and  had  been able  to  make                                                                    
modifications  and  work with  borrowers  to  help them  get                                                                    
right-side up on their loans.                                                                                                   
                                                                                                                                
3:24:07 PM                                                                                                                    
                                                                                                                                
Representative Gara reiterated his  support for the bill. He                                                                    
discussed that  another revolving loan fund  had been passed                                                                    
the prior year  to help small businesses  become more energy                                                                    
efficient;  however, it  was  currently  unfunded. He  hoped                                                                    
that legislators would consider  funding the program because                                                                    
private businesses in rural areas  did not qualify for Power                                                                    
Cost Equalization (PCE).                                                                                                        
                                                                                                                                
Co-Chair  Stoltze mentioned  the Agriculture  Revolving Loan                                                                    
Fund.                                                                                                                           
                                                                                                                                
Vice-chair Fairclough discussed the fiscal notes.                                                                               
                                                                                                                                
Co-Chair  Thomas thought  the DCCED  fiscal note  related to                                                                    
charter  fisheries should  be increased  to  $9 million.  He                                                                    
believed the  permit for a  license was between  $80,000 and                                                                    
$100,000 and in  order to be in a position  to provide loans                                                                    
to those  in need that  it would  be better to  increase the                                                                    
available   funds.  Commissioner   Bell  replied   that  the                                                                    
department had looked to make  sure the funds were viable at                                                                    
different  commercialization levels  and explained  that the                                                                    
increase to  $9 million  would expand opportunities  to more                                                                    
people in need of financing.                                                                                                    
                                                                                                                                
Representative  Doogan  asked  for  an  explanation  on  the                                                                    
fiscal note  notation that specified the  capitalization had                                                                    
been  reduced  from  $5  million  to  $3  million  based  on                                                                    
clarification of  funding source.  Ms. Ayers replied  that a                                                                    
new source of federal funding  that the department had hoped                                                                    
for was not available;  therefore a lower capitalization had                                                                    
been recommended.  She added that the  department would take                                                                    
Co-Chair Thomas's recommendation  into account regarding the                                                                    
potential demand for the loan.                                                                                                  
                                                                                                                                
Representative  Doogan  asked  whether  the  department  had                                                                    
decreased the amount  from $5 million to  $3 million because                                                                    
they  thought the  amount was  too high.  Ms. Ayers  replied                                                                    
that  the  amount  had  been  reduced  because  the  federal                                                                    
funding had not come through.                                                                                                   
                                                                                                                                
Representative  Doogan  asked  about  the  reduction  to  $3                                                                    
million.                                                                                                                        
                                                                                                                                
Vice-chair Fairclough  believed that the department  had not                                                                    
wanted to  bring forward a  fiscal note that was  too large.                                                                    
She  clarified that  Co-Chair Thomas  had suggested  raising                                                                    
the amount to $9 million to increase access to more people.                                                                     
                                                                                                                                
Representative Doogan  wanted to understand  the methodology                                                                    
in  the number  decrease that  was reflected  on the  fiscal                                                                    
note.                                                                                                                           
                                                                                                                                
Representative Wilson  asked whether the three  fiscal notes                                                                    
from DCCED  totaled $8.5 million.  Ms. Ayers replied  in the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative  Wilson asked  whether there  would be  three                                                                    
additional positions  created. Ms. Ayers responded  that the                                                                    
department had requested one new position.                                                                                      
                                                                                                                                
3:29:38 PM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough  wondered  whether  the  fiscal  note                                                                    
dated  2/8/2011  that  included funding  for  two  full-time                                                                    
positions in the  amount of $169,000 had been  replaced by a                                                                    
fiscal note  dated 3/29/2011 that  included funding  for one                                                                    
full-time position  in the  amount of  $78,000. Commissioner                                                                    
Bell replied in the affirmative.                                                                                                
                                                                                                                                
Vice-chair  Fairclough  informed  the committee  that  there                                                                    
should  be  a  total  of  four  fiscal  notes.  Three  notes                                                                    
included capital  for different funds and  one note included                                                                    
funding for one full-time position. Funding for the full-                                                                       
time position  was $78,000  in FY  12 and  $71,900 in  FY 13                                                                    
through FY 17.                                                                                                                  
                                                                                                                                
Representative  Wilson  wondered   how  many  fishing  loans                                                                    
currently existed.  Ms. Ayers  replied that  currently there                                                                    
was the  Commercial Fishing Revolving Loan  Fund under which                                                                    
a  number of  eligible  purposes existed  and the  Fisheries                                                                    
Enhancement   Revolving  Loan   Fund  that   paid  for   the                                                                    
Aquaculture   Association  hatchery   Fisheries  Enhancement                                                                    
Program.                                                                                                                        
                                                                                                                                
Representative Wilson  asked whether there would  be a total                                                                    
of five separate  funds that included the  current funds and                                                                    
those encompassed  in the  legislation. Ms.  Ayers clarified                                                                    
that there were  three separate loan funds in  the bill that                                                                    
included the mariculture fund,  the commercial charter fund,                                                                    
and the  microloan fund. She  noted that the  microloan fund                                                                    
was not specific to fisheries.                                                                                                  
                                                                                                                                
Representative  Wilson  asked  for verification  that  DCCED                                                                    
currently administered  other loan funds. Ms.  Ayers replied                                                                    
in  the   affirmative.  She  reiterated  that   other  loans                                                                    
included  the  Fisheries  Enhancement   Loan  Fund  and  the                                                                    
Commercial  Fishing Revolving  Loan Fund  that helped  users                                                                    
with vessel  financing, refinancing, limited  entry permits,                                                                    
quota share purchasing, commercial purposes, etc.                                                                               
                                                                                                                                
Representative Wilson  surmised that there was  currently no                                                                    
federal  funding available  to help  with the  programs. Ms.                                                                    
Ayers responded in the affirmative.                                                                                             
                                                                                                                                
Co-Chair  Stoltze  supported  the legislation.  He  stressed                                                                    
that  the  loan  fund  helped  fisherman  in  Southeast  and                                                                    
Southcentral   Alaska  that   were   faced  with   financial                                                                    
difficulty  as a  result of  an external  federal government                                                                    
action.                                                                                                                         
                                                                                                                                
3:34:26 PM                                                                                                                    
                                                                                                                                
Representative Doogan wondered whether  it was a reaction to                                                                    
the "two fish, one fish change".                                                                                                
                                                                                                                                
Co-Chair  Thomas  replied  that  a permit  system  had  been                                                                    
created  in Alaska  that displaced  a significant  number of                                                                    
charter fishermen.  He explained that in  some circumstances                                                                    
lodges  held  permits  for  fishermen  that  they  employed;                                                                    
however,  the  fishermen  were   now  required  to  hold  an                                                                    
individual permit.  He opined that  an increase to  the base                                                                    
$3 million  in the  fiscal note was  important and  that the                                                                    
loan would help bring fishermen  back. He discussed that the                                                                    
state loan  program had  been in existence  for a  long time                                                                    
and that  the default  percentage was  very low.  He relayed                                                                    
that  the  state  was  able  to sell  a  permit  to  another                                                                    
fisherman if the current owner defaulted.                                                                                       
                                                                                                                                
Vice-chair  Fairclough discussed  the  proposed revision  by                                                                    
Co-Chair Thomas  that would  change the  base amount  on the                                                                    
fiscal note related to the  Charter Fisheries Revolving Loan                                                                    
Fund from $3 million to $9 million.                                                                                             
                                                                                                                                
Representative Wilson wondered why  funding could not be met                                                                    
through existing loans.                                                                                                         
                                                                                                                                
Co-Chair  Thomas explained  that  the loan  fund  was a  new                                                                    
program.                                                                                                                        
                                                                                                                                
Representative Gara communicated  that the state's revolving                                                                    
loan funds were well run  and that they added jobs, improved                                                                    
the  economy,  and dealt  with  distress  in the  state.  He                                                                    
thought that  the increase  was smart and  did not  cost the                                                                    
state  anything and  in the  event  that the  state faced  a                                                                    
worse  fiscal  situation   the  legislature  could  consider                                                                    
reducing the amount at that time.                                                                                               
                                                                                                                                
Representative  Doogan wondered  whether the  increase would                                                                    
be from $3 million to $9  million on the fiscal note labeled                                                                    
"Allocation: Com Charter Fisheries (RLF)."                                                                                      
                                                                                                                                
Vice-chair  Fairclough  responded  in the  affirmative.  The                                                                    
committee  agreed  on  a  revised  fiscal  note  that  would                                                                    
increase  the Charter  Fisheries Revolving  Loan Fund  to $9                                                                    
million.                                                                                                                        
                                                                                                                                
Vice-chair  Fairclough   discussed  the  fiscal   note  that                                                                    
capitalized the microloan fund at $2.5 million.                                                                                 
                                                                                                                                
Representative  Gara wondered  whether the  fiscal note  was                                                                    
sufficient  to make  a  real impact  on  the community.  Ms.                                                                    
Ayers   replied  that   the  department   believed  it   was                                                                    
sufficient.                                                                                                                     
                                                                                                                                
3:38:51 PM                                                                                                                    
                                                                                                                                
Representative Gara remarked that the number seemed small.                                                                      
                                                                                                                                
Vice-chair  Fairclough  pointed  to  the  fiscal  note  that                                                                    
capitalized shellfish mariculture at $3 million.                                                                                
                                                                                                                                
Representative  Wilson asked  how  long the  money would  be                                                                    
allocated  for the  mariculture loan  before the  department                                                                    
would reassess  whether other non-financial needs  were more                                                                    
prevalent. Ms.  Ayers replied that DCCED  monitored new loan                                                                    
funds to determine  how quickly the fund  was subscribed and                                                                    
would then make determinations.  She highlighted that proper                                                                    
outreach to  potential users was  important when a  new fund                                                                    
was available.  There was  at least one  new loan  fund that                                                                    
the  department was  currently  monitoring.  New funds  were                                                                    
typically   given    several   years   before    a   serious                                                                    
determination was made.                                                                                                         
                                                                                                                                
Representative Wilson  wondered whether DCCED  would provide                                                                    
a report  to the  legislature and potentially  recommend the                                                                    
transfer  of  money  from  one program  to  another  if  the                                                                    
department had determined  that a loan was  not working. She                                                                    
noted  that sometimes  businesses  were  not successful  for                                                                    
non-financial reasons. She asked  whether the department had                                                                    
ever turned  any loans back  in. Ms. Ayers replied  that she                                                                    
would  need to  do  research on  turning  back capital.  She                                                                    
believed  that it  was more  likely  that in  cases such  as                                                                    
commercial fisheries  that the  fund had given  back through                                                                    
the successful funding of other activities.                                                                                     
                                                                                                                                
Vice-chair  Fairclough   discussed  the  fiscal   note  that                                                                    
included funding for one full-time position.                                                                                    
                                                                                                                                
Representative  Doogan  asked  for  an  explanation  of  the                                                                    
$2,400  capital  outlay item  listed  in  FY 12.  Ms.  Ayers                                                                    
responded  that   the  allocation  was  related   to  office                                                                    
equipment, furniture,  and other  items associated  with the                                                                    
creation of a new position.                                                                                                     
                                                                                                                                
Representative  Doogan asked  for information  regarding the                                                                    
microloan funding  source that  began with  $5,300 in  FY 12                                                                    
and was reduced to $3,500 in  FY 13 through FY 17. Ms. Ayers                                                                    
replied that  the incremental  costs were  allocated between                                                                    
the two  funds [Micro-Loan  Fund and the  Commercial Charter                                                                    
Fisheries Fund]  in the first  year and was  carried forward                                                                    
in future years.                                                                                                                
                                                                                                                                
Representative   Doogan  wondered   whether  the   full-time                                                                    
position would be allocated to  two different functions. Ms.                                                                    
Ayers responded  that he was  essentially correct,  but that                                                                    
many  individuals would  be involved  in the  entire lending                                                                    
process.  She  added  that DCCED  had  allocated  the  costs                                                                    
within the confines of the fiscal note.                                                                                         
                                                                                                                                
3:43:46 PM                                                                                                                    
                                                                                                                                
Representative Doogan wondered why  the new position had not                                                                    
been allocated  to Mariculture Revolving Loan  Fund as well.                                                                    
Ms. Ayers  responded that based  on the potential  volume of                                                                    
loans  DCCED believed  it could  accommodate  the fund  with                                                                    
current staff.                                                                                                                  
                                                                                                                                
Representative  Edgmon  wondered  what  interest  rate  each                                                                    
program would offer if the programs took effect that day.                                                                       
                                                                                                                                
Commissioner  Bell  replied   that  the  Commercial  Charter                                                                    
Fisheries  Revolving  Loan Fund  would  have  a floor  of  6                                                                    
percent  and  a  ceiling  of  10.5  percent.  The  Shellfish                                                                    
Mariculture  Revolving Loan  Fund would  have a  floor of  5                                                                    
percent and a ceiling of  9 percent. The Microloan Revolving                                                                    
Loan Fund would  have a floor of 6 percent  and a ceiling of                                                                    
8 percent. She referred to  the language "prime plus two" in                                                                    
the bill  that would  currently have  been 5.25  percent and                                                                    
was  close to  market  rates. The  department  had tried  to                                                                    
create programs that filled  public purpose, that recognized                                                                    
communication with the industry  interested in utilizing the                                                                    
loans, and to  find an appropriate comfort  level within the                                                                    
banking community.                                                                                                              
                                                                                                                                
KEN   L.  LARSON,   PRINCE   WILLIAM   SOUND  CHARTER   BOAT                                                                    
ASSOCIATION,  FAIRBANKS  (via teleconference),  opposed  the                                                                    
bill in its present form. He  had operated a charter boat in                                                                    
Valdez  beginning  in  1984.   He  discussed  that  economic                                                                    
development  in  Alaska was  on  a  downhill slide  and  the                                                                    
implementation  of   GHLs  [Guideline  Harvest   Limit]  and                                                                    
charter halibut  permits [CHP] had  wiped out 35  percent to                                                                    
40 percent  of operators. He  believed that the one  fish 37                                                                    
inch rule  in Southeast was  the "death knell"  for charters                                                                    
in the  area. Operators in  Southcentral had been  told that                                                                    
they would be limited to the one fish rule under the catch-                                                                     
sharing plan the following summer.  He discussed that Alaska                                                                    
Department  of Fish  and Game  figures  indicated that  non-                                                                    
resident licenses had  dropped 18 percent from  2006 to 2010                                                                    
and the money  generated from the area had  dropped close to                                                                    
12  percent. He  stressed that  the state  had lost  several                                                                    
hundred million dollars since 2006  and that the decline had                                                                    
continued to  the Alaska tourism industry.  He believed that                                                                    
the state  was establishing a double  standard. He discussed                                                                    
the CFAB  loan program  had been  instituted when  the IFQ's                                                                    
for halibut long  liners were put in place in  1995 and were                                                                    
currently  at  a 3  percent  to  4  percent loan  rate.  The                                                                    
fisherman had  been forced  into a mold  in a  fishery where                                                                    
they made  up 10 percent to  15 percent of the  total catch.                                                                    
He wondered why  the fisherman that wanted  to purchase CHPs                                                                    
could not be  included in the CFAB program.  He relayed that                                                                    
it was difficult  to obtain loans and that  the state should                                                                    
tap into the  existing CFAB program instead of  setting up a                                                                    
new program.                                                                                                                    
                                                                                                                                
3:50:32 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  whether Mr.  Larson  believed                                                                    
that  his  recommendations  would   open  up  the  bill  for                                                                    
utilization  by a  broader group  of  operators. Mr.  Larson                                                                    
responded that he  thought it would help.  He explained that                                                                    
the problem was that many  fishermen were looking for a boat                                                                    
and a permit  and that $100,000 would not come  close to the                                                                    
costs needed.                                                                                                                   
                                                                                                                                
Representative  Wilson  remarked  that  the  bill  had  been                                                                    
changed to $200,000.                                                                                                            
                                                                                                                                
Vice-chair Fairclough  explained that a CS  had been adopted                                                                    
and  that   one  of  the  changes   the  Commercial  Charter                                                                    
Fisheries Revolving  Loan Fund was an  increase to $200,000.                                                                    
Mr.   Larson  believed   that   the   increase  would   help                                                                    
significantly.                                                                                                                  
                                                                                                                                
Vice-chair   Fairclough   asked   Mr.  Larson   whether   he                                                                    
maintained  his opposition  to the  bill. Mr.  Larson opined                                                                    
that  the  new  program  was unnecessary  because  it  would                                                                    
duplicate the current CFAB program.                                                                                             
                                                                                                                                
Representative Doogan  referenced Page  4, Lines  15-16 that                                                                    
included the increase to $200,000.                                                                                              
                                                                                                                                
Vice-chair Fairclough  read from  Page 4, Lines  15-16: "The                                                                    
total  balances  outstanding on  loans  made  to a  borrower                                                                    
under  AS 16.10.805  may not  exceed  $200,000." Mr.  Larson                                                                    
asked about  Page 3, Line  31 that included language  that a                                                                    
loan would not exceed $100,000.                                                                                                 
                                                                                                                                
Vice-chair   Fairclough  replied   that  the   language  was                                                                    
referring to a different section of the code.                                                                                   
                                                                                                                                
Mr.  Larson   queried  whether  the  available   amount  was                                                                    
$200,000  on  a  charter  halibut permit,  boat,  or  engine                                                                    
upgrade.                                                                                                                        
                                                                                                                                
Vice-chair  Fairclough  responded  that  the  administration                                                                    
would provide clarity at the end of the public hearing.                                                                         
                                                                                                                                
3:54:22 PM                                                                                                                    
                                                                                                                                
PATRICK BOOKEY, SR., LUCK OF  THE IRISH CHARTERS, NORTH POLE                                                                    
(via  teleconference), was  opposed to  the current  form of                                                                    
the legislation. He  was a longtime Alaskan and  worked as a                                                                    
charter  operator.  He  expressed  that 35  percent  of  the                                                                    
charter operators  had been lost  under the  current charter                                                                    
halibut  permit and  that operators  were the  smallest user                                                                    
group. He was concerned that  private boaters would still be                                                                    
allowed  two fish  and that  the implementation  of the  one                                                                    
fish rule  would put charter  operators out of  business. He                                                                    
thought  the language  in  the bill  related  to the  amount                                                                    
available under the  loan was confusing. He  was troubled by                                                                    
the  requirement  that  an operator  must  have  a  physical                                                                    
license or residence in the state  for 24 months in order to                                                                    
qualify for  the program.  He thought  the CFAB  program was                                                                    
better because  the interest  rates under  the bill  were no                                                                    
better for  new fishermen.  He explained  that his  boat and                                                                    
12-pack permit  amounted to over  $300,000 and that  a buyer                                                                    
would not receive enough funding under the proposed loan.                                                                       
                                                                                                                                
Vice-chair  Fairclough  noted  that   Mr.  Bookey  had  been                                                                    
referring Page 3, Lines 22-25.                                                                                                  
                                                                                                                                
MARK   STEARNS,  ALASKAN   WOOD  MOULDING,   ANCHORAGE  (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
believed that  the microloan program  was broadly  based and                                                                    
would help a variety of  business owners. He had known small                                                                    
businesses that had been turned  down for loans despite good                                                                    
credit. He  believed that  the small  program would  help to                                                                    
bridge  the gap  during  challenging times.  He thought  the                                                                    
bill was necessary  and would be extremely  helpful to small                                                                    
businesses  that  created  jobs  and were  the  backbone  of                                                                    
Alaskan communities.                                                                                                            
                                                                                                                                
4:00:40 PM                                                                                                                    
                                                                                                                                
RODGER   PAINTER,   PRESIDENT,  ALASKA   SHELLFISH   GROWERS                                                                    
ASSOCIATION, JUNEAU, spoke in favor  of the bill. He thanked                                                                    
the   governor   for   introducing   the   legislation.   He                                                                    
appreciated a  loan fund  specifically for  small businesses                                                                    
because  there  was  a  tendency to  focus  on  large  scale                                                                    
economic  development. The  mariculture  loan addressed  the                                                                    
association's  revenue lag  from three  to eight  years. The                                                                    
bill  was   structured  recognize  the  problem   and  would                                                                    
encourage the  development of new  shellfish farms  in rural                                                                    
Alaska.                                                                                                                         
                                                                                                                                
RICK    HARRIS,   EXECUTIVE    VICE   PRESIDENT,    SEALASKA                                                                    
CORPORATION, JUNEAU, referred to  written testimony that had                                                                    
been  provided  (copy  on  file).  The  corporation  was  in                                                                    
support of  the legislation and was  specifically interested                                                                    
in the mariculture loan. He  discussed that Southeast Alaska                                                                    
had   been   experiencing   large  outmigration   and   high                                                                    
unemployment.  SEALASKA  had  reviewed Department  of  Labor                                                                    
statistics from  1996-2034 that showed that  Ketchikan would                                                                    
lose 36  percent of  its population,  Prince of  Wales would                                                                    
lose  62  percent,  Skagway  would   lose  56  percent,  and                                                                    
Wrangell  would lose  56 percent.  The corporation  board of                                                                    
directors had decided that they  would begin rebuilding jobs                                                                    
in rural communities one person  at a time. He discussed the                                                                    
corporation's subsidiary  called Haa  Aani that  was focused                                                                    
on economic  development in  Southeast. Southeast  offered a                                                                    
range of resources that were  necessary for the mariculture;                                                                    
however, there was no capital  available for new businesses.                                                                    
He  discussed other  items that  were  necessary for  oyster                                                                    
farmers.  He  believed that  the  bill  would remove  oyster                                                                    
farmers' lack  of financing, which represented  their number                                                                    
one  obstacle.  He  hoped  that  the  $3  million  would  be                                                                    
available quickly in order to help put people to work.                                                                          
                                                                                                                                
4:07:31 PM                                                                                                                    
                                                                                                                                
PAUL FUHS,  PAC ALASKA,  JUNEAU, supported  the legislation.                                                                    
He expressed that the bill  provided good mid-level economic                                                                    
development in necessary  areas that represented substantial                                                                    
revenue and supported numerous jobs  throughout the year. He                                                                    
shared a  gooey duck with  the committee and  explained that                                                                    
it took approximately  six to seven years  for the shellfish                                                                    
to reach maturity: during the  time businesses did not bring                                                                    
in  revenue and  experienced  costs such  as  leases on  the                                                                    
tidelands.  Private  banks   would  not  provide  financing;                                                                    
therefore, a state loan program  was necessary. He explained                                                                    
that the  reason for  a new loan  program was  that existing                                                                    
programs were fully subscribed.  He noted that default rates                                                                    
on state loans were historically  very low. The farms needed                                                                    
start-up capital and would then become self-sustaining.                                                                         
                                                                                                                                
Representative Gara  wondered why  gooey ducks were  not for                                                                    
sale in the  supermarket. Mr. Fuhs replied  that the primary                                                                    
market was overseas and that  most people in America did not                                                                    
know how to cook them.                                                                                                          
                                                                                                                                
4:11:56 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough CLOSED public testimony.                                                                                  
                                                                                                                                
Representative  Doogan asked  for  verification  of the  two                                                                    
financial limits  on the loan.  The first was that  the loan                                                                    
could not  exceed over $100,000  per year. The  second limit                                                                    
was that  the loan  could not total  more than  $200,000 per                                                                    
year. Ms. Ayers responded in the affirmative.                                                                                   
                                                                                                                                
Representative  Gara  asked  whether  the  department  would                                                                    
reevaluate the  amount designated to the  microloan program.                                                                    
He thought that the allocation of $2.5 million was too low.                                                                     
                                                                                                                                
Commissioner  Bell   responded  that  DCCED   had  initially                                                                    
thought that  the program could have  been supplemented with                                                                    
federal funding. The  department wanted to make  sure it was                                                                    
bringing forward loans that were  viable and functional. The                                                                    
loan  was mirrored  after the  SBA program  which designated                                                                    
$35,000 per individual  or $70,000 for two  or more parties.                                                                    
The  department's  research  had  indicated  that  the  loan                                                                    
activity was  less than the  amounts in  many circumstances.                                                                    
She explained that  loans may be in the range  of $15,000 to                                                                    
$20,000 and that not all recipients would reach the cap.                                                                        
                                                                                                                                
Representative  Wilson wondered  why the  interest rate  for                                                                    
the charter fisheries  loan was 6 percent and  why the state                                                                    
could  not  use the  other  program  that currently  existed                                                                    
[CFAB]. Ms. Ayers replied that  CFAB could currently lend in                                                                    
the   categories  addressed   under  the   legislation.  She                                                                    
explained  that  an  individual   would  not  need  to  take                                                                    
advantage  of  the   loan  under  the  bill   if  they  were                                                                    
successful in obtaining financing through CFAB.                                                                                 
                                                                                                                                
Representative  Wilson  wondered  why  a  person  would  not                                                                    
utilize  the  CFAB  program  instead  of  the  loan  program                                                                    
proposed  under the  legislation. Ms.  Ayers responded  that                                                                    
she was  not versed  in the  CFAB lending  program; however,                                                                    
she would have been surprised  to find that CFAB was lending                                                                    
below the current  prime rate. She would need  to verify the                                                                    
information  from  the   charter  operators  that  testified                                                                    
earlier in the meeting.                                                                                                         
                                                                                                                                
4:17:28 PM                                                                                                                    
                                                                                                                                
Commissioner  Bell notified  the  committee  that DCCED  had                                                                    
consulted  with  CFAB  and other  private  institutions  and                                                                    
there had been  no objection to the introduction  of the new                                                                    
programs.                                                                                                                       
                                                                                                                                
Representative Wilson requested  verification on the current                                                                    
CFAB  interest  rate.  She  communicated  that  she  had  no                                                                    
objection to the loans, but  wanted to make certain that the                                                                    
loan money would  be accessible. Ms. Ayers  replied that she                                                                    
would provide  the information to  the committee.  She added                                                                    
that Richard Yamada with the  Alaska Charter Association had                                                                    
been unable  to stay to  testify; however, he  had testified                                                                    
on the association's support of the bill in the past.                                                                           
                                                                                                                                
Representative  Wilson  expressed  her concern  that  the  6                                                                    
percent  interest  rate may  have  been  too high  for  cash                                                                    
strapped  businesses.  She  agreed   that  the  capital  was                                                                    
important. Ms. Ayers  answered that the 6  percent floor had                                                                    
been  reached  in  consultation   with  the  Alaska  Banking                                                                    
Association. She elaborated  that the state did  not want to                                                                    
offer a rate that was  significantly below market that would                                                                    
disadvantage the private lenders.                                                                                               
                                                                                                                                
Representative Wilson  ascertained that  the reason  for the                                                                    
loan  program  was to  fill  a  niche  that was  not  there;                                                                    
however, the niche was only filled  at an interest rate of 6                                                                    
percent  or   above.  Ms.  Ayers  answered   the  state  was                                                                    
operating  as  a lender  of  last  resort and  that  private                                                                    
banking institutions would not  approve of such low interest                                                                    
rates in  a category that they  would be likely to  lend in.                                                                    
The terms  of the  loan fund had  been discussed  and vetted                                                                    
with   the  charter   association,   National  Oceanic   and                                                                    
Atmospheric   Association    (NOAA),   and    with   banking                                                                    
organizations. The department was  always on the lookout for                                                                    
gaps  that it  could fill  to ensure  access to  capital, to                                                                    
facilitate new  business entrants, and to  increase resident                                                                    
participation.                                                                                                                  
                                                                                                                                
4:21:22 PM                                                                                                                    
                                                                                                                                
Representative Costello  wondered why  there was  a 24-month                                                                    
residency requirement  in order to qualify  for the program.                                                                    
Commissioner Bell  responded that the  residency requirement                                                                    
was identical to those in existing revolving loan funds.                                                                        
                                                                                                                                
Co-Chair Thomas told a personal  story about his son who had                                                                    
received a boat  and permit loan from the  state after being                                                                    
turned down by a bank.                                                                                                          
                                                                                                                                
Representative  Gara   wondered  what  harm  there   was  in                                                                    
offering lower interest rates to  people who had been denied                                                                    
a loan by  a private bank. He found it  troublesome that the                                                                    
opinion of the private banks mattered.                                                                                          
                                                                                                                                
Ms. Ayers  replied that the  department did not want  a rate                                                                    
that  was   unsupported  by   other  market   dynamics.  The                                                                    
department  thought that  a 6  percent loan  was viable  for                                                                    
applicants  that could  meet  the eligibility  requirements.                                                                    
She  highlighted halibut  charters in  particular where  the                                                                    
state  was   dealing  with  a  changing   federal  fisheries                                                                    
management regime and  a new barrier to  entry. New entrants                                                                    
would often  be eligible  for private  financing on  a boat,                                                                    
but may  need a  state loan for  the permit.  The department                                                                    
felt that there would be  a good balance between the private                                                                    
lenders and  the state loan programs  and that it was  not a                                                                    
situation in  which the banking  industry was  dictating the                                                                    
loan limits. All of the  interest floors and ceilings listed                                                                    
in the legislation were within the historical norms.                                                                            
                                                                                                                                
Representative Gara wondered why the  state would impose a 6                                                                    
percent floor  if the  program could be  solvent at  a lower                                                                    
rate such as 4 percent. He  believed that a bank's choice to                                                                    
not offer  a loan should  not impact the interest  rate that                                                                    
the state offered.                                                                                                              
                                                                                                                                
Representative Doogan noted that  the phrase "lender of last                                                                    
resort"  bothered  him  considerably. He  relayed  that  the                                                                    
presumption in the  statement was that an  applicant did not                                                                    
qualify for  a loan  through any normal  commercial standard                                                                    
which  put the  state in  a position  of providing  loans to                                                                    
substandard borrowers.  He thought the expectation  that the                                                                    
default  number would  be low  was  questionable. He  opined                                                                    
that  the  items in  combination  with  the argument  for  a                                                                    
relatively  high interest  floor  did not  sound like  items                                                                    
that would lead to a successful banking operation.                                                                              
                                                                                                                                
Commissioner Bell  replied that  the term  sounded dramatic,                                                                    
but it was  a term that was commonly used  in commercial and                                                                    
public financing.  She reminded the committee  that the less                                                                    
than 1  percent default  rate was  very low.  The department                                                                    
was had financing staff that  reviewed loan applications and                                                                    
collateral and were in contact  with the borrowers regarding                                                                    
their payments.  She emphasized  the professionalism  of the                                                                    
organization  and that  DCCED had  looked for  the need  and                                                                    
terms  it could  offer and  prided itself  on its  increased                                                                    
outreach and  vetting. She stressed there  were many reasons                                                                    
a bank  may not loan  to a borrower  that were not  based on                                                                    
borrower  risk,  including the  makeup  and  weighting of  a                                                                    
bank's portfolio and lending limits.                                                                                            
                                                                                                                                
4:28:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Thomas  discussed that  he had paid  as high  as 17                                                                    
percent on a commercial fisheries  related loan. He had seen                                                                    
gillnet  permits  that  had  been   bought  at  $150,000  to                                                                    
$180,000  drop  to  $30,000.  He  explained  that  some  had                                                                    
defaulted  but  that  the  state   rewrote  the  loans  when                                                                    
possible. He  had seen  people get  into trouble  through no                                                                    
fault of their  own and that people had  bought permits that                                                                    
were priced too high. He  relayed that permits for sale were                                                                    
popular and  would be bought.  He supported the  loans under                                                                    
the bill  and did not  think that  6 percent was  unfair. He                                                                    
told a personal story about fishing.                                                                                            
                                                                                                                                
Representative  Doogan   was  impressed  by   the  testimony                                                                    
regarding the  default rates. He  was interested to  see how                                                                    
the unique aspects of the bill would work out.                                                                                  
                                                                                                                                
Representative   Edgmon   supported  the   legislation.   He                                                                    
provided perspective  that the  committee had passed  a bill                                                                    
that  gave   Alaska  Industrial  Development   and  Economic                                                                    
Association  (AIDEA) the  authority  to work  with a  public                                                                    
sector  partnership and  allowed  them to  bond  up to  $400                                                                    
million per  year. He emphasized  that the funding  to AIDEA                                                                    
had been  large and that comparatively  speaking the current                                                                    
bill  represented "small  potatoes."  He  stressed that  the                                                                    
state had  provided assistance to  larger industry  and that                                                                    
the  state's  ability  to provide  small  businesses  better                                                                    
terms  than those  offered by  banks would  help to  provide                                                                    
them with incentives.                                                                                                           
                                                                                                                                
Co-Chair  Stoltze MOVED  to  report CS  HB  121(FIN) out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
CSHB  121(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation and with three  new fiscal notes by the                                                                    
Department of Commerce,  Community, and Economic Development                                                                    
and one new  fiscal note by the House  Finance Committee for                                                                    
the   Department  of   Commerce,  Community,   and  Economic                                                                    
Development.                                                                                                                    
                                                                                                                                
4:34:41 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:42:41 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 142                                                                                                            
                                                                                                                                
     "An  Act  relating  to the  creation  of  a  rebuttable                                                                    
     presumption that the project  licensed under the Alaska                                                                    
     Gasline  Inducement   Act  is  uneconomic   because  of                                                                    
     insufficient  firm  transportation  commitments  during                                                                    
     the first open season."                                                                                                    
                                                                                                                                
JOE  BALASH,  DEPUTY  COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES  (DNR), shared  that HB  142 had  raised questions                                                                    
for  the  department and  that  DNR  had requested  a  legal                                                                    
analysis from the Department of  Law and contract attorneys.                                                                    
The legal  report was  confidential because  it went  to the                                                                    
interpretation of a  contract that was composed  of the AGIA                                                                    
statute,   the  request   for   proposal,  the   TransCanada                                                                    
application,  and the  accompanying  correspondence. It  was                                                                    
important to  realize that any matters  of interpretation of                                                                    
the license or  the way it operated could be  open to future                                                                    
litigation from  the licensee or another  party. He examined                                                                    
the process that  was available under the  AGIA statute. The                                                                    
licensee was  performing and  fulfilling its  obligations to                                                                    
the state  in terms  of developing the  necessary regulatory                                                                    
products as  well as  the engineering  plans to  support the                                                                    
acquisition  of  a  certificate of  public  convenience  and                                                                    
necessity. He  emphasized that  the cumulative  process took                                                                    
years to complete.                                                                                                              
                                                                                                                                
4:46:21 PM                                                                                                                    
                                                                                                                                
Mr.  Balash discussed  that commercial  negotiations between                                                                    
private parties  and potentially the  state did not  need to                                                                    
be a  prerequisite to engineering  and regulatory  work that                                                                    
was  also  taking place.  Under  the  AGIA process  an  open                                                                    
season had been held and  was successful in attracting bids.                                                                    
He discussed  that the current  question related  to whether                                                                    
or  not   the  bids   would  be  converted   into  precedent                                                                    
agreements  between enough  parties. He  explained that  the                                                                    
precedent agreements would only  cover the development phase                                                                    
and not  necessarily the construction phase  of the project.                                                                    
He elaborated that a precedent  agreement was precedent to a                                                                    
party  entering into  a firm  transportation agreement  that                                                                    
would  support  the financing  at  a  much later  date  once                                                                    
regulatory approvals were in place.  The group of scientists                                                                    
and  engineers was  an "army  unleashed" that  was gathering                                                                    
necessary   information  for   the  FERC   certificate.  The                                                                    
department believed the  process was going very  well and it                                                                    
had been  pleased with the  performance of the  licensee and                                                                    
partners.  He expressed  that DNR  did not  have significant                                                                    
insight  into the  commercial  negotiation  that was  taking                                                                    
place between the parties. Private  parties that had been in                                                                    
discussions with  the licensee  had required  TransCanada to                                                                    
maintain certain  privileges. The department had  not pushed                                                                    
too hard but wanted to see more progress.                                                                                       
                                                                                                                                
Mr.  Balash highlighted  that DNR  was  concerned about  the                                                                    
development of a deadline by  which the precedent agreements                                                                    
would need  to be satisfied  before other items in  the bill                                                                    
kicked in.  He detailed that  one party's deadline  could be                                                                    
used  by  another  party  as   leverage  in  the  commercial                                                                    
negotiation and could upset the  commercial tension that had                                                                    
existed. The  second concern was  related to the  effect the                                                                    
legislation could  have on the  state's reputation  based on                                                                    
the commitment it had made.  He stressed that the department                                                                    
would prefer  to not cast  any doubt on the  assumption that                                                                    
partners doing business with the  state needed to be able to                                                                    
count on the state's commitment.                                                                                                
                                                                                                                                
4:50:33 PM                                                                                                                    
                                                                                                                                
Mr.   Balash  delineated   that  the   administration  would                                                                    
continue to  provide information to the  legislature and the                                                                    
public. The  department had provided the  legislature with a                                                                    
reimbursement  report at  the beginning  of the  legislative                                                                    
session per the AGIA  statute and voluntarily provided semi-                                                                    
annual  reports at  the end  of  April and  October of  each                                                                    
year. He communicated that the  contents of the report could                                                                    
be  tailored  to meet  the  needs  of the  legislature.  The                                                                    
department was  prepared to work  with the bill  sponsors to                                                                    
help alleviate  its concerns  and to meet  the needs  of the                                                                    
legislature and the public.                                                                                                     
                                                                                                                                
Representative  Wilson  asked  whether  the  department  had                                                                    
taken into consideration that  the increased gas development                                                                    
in the  Lower 48 in  recent years may negatively  impact the                                                                    
success of the project.                                                                                                         
                                                                                                                                
Mr. Balash replied  that DNR had been  monitoring the issues                                                                    
and was cognizant  of potential impacts to  the viability of                                                                    
the   project.  He   explained  that   the  department   had                                                                    
commissioned  a  study  the previous  fall  to  examine  the                                                                    
impact  of  shale gas  supplies  on  an Alaska  North  Slope                                                                    
project  that  had been  posted  on  the AGIA  coordinator's                                                                    
website. The  authors of the  report were also  available to                                                                    
present  to  the legislature.  He  relayed  that there  were                                                                    
uncertainties and  questions that surrounded  the regulation                                                                    
of fracking and the  long-term economic performance of shale                                                                    
wells.  There  was  an  abundance  of  the  shale  resource;                                                                    
however,  it was  unknown  what costs  were  built into  the                                                                    
reports  that  were  published   by  the  promoters  of  the                                                                    
resource. He emphasized that there  were a number of factors                                                                    
that determined  the long-term viability  of shale  and that                                                                    
drove the cost that shale could be produced economically.                                                                       
                                                                                                                                
Representative   Wilson  asked   whether  the   department's                                                                    
concern was  related to  the dates listed  in the  bill. She                                                                    
viewed  HB  142 as  the  legislature's  due diligence  as  a                                                                    
result  of public  questions related  to market  changes and                                                                    
other. Mr.  Balash replied that  the dates were a  source of                                                                    
concern, but  it was  no problem  for the  administration to                                                                    
provide certain information or reports  by certain dates. He                                                                    
expressed that  it was  possible to  rework the  language to                                                                    
lessen the concerns of the administration.                                                                                      
                                                                                                                                
4:55:47 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  asked  where  the bill  laid  out  a                                                                    
specific  deadline for  the establishment  of the  precedent                                                                    
agreements. Mr. Balash responded  that a precedent agreement                                                                    
deadline was not specifically established,  but the dates in                                                                    
the bill triggered certain other  actions or activities. The                                                                    
administration  wanted  to be  sensitive  to  how the  dates                                                                    
would  affect   the  actions   and  considerations   of  the                                                                    
commercial parties and  it did not want one  or more parties                                                                    
to behave differently than they otherwise would.                                                                                
                                                                                                                                
Representative  Hawker  wondered  whether the  bill  legally                                                                    
mandated the administration to change  its current action in                                                                    
regards to  the implementation  of the AGIA  legislation and                                                                    
contract.  He  discussed  the distinction  between  a  legal                                                                    
mandate and how  the bill could cause a  commercial party to                                                                    
act  in  a  different  way.  Mr.  Balash  responded  with  a                                                                    
"qualified no". The qualification  was related to the effect                                                                    
of  the creation  of a  presumption. He  explained that  the                                                                    
presumption  would  be used  by  someone  for some  purpose,                                                                    
which related to  a significant matter under  the AGIA terms                                                                    
in Section 240  [AS 43.90.240]. He hoped  for an opportunity                                                                    
to  craft language  that would  eliminate or  ameliorate the                                                                    
administration's concern on the issue.                                                                                          
                                                                                                                                
4:59:19 PM                                                                                                                    
                                                                                                                                
Representative  Hawker was  committed  to  working with  the                                                                    
administration to  develop a balanced plan  that would serve                                                                    
the best interests of the public.                                                                                               
                                                                                                                                
Representative  Doogan  asked   about  the  administration's                                                                    
position on  the specific reasons  that TransCanada  did not                                                                    
like  the bill.  Mr. Balash  answered that  he had  not been                                                                    
present during  Mr. Palmer's testimony; however,  there were                                                                    
significant   pieces   that   raised   concerns   with   the                                                                    
administration.    He   reiterated    the   administration's                                                                    
willingness   to  work   with   sponsors   on  reducing   or                                                                    
eliminating  its  concerns and  was  more  than prepared  to                                                                    
provide information.                                                                                                            
                                                                                                                                
Representative Doogan wondered whether  the bill would cause                                                                    
problems for the pipeline project  and the administration if                                                                    
it   was  not   amended.   Mr.  Balash   responded  in   the                                                                    
affirmative.  The  administration  was concerned  about  the                                                                    
success  of  the  project  in   regards  to  the  commercial                                                                    
negotiations  that were  taking  place  between the  private                                                                    
parties.  He  opined that  the  legislature  should rely  on                                                                    
legislative  legal counsel  to  determine  whether it  could                                                                    
effectively direct  the department to do  anything regarding                                                                    
the  execution of  the contract.  Specific areas  of concern                                                                    
lay in the creation of a  presumption and in the rebuttal of                                                                    
a presumption  based on a  certain standard of  evidence. He                                                                    
shared  that  it  was  helpful  that  sponsors  intended  to                                                                    
address  firm transportation  agreements  in  the bill  with                                                                    
precedent agreements, but there was  also a reference to the                                                                    
precedent  agreements  to   transportation  agreements  that                                                                    
either  supported the  development  or  construction of  the                                                                    
project, which  was an  area that the  sponsor would  try to                                                                    
address.                                                                                                                        
                                                                                                                                
Representative   Doogan  wondered   whether  the   attorneys                                                                    
representing  each party  would have  to meet  prior to  any                                                                    
further legislative action.                                                                                                     
                                                                                                                                
Vice-chair Fairclough  conveyed her  intent to ask  the bill                                                                    
sponsor to speak with the administration.                                                                                       
                                                                                                                                
Vice-chair   Fairclough   RE-OPENED    and   CLOSED   public                                                                    
testimony.                                                                                                                      
                                                                                                                                
5:06:22 PM                                                                                                                    
                                                                                                                                
Representative     Guttenberg    wondered     whether    the                                                                    
administration had asked for an  attorney general opinion on                                                                    
the  legal  ramifications  of the  legislation.  Mr.  Balash                                                                    
replied  that the  administration had  received an  attorney                                                                    
general  opinion  but  was  not  at  liberty  to  share  the                                                                    
analysis  because  it  went to  the  interpretation  of  the                                                                    
contract that  could be  subject to  litigation at  a future                                                                    
date.                                                                                                                           
                                                                                                                                
Vice-chair Fairclough  noted that the legislature  could ask                                                                    
for a legal analysis from Legislative Legal Services.                                                                           
                                                                                                                                
Representative Gara  asked whether the  administration would                                                                    
oppose  the  bill  as  long  as  it  included  the  language                                                                    
"rebuttably  presumed that  the project  is uneconomic,"  on                                                                    
Page 1,  Line 11. Mr.  Balash responded  that it was  one of                                                                    
the areas  that concerned the administration.  He noted that                                                                    
the administration preferred to  avoid armies of lawyers and                                                                    
to  keep armies  of engineers  and environmental  scientists                                                                    
working to advance the project.   He hoped that an agreement                                                                    
could  be reached  that would  accomplish the  goals of  the                                                                    
sponsors in getting information from the administration.                                                                        
                                                                                                                                
Representative Gara asked whether  it was correct that there                                                                    
had  not  been  any  disputes over  the  time  during  which                                                                    
TransCanada had  provided biweekly  progress reports  to the                                                                    
administration.  Mr. Balash  responded  in the  affirmative.                                                                    
The  progress reports  were provided  via  telephone by  the                                                                    
project leadership and the state  gas team leadership. There                                                                    
were monthly  meetings with the technical  teams in Houston,                                                                    
Denver,  and  Calgary.  The  administration  had  been  very                                                                    
pleased  with the  teams' openness  and willingness  to talk                                                                    
through the  issues and  to discuss what  and why  the teams                                                                    
were doing  what they were,  and how  it helped to  move the                                                                    
ball along.                                                                                                                     
                                                                                                                                
Representative Gara  requested that the committee  hear from                                                                    
Larry Persily at the next hearing on the legislation.                                                                           
                                                                                                                                
Vice-chair  Fairclough  passed  on that  the  co-chairs  had                                                                    
determined that  it would  be necessary for  him to  get the                                                                    
opinion from  Mr. Persily outside of  the committee meetings                                                                    
and to distribute the information to the committee.                                                                             
                                                                                                                                
Representative Doogan noted that  he had also requested that                                                                    
the committee hear from Mr. Persily.                                                                                            
                                                                                                                                
Representative Gara  requested that  Mr. Persily  be allowed                                                                    
to testify.                                                                                                                     
                                                                                                                                
5:11:24 PM                                                                                                                    
                                                                                                                                
Representative  Costello  asked whether  the  administration                                                                    
had  provided  communication  to the  legislature  at  times                                                                    
required  by  statute  and semiannually  in  a  report.  She                                                                    
believed  that the  bill was  only asking  for communication                                                                    
from  the  administration  to the  legislature.  Mr.  Balash                                                                    
replied  that  communication  required by  statute  and  the                                                                    
semiannual report had been provided  to the legislature as a                                                                    
whole  and did  not include  communications in  subcommittee                                                                    
meetings or  responses to  written correspondence  or other.                                                                    
He did  not have an  exhaustive list  but would be  happy to                                                                    
provide it.                                                                                                                     
                                                                                                                                
Representative   Costello  wondered   whether  the   problem                                                                    
centered   on  what   the  legislature   may  do   with  the                                                                    
information and not on the  act of the communication itself.                                                                    
Mr. Balash  disagreed. He noted  that the legislature  was a                                                                    
co-equal branch of government.                                                                                                  
                                                                                                                                
Representative Costello asked for  a characterization of the                                                                    
information  that  had  been communicated  in  the  biweekly                                                                    
reports.   She   asked   whether   the   meetings   included                                                                    
information about the  precedent agreement, engineering, the                                                                    
open season, or other.                                                                                                          
                                                                                                                                
Mr. Balash  replied that in  the biweekly  conversations the                                                                    
administration  was provided  with  a  general overview  and                                                                    
information    on    specific   segments    including    the                                                                    
environmental  regulatory  and  legal  team,  the  GTP  [gas                                                                    
treatment plant] team, the pipe  team, and occasionally from                                                                    
the commercial team.  He relayed that the  updates were very                                                                    
general.  During the  time  that the  project  was going  to                                                                    
submit its open  season terms to FERC the  licensee had come                                                                    
to  the  administration  to   determine  whether  they  were                                                                    
executing a project  change under the terms  of the license.                                                                    
The  licensee  had improved  the  commercial  terms in  some                                                                    
areas  and  changes  in  others  that  had  resulted  in  an                                                                    
economic improvement to the project,  which was approved. He                                                                    
relayed   that  different   information   was  provided   at                                                                    
different  times  depending on  what  was  taking place.  He                                                                    
communicated   that  the   decision  making   process  would                                                                    
probably move more  quickly if TransCanada was  free to make                                                                    
decisions on  the pipeline  side on its  own. Both  sides of                                                                    
the partnership had  to be in agreement prior  to making any                                                                    
changes  on the  pipe side  of the  negotiation and  added a                                                                    
layer of complexity to the negotiation process.                                                                                 
                                                                                                                                
Representative Costello wondered  whether the frustration of                                                                    
the   public   and   legislature   was   justified   because                                                                    
TransCanada  had  not  met   its  self-imposed  deadline  to                                                                    
provide them  with communication  and that the  current bill                                                                    
had been met with resistance due to what it could imply.                                                                        
                                                                                                                                
Mr. Balash replied  that Alaskans had been  frustrated for a                                                                    
long  time. He  thought that  in the  current situation  the                                                                    
frustration  that the  public and  the legislature  felt was                                                                    
coming out in the legislation.  The way the bill was written                                                                    
was causing  concern for TransCanada and  the administrators                                                                    
of  the contract.  He opined  that the  current meeting  had                                                                    
helped to air the  frustrations and concerns that ultimately                                                                    
could  be addressed  in  a version  that  would address  the                                                                    
frustration around communication.                                                                                               
                                                                                                                                
5:18:34 PM                                                                                                                    
                                                                                                                                
Representative Hawker  asked how  much more  information was                                                                    
known by the administration than  by the public in reference                                                                    
to  Mr.   Balash's  testimony  that   there  was   not  much                                                                    
information  provided  on  the biweekly  calls.  Mr.  Balash                                                                    
stressed  that his  earlier testimony  related to  "not much                                                                    
information"  related only  to  the commercial  side of  the                                                                    
project. He  clarified that the administration  had received                                                                    
a tremendous  amount of information from  the other segments                                                                    
of  the  team  that  reported   on  a  biweekly  basis.  The                                                                    
information provided  to the  administration was  general in                                                                    
nature   and   was   not    "shipper   specific."   Due   to                                                                    
confidentiality  agreements with  shippers, TransCanada  was                                                                    
not able  to share  any specifics related  to bids  that had                                                                    
been received.                                                                                                                  
                                                                                                                                
Representative  Hawker wondered  how long  the state  should                                                                    
wait before it questioned the  outcome of the open season in                                                                    
order  to make  the bill  functional for  the administration                                                                    
and in the state's best interest.                                                                                               
                                                                                                                                
Mr.  Balash answered  that the  outcome of  the open  season                                                                    
would  depend  on the  reason  a  given action  or  inaction                                                                    
occurred.  The  reason  that  a  bid did  not  result  in  a                                                                    
precedent  agreement   could  be   due  to   an  outstanding                                                                    
commercial  issue  related  to  how  private  parties  would                                                                    
divide up their  proceeds, but it would be  different if the                                                                    
shippers were flat out not  interested in the project. Based                                                                    
on  the overall  construct  of AGIA  the administration  had                                                                    
much more patience if there was  a waiting period due to the                                                                    
negotiation  of terms  between private  parties than  a wait                                                                    
due to no  interest from shippers. He explained  that it was                                                                    
public  knowledge that  the  administration  was working  to                                                                    
settle  the dispute  over the  Pt. Thompson  acreage and  it                                                                    
could  be  a  "key  domino  to  fall"  if  it  was  resolved                                                                    
successfully.  He believed  the Supreme  Court had  recently                                                                    
communicated that  the dispute needed to  be resolved within                                                                    
a  certain  number of  days  and  would  then proceed  to  a                                                                    
hearing on the issue.                                                                                                           
                                                                                                                                
Representative  Hawker wondered  how long  the state  should                                                                    
wait to  find out  what the  issues really  were so  that it                                                                    
could address them. He was  troubled by the comment that the                                                                    
state   should   not  be   concerned   about   a  delay   in                                                                    
communication due  to issues of a  commercial nature between                                                                    
TransCanada  and potential  shippers.  He  thought that  had                                                                    
been the situation  for the past 30 years.  He believed that                                                                    
the whole issue  was to "coerce action,  to expedite action,                                                                    
to incentivize action."                                                                                                         
                                                                                                                                
5:24:14 PM                                                                                                                    
                                                                                                                                
Mr. Balash  replied that the  nature of the  differences was                                                                    
relevant and important. He discussed  that whether the issue                                                                    
should  be   used  as  a   fuse  for  the   continuation  or                                                                    
discontinuation  of regulatory  and engineering  work was  a                                                                    
pivot point. There  was some time that could  be allowed for                                                                    
negotiations on  terms between  companies. He  believed that                                                                    
the fundamental question  was related to Page 2,  Line 12 of                                                                    
the bill that  related to whether or not  the economics were                                                                    
still present  for the  project to  advance. He  opined that                                                                    
the information that would best  inform everyone was related                                                                    
to the  markets, the timing,  and what the  shippers thought                                                                    
about the  project. He believed  that the  information would                                                                    
help the state  to know whether it  should continue spending                                                                    
money to advance the project.                                                                                                   
                                                                                                                                
Representative  Hawker  wondered   whether  the  legislation                                                                    
presented a breach of the  contract. He opined that the bill                                                                    
did  not  impose  a  mandate  for  the  establishment  of  a                                                                    
precedent  agreement or  transportation commitment  and that                                                                    
concerns  were more  related to  how commercial  parties may                                                                    
alter their behavior  as a result of the  bill. He expressed                                                                    
that  many  legislative  members  believed  that  the  state                                                                    
should be  concerned with the  amount of time that  it would                                                                    
take for issues to be resolved.                                                                                                 
                                                                                                                                
Mr.  Balash respectfully  declined  to  answer the  question                                                                    
based  on  advice from  legal  counsel.  He added  that  the                                                                    
language  on  Page  1  related   to  creating  a  rebuttable                                                                    
presumption  begged the  question  for what  purpose and  to                                                                    
what end.                                                                                                                       
                                                                                                                                
Representative Hawker remarked that  the committee could ask                                                                    
counsel the question. He thought it was problematic.                                                                            
                                                                                                                                
Vice-chair  Fairclough pointed  to the  indeterminate fiscal                                                                    
note from the Department of Law.                                                                                                
                                                                                                                                
HB  142  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
5:30:06 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 5:30 PM.                                                                                           
                                                                                                                                

Document Name Date/Time Subjects
HB 121 - Treasures of the Tidelands - WA.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
NCSL Revolving Loan briefing paper.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
HB 121 - CCED - Letter of support - SWAMC.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
HB 121 - Shellfish Production Stats - West Coast.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
CSHB 121 Sectional Analysis.pdf HFIN 3/30/2011 1:30:00 PM
HFIN 4/4/2011 1:30:00 PM
HB 121
HB 121 - Alaskan Shellfish Grower's Association - Support.pdf HFIN 3/30/2011 1:30:00 PM
HFIN 4/4/2011 1:30:00 PM
HB 121
HB 121-CCED-Letter of Support-Taco Loco.pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-03-29-11(D).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-03-25-11(B).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-03-25-11(A).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-02-15-11(C).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB 121 CS WORK DRAFT version X 0040411.pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB 142 Breach of Contract-Leg Legal.PDF HFIN 4/4/2011 1:30:00 PM
HB 142