Legislature(2013 - 2014)HOUSE FINANCE 519

03/27/2013 09:00 AM FINANCE


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09:06:49 AM Start
09:06:58 AM HB4
02:50:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 1:40 p.m. Today --
+= HB 4 IN-STATE GASLINE DEVELOPMENT CORP TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 27, 2013                                                                                            
                         9:06 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:06:49 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 9:06 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative David Guttenberg                                                                                                 
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative   Mike   Hawker;   Rena   Delbridge,   Staff,                                                                    
Representative   Mike  Hawker;   Frank  Richards,   Manager,                                                                    
Pipeline    Engineering,    Alaska    Gasline    Development                                                                    
Corporation; Joe Dubler, Vice  President and Chief Financial                                                                    
Officer,   Alaska   Gasline  Development   Corporation   and                                                                    
Director  of Finance,  Alaska  Housing Finance  Corporation,                                                                    
Department  of Revenue;  Speaker  Mike  Chenault; Daniel  R.                                                                    
Fauske,  CEO/Executive  Director,   Alaska  Housing  Finance                                                                    
Corporation.                                                                                                                    
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Ken   Vassar,   Alaska  Gasline   Development   Corporation,                                                                    
Anchorage;   Daryl  Kleppin,   Alaska  Gasline   Development                                                                    
Corporation, Anchorage.                                                                                                         
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB   4    IN-STATE GASLINE DEVELOPMENT CORP                                                                                     
                                                                                                                                
          HB 4 was HEARD and HELD in committee for further                                                                      
          consideration.                                                                                                        
                                                                                                                                
HOUSE BILL NO. 4                                                                                                              
                                                                                                                                
     "An  Act relating  to  the  Alaska Gasline  Development                                                                    
     Corporation;  making  the  Alaska  Gasline  Development                                                                    
     Corporation,  a   subsidiary  of  the   Alaska  Housing                                                                    
     Finance Corporation, an  independent public corporation                                                                    
     of  the state;  establishing  and relating  to the  in-                                                                    
     state  natural   gas  pipeline  fund;   making  certain                                                                    
     information  provided  to  or  by  the  Alaska  Gasline                                                                    
     Development  Corporation exempt  from  inspection as  a                                                                    
     public record;  relating to the Joint  In-State Gasline                                                                    
     Development  Team;  relating   to  the  Alaska  Housing                                                                    
     Finance Corporation;  relating to judicial review  of a                                                                    
     right-of-way lease or an action  or decision related to                                                                    
     the  development  or  construction  of an  oil  or  gas                                                                    
     pipeline  on state  land; relating  to the  lease of  a                                                                    
     right-of-way   for   a  gas   pipeline   transportation                                                                    
     corridor,  including  a  corridor  for  a  natural  gas                                                                    
     pipeline that  is a contract  carrier; relating  to the                                                                    
     cost   of  natural   resources,  permits,   and  leases                                                                    
     provided    to   the    Alaska   Gasline    Development                                                                    
     Corporation;  relating  to  procurement by  the  Alaska                                                                    
     Gasline  Development   Corporation;  relating   to  the                                                                    
     review  by  the  Regulatory  Commission  of  Alaska  of                                                                    
     natural gas  transportation contracts; relating  to the                                                                    
     regulation by  the Regulatory  Commission of  Alaska of                                                                    
     an in-state  natural gas pipeline project  developed by                                                                    
     the  Alaska Gasline  Development Corporation;  relating                                                                    
     to  the  regulation  by the  Regulatory  Commission  of                                                                    
     Alaska  of  an  in-state   natural  gas  pipeline  that                                                                    
     provides transportation by  contract carriage; relating                                                                    
     to  the  Alaska   Natural  Gas  Development  Authority;                                                                    
     relating to the procurement  of certain services by the                                                                    
     Alaska  Natural  Gas Development  Authority;  exempting                                                                    
     property of  a project developed by  the Alaska Gasline                                                                    
     Development Corporation from  property taxes before the                                                                    
     commencement  of commercial  operations; and  providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
9:06:58 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze discussed the  meeting's agenda and related                                                                    
that members had  submitted questions in advance  for HB 4's                                                                    
sponsors, as  well as  for the staff  members of  the Alaska                                                                    
Housing Finance  Corporation (AHFC)  and the  Alaska Gasline                                                                    
Development Corporation (AGDC) to address.                                                                                      
                                                                                                                                
REPRESENTATIVE  MIKE  HAWKER,  related  that  the  technical                                                                    
expertise that had  been working for 2 years  to assemble HB                                                                    
4 was present at the meeting and available for questions.                                                                       
                                                                                                                                
Co-Chair Stoltze  inquired if  the members  had the  list of                                                                    
pre-submitted questions in their packets.                                                                                       
                                                                                                                                
9:11:59 AM                                                                                                                    
                                                                                                                                
RENA   DELBRIDGE,   STAFF,   REPRESENTATIVE   MIKE   HAWKER,                                                                    
addressed  a  document  containing committee  members'  pre-                                                                    
submitted questions titled "HB  4 Questions Member's General                                                                    
Questions"  (copy   on  file).   She  addressed   the  first                                                                    
question:   "What   is    included   in   yearly   reporting                                                                    
requirements to  the legislature?" She pointed  out that the                                                                    
list of the requirements under HB 4 was rather long.                                                                            
                                                                                                                                
Co-Chair Stoltze offered that  Ms. Delbridge could summarize                                                                    
the yearly  reporting requirements  to legislature  under HB                                                                    
4. Ms.  Delbridge reported that under  the legislation, AGDC                                                                    
needed  to annually  review its  assets and  present to  the                                                                    
legislature  each  year  a   complete  accounting  of  those                                                                    
assets,  including the  money in  the  In-State Natural  Gas                                                                    
Pipeline Fund;  all of this  accounting would be  audited by                                                                    
an independent outside auditor.  Furthermore, within 45 days                                                                    
of  adopting  any  regulations, AGDC  had  to  submit  those                                                                    
regulations   to   the  Administrative   Regulation   Review                                                                    
Committee. Additionally, following an  open season, AGDC had                                                                    
10  days  to disclose  to  the  Speaker  of the  House,  the                                                                    
President  of the  Senate, and  to  the public  the name  of                                                                    
prospective  shippers on  the  gas  pipeline, including  the                                                                    
capacity that  they had contracted  to ship, as well  as the                                                                    
duration of  those contracts. For  each board  meeting, AGDC                                                                    
needed to  keep minutes and  submit certified copies  to the                                                                    
governor and the Legislative Budget and Audit Committee.                                                                        
                                                                                                                                
Ms.  Delbridge   continued  to  address  HB   4's  reporting                                                                    
requirements to the legislature  and noted that AGDC's board                                                                    
was   subject  to   the  open   meetings   portion  of   the                                                                    
Administrative Procedures  Act, which  meant that  it needed                                                                    
to  meet  in public,  provide  reasonable  public notice  of                                                                    
board  meetings,  and  provide  members of  the  public  the                                                                    
opportunity  to be  heard, keep  minutes, etc.;  she thought                                                                    
that while this was not  an annual reporting requirement, it                                                                    
played into the context of  the question. She stated that if                                                                    
a  capital reserve  fund  was created  and  used, AGDC  must                                                                    
annually certify the sum, if  any, required to replenish the                                                                    
capital reserve fund. She stated  that AGDC had to submit to                                                                    
the governor  an annual report accounting  for the efficient                                                                    
discharge  of   all  responsibility   assigned  by   law  or                                                                    
directive  to  the  corporation  and  that  the  legislature                                                                    
needed to  be notified  of that report's  availability; this                                                                    
was  another annual  report that  must  include a  financial                                                                    
statement  that  was  audited by  an  outside  auditor.  The                                                                    
Regulatory Commission  of Alaska (RCA) would  be required to                                                                    
include  in its  annual report  a review  of any  regulatory                                                                    
activities  undertaken  under  the   new  AS  42.08  chapter                                                                    
regulation for  instate gas pipeline contract  carriers. She                                                                    
stated that  a pipeline  that was  regulated under  AS 42.08                                                                    
would  be required  to submit  a report  every 3  years once                                                                    
pipeline operations  had begun  that contained  updated cost                                                                    
data and a  calculation of the 3-year  average actual return                                                                    
on equity to the RCA.                                                                                                           
                                                                                                                                
9:14:27 AM                                                                                                                    
                                                                                                                                
Representative Gara thought that  the written questions that                                                                    
members had  submitted were supposed to  have been questions                                                                    
that the  committee did not  think that presenters  would be                                                                    
able to answer.  He had hoped that members would  be able to                                                                    
ask additional questions.                                                                                                       
                                                                                                                                
Co-Chair  Stoltze elaborated  that  the  committee would  be                                                                    
able  to  ask  questions  and explained  that  some  of  the                                                                    
written  questions were  detailed or  complex; he  wanted to                                                                    
the give  the sponsors of HB  4, as well as  members of AHFC                                                                    
and AGDC  time to prepare,  so that  they would not  have to                                                                    
come back to  the committee with a response.  He opined that                                                                    
all  questions  were relevant  in  the  committee, but  that                                                                    
submitted written  questions were meant to  better serve the                                                                    
public  process  and  the transmission  of  information.  He                                                                    
concluded  that   there  would  a  very   robust  engagement                                                                    
involving all the members of the committee.                                                                                     
                                                                                                                                
Ms.  Delbridge  continued  to   address  the  members'  pre-                                                                    
submitted questions regarding HB  4 and addressed the second                                                                    
question: "Why  are there no  commissioners on the  Board of                                                                    
AGDC?" She  requested that Representative Hawker  be able to                                                                    
address  the  question  because it  generally  detailed  the                                                                    
sponsors'   desire  to   separate   politics  from   gasline                                                                    
development.                                                                                                                    
                                                                                                                                
Co-Chair Stoltze requested that  the sponsor delineate which                                                                    
issues were  policy issues  and which  were legal  issues in                                                                    
order to aid the committee in its understanding.                                                                                
                                                                                                                                
Representative Hawker  addressed the second question  in the                                                                    
document  and  replied  that  it   was  a  policy  call.  He                                                                    
explained  that the  Finance Committee  could have  been the                                                                    
board  of  directors  for  AGDC, but  that  he  and  Speaker                                                                    
Chenault  had  made  a policy  call  throughout  the  entire                                                                    
process of the  bill's formulation to attempt set  up a very                                                                    
functional entity that  was as far removed  as possible from                                                                    
political influence.  He stated that the  concept behind the                                                                    
board of directors  of the Alaska Permanent  Fund was looked                                                                    
at as  an entity  that was  removed political  influence. He                                                                    
pointed out that HB 4  had definite and defined requirements                                                                    
that AGDC's board members must  have expertise and knowledge                                                                    
in gaslines rather  than having the board  being composed of                                                                    
commissioners. He observed that  the concern regarding there                                                                    
being  no commissioners  on  the board  had  been raised  by                                                                    
others, including  the executive  branch. He opined  that if                                                                    
the executive  branch was  writing a  similar bill  it would                                                                    
make the board members all  commissioners and that if it was                                                                    
written by the Department of  Corrections, they would want a                                                                    
lot  of  corrections  officers on  the  board;  however,  he                                                                    
understood the  need for  balance and  was working  with Co-                                                                    
Chair Stoltze's staff regarding a solution to the concern.                                                                      
                                                                                                                                
9:18:07 AM                                                                                                                    
                                                                                                                                
Vice-Chair    Neuman   addressed    the   first    question,                                                                    
particularly regarding  the report on the  average return on                                                                    
equity and  inquired what would  be included in  the report;                                                                    
he further  inquired if it  would show who was  shipping how                                                                    
much  gas  and at  what  value  to  the  state so  that  the                                                                    
committee would have a report  on the state's royalty shares                                                                    
and  that "type"  of reporting  of  the individual  shippers                                                                    
into  the pipeline.  Ms. Delbridge  replied that  the report                                                                    
would go the RCA as part  of the its regulation, but that it                                                                    
would  be filed  in  a  public way  in  order  to allow  the                                                                    
legislature   and  the   public  to   have  access   to  it;                                                                    
furthermore,  the only  return on  equity involved  would be                                                                    
that of  the pipeline itself  and not necessarily  of people                                                                    
that were  selling gas on  the North Slope for  transport in                                                                    
the  pipeline.  She  stated  that  there  was  an  expressed                                                                    
provision  in the  regulatory section  that nothing  the RCA                                                                    
did  would   usurp  the  ability  of   revenue  and  natural                                                                    
resources to determine things that  related to royalty value                                                                    
of the gas  and the reasonable transportation  tariff of the                                                                    
gas that was used for calculating production tax purposes.                                                                      
                                                                                                                                
Vice-Chair Neuman wanted  to know who was  shipping gas down                                                                    
the pipeline,  as well  what the  volumes, rates,  and costs                                                                    
were, so  that people  would know where  the gas  was coming                                                                    
from.  Ms. Delbridge  replied that  every contract  that the                                                                    
pipeline had  with a shipper  of gas would be  public record                                                                    
once  it  became  a firm  transportation  service  agreement                                                                    
before AGDC  started operations;  one would  be able  to see                                                                    
all of  the contracts  through the filings  of the  RCA. She                                                                    
noted  that   there  was   a  provision   that  commercially                                                                    
sensitive information  could be  withheld if the  RCA agreed                                                                    
that  it  was commercially  sensitive.  She  noted that  the                                                                    
information   Vice-Chair   Neuman   was   requesting   would                                                                    
certainly be made available.                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  inquired  if the  information  would  be                                                                    
submitted  in a  report  to the  legislature. Ms.  Delbridge                                                                    
replied  that the  firm  transportation shipping  agreements                                                                    
would be filed  with the RCA through  the regulatory process                                                                    
and that there  was no provision that it also  must be filed                                                                    
with the legislature.                                                                                                           
                                                                                                                                
Ms.  Delbridge  continued  to   address  the  members'  pre-                                                                    
submitted questions  regarding HB  4 and  discussed question                                                                    
3: "How are  spur lines off the main  pipeline handled?" She                                                                    
noted that  this question had been  directed particularly at                                                                    
how the 37 mile lateral  into Fairbanks would be handled and                                                                    
whether or  not it was included  as part of AGDC's  plan, as                                                                    
well as who would pay for  the spur line. She requested that                                                                    
Mr. Richards be able to respond to the question.                                                                                
                                                                                                                                
FRANK  RICHARDS,   MANAGER,  PIPELINE   ENGINEERING,  ALASKA                                                                    
GASLINE  DEVELOPMENT   CORPORATION,  related  that   in  the                                                                    
current  design  that  had gone  through  the  environmental                                                                    
impact statement  (EIS), there was  a lateral that  had been                                                                    
developed based on  the access to provide  gas to Fairbanks;                                                                    
He stated that the lateral would  be 35 miles and would be a                                                                    
12 inch, lower  pressure line that would be paid  for by the                                                                    
residents  of  Fairbanks and  the  North  Star Borough;  the                                                                    
lateral would equate to about 50  cents to 70 cents on their                                                                    
tariff.  He concluded  that the  cost of  future spur  lines                                                                    
would be borne by the entities  that would be using them. He                                                                    
noted  that  the  CS  had  the  requirement  that  upon  the                                                                    
commencement  of construction  of an  instate gasline,  that                                                                    
AGDC analyze  the potential  natural gaslines  connecting to                                                                    
industrial or  utility users  in other  parts of  the state;                                                                    
based  on this  analysis,  if  it was  in  the state's  best                                                                    
interest,  AGDC would  proceed forward  with the  design and                                                                    
financing of additional spur lines to those entities.                                                                           
                                                                                                                                
9:22:53 AM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman  asked who decided if  the information was                                                                    
in the  best interest of  the state and further  inquired if                                                                    
the  information  would be  something  that  would be  in  a                                                                    
report to  the legislature. Mr. Richards  responded that the                                                                    
best  interests  finding was  conducted  by  AGDC under  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Representative  Hawker  noted   that  concept  of  analyzing                                                                    
additional  connecting   lines  around   the  state   was  a                                                                    
provision  added  by  the   House  Resources  Committee.  He                                                                    
understood that  the process involved  many views,  but that                                                                    
HB 4's  sponsors had originally  wanted to keep  "that" type                                                                    
of  analysis  and  determination   in  the  hands  of  other                                                                    
agencies,  such as  the Alaska  Energy  Authority and  other                                                                    
others that  were really  the analytical  agencies; however,                                                                    
the  sponsors understood  the need  to work  with colleagues                                                                    
and felt that AGDC could  handle the added responsibility of                                                                    
the best interest findings.                                                                                                     
                                                                                                                                
Representative  Gara   observed  that   there  had   been  a                                                                    
statement in  the presentation that  HB 4 was  primarily for                                                                    
Alaskan use,  while the "other  project that we  are talking                                                                    
about"  would  be primarily  for  Asian  use; however,  both                                                                    
projects  would  meet  the Alaskan  demand  first  and  then                                                                    
export the  excess. He offered  that there was  no provision                                                                    
in  the other  effort to  deliver less  gas to  Alaskans and                                                                    
inquired  if that  was correct.  Ms.  Delbridge replied  the                                                                    
Alaska Gasline  Inducement Act  (AGIA) pipeline  project did                                                                    
not   provide  for   any  spur   lines,  but   provided  for                                                                    
connections;  the connections  would  essentially be  capped                                                                    
holes in the  pipe and would require that  someone build the                                                                    
spur lines at some point to connect the gas to Alaskans.                                                                        
                                                                                                                                
Representative  Gara  noted  that   the  AGIA  pipeline  did                                                                    
guarantee in-state gas  use and pointed out  that the tariff                                                                    
rates  under  that pipeline  were  supposed  to be  distance                                                                    
sensitive;  in other  words, the  shorter the  distance, the                                                                    
shorter  the  tariff.  Ms.  Delbridge  responded  that  AGIA                                                                    
guaranteed  the offtake  points only;  however, the  gas and                                                                    
pipeline  that connected  Alaskans  was  something that  was                                                                    
left undetermined  in that project  and was not part  of the                                                                    
duty  of  the  AGIA  licensee. She  believed  that  distance                                                                    
sensitive rates  would be  used with  the AGIA  project, but                                                                    
offered  that  AGDC  was  also  proposing  to  use  distance                                                                    
sensitive rates.                                                                                                                
                                                                                                                                
Ms.  Delbridge  continued  to   address  the  members'  pre-                                                                    
submitted questions regarding HB 4  and spoke to question 4:                                                                    
"How  is   royalty  gas  handled  under   the  current  AGDC                                                                    
legislation?"  She  pointed that  currently,  HB  4 did  not                                                                    
address  Alaska's royalty  gas,  except to  allow that  AGDC                                                                    
could  create a  subsidiary  corporation  that would  market                                                                    
natural gas;  this included  natural gas,  but did  not have                                                                    
to.                                                                                                                             
                                                                                                                                
Co-Chair  Stoltze  asked  about an  earlier  iteration.  Ms.                                                                    
Delbridge replied  that there was an  earlier iteration that                                                                    
allowed an  AGDC subsidiary  to pledge  royalty gas  to meet                                                                    
certain commitments contingent upon  the commissioner of the                                                                    
Department  of Natural  Resources (DNR)  approval; this  had                                                                    
been removed and the current  procedure for managing royalty                                                                    
gas  was  in  AS  38.05.183, which  laid  out  the  existing                                                                    
procedures  for  how  the DNR  commissioner  and  the  state                                                                    
royalty board would address royalty sales of gas or oil.                                                                        
                                                                                                                                
Co-Chair  Stoltze  noted that  some  of  the questions  were                                                                    
asked before people had the bill in their possession.                                                                           
                                                                                                                                
9:27:32 AM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman opined that  the state having more control                                                                    
over its  royalty share would  be an important  provision in                                                                    
HB 4.  He wanted to  see military bases have  an opportunity                                                                    
to  receive part  of the  state's  royalty gas  in order  to                                                                    
reduce  costs  and  thought that  there  was  no  comparison                                                                    
between  the small  value to  the General  Fund of  the 12.5                                                                    
percent  to $2  gas  and  the value  of  having the  state's                                                                    
military  bases.  He  wanted  to see  the  state  offer  its                                                                    
royalty share  to the  military free  of charge  for heating                                                                    
and electrical generation.                                                                                                      
                                                                                                                                
Co-Chair  Stoltze  understood  that any  discussion  of  the                                                                    
royalty would be handled in other legislation.                                                                                  
                                                                                                                                
Vice-Chair  Neuman thought  that  Ms.  Delbridge had  stated                                                                    
that how the state would handle  its royalty had been in the                                                                    
bill at one time, but had  been removed; he inquired if that                                                                    
was  correct.  Ms. Delbridge  responded  that  the bill  had                                                                    
never directed how  the state should handle  its royalty gas                                                                    
and how  it should be manage  it, but only provided  that it                                                                    
could be shipped  in an AGDC pipeline. She  noted that there                                                                    
had  been some  concern on  the part  of some  of the  state                                                                    
attorneys that  the language  was not  drawing a  far enough                                                                    
line in terms of not  trying to usurp the DNR commissioner's                                                                    
and the state royalty board's  ability to manage the state's                                                                    
royalty  gas as  they saw  fit per  statute; this  certainly                                                                    
could include, if someone were  applying or requesting, some                                                                    
kind  of  a  finding  that took  into  account  those  other                                                                    
values.                                                                                                                         
                                                                                                                                
Vice-Chair  Neuman clarified  that Alaska,  through DNR  and                                                                    
the royalty  board, would  have the  opportunity to  look at                                                                    
its royalty share  and provide that it could be  used as the                                                                    
state desired.  Ms. Delbridge  responded in  the affirmative                                                                    
and related that AS 38.05.183  laid out precisely how "they"                                                                    
would go about that.                                                                                                            
                                                                                                                                
9:30:08 AM                                                                                                                    
                                                                                                                                
Ms.  Delbridge continued  to respond  to  the members'  pre-                                                                    
submitted questions  regarding HB  4 and  addressed question                                                                    
5:  "Do  the legislative  findings  in  Section 1  apply  to                                                                    
Regulatory Commission  of Alaska findings?" She  pointed out                                                                    
that in  Section 1 of  the bill,  it specified that  an AGDC                                                                    
project  was in  the  best  interest of  the  state and  was                                                                    
required  for  the  public convenience  and  necessity.  She                                                                    
noted that  in the RCA  section, a pipeline was  required to                                                                    
obtain  a certificate  of public  convenience and  necessity                                                                    
(CPCN),  which  was a  building  permit  from the  RCA.  She                                                                    
pointed  out  that part  of  what  the  RCA looked  at  when                                                                    
deciding  whether to  issue a  CPCN was  whether or  not the                                                                    
project  was in  the public  convenience and  necessity. She                                                                    
stated that the  intent was that the  legislative finding in                                                                    
Section 1 of  the bill would reinforce the  finding that the                                                                    
state was making on behalf of  the RCA that this project was                                                                    
necessary   for  state's   interest   and   in  the   public                                                                    
convenience and  necessity. She pointed  out that  the sense                                                                    
was that it would be very  duplicative for the RCA to go and                                                                    
make  "that  finding"  again   if  legislature  had  already                                                                    
essentially  made  the determination  by  passing  HB 4  and                                                                    
charging a state entity with this mission.                                                                                      
                                                                                                                                
Ms.  Delbridge continued  to address  members' pre-submitted                                                                    
questions regarding HB 4 and  discussed question 6: "Page 4,                                                                    
lines  16-18   states  that   "the  corporation   cannot  be                                                                    
terminated  as  long  as  it   has  bonds,  notes  or  other                                                                    
obligations  outstanding" what  happens  if the  corporation                                                                    
goes into  the red and  obligations cannot be  honored?" She                                                                    
relayed that the question was  what happened in a worst-case                                                                    
scenario if  AGDC goes into  the red and  obligations cannot                                                                    
be honored.  She offered that  Mr. Richards was  prepared to                                                                    
answer the question.                                                                                                            
                                                                                                                                
Mr. Richards deferred the question to Mr. Dubler.                                                                               
                                                                                                                                
9:32:06 AM                                                                                                                    
                                                                                                                                
JOE  DUBLER, VICE  PRESIDENT  AND  CHIEF FINANCIAL  OFFICER,                                                                    
ALASKA  GASLINE  DEVELOPMENT  CORPORATION  AND  DIRECTOR  OF                                                                    
FINANCE, ALASKA  HOUSING FINANCE CORPORATION,  DEPARTMENT OF                                                                    
REVENUE, pointed out that  question involved bankruptcy laws                                                                    
and  what  happened  when  entities  were  "underwater".  He                                                                    
believed that  Mr. Vassar, who  was AGDC's  general counsel,                                                                    
would be better suited to answer the question.                                                                                  
                                                                                                                                
KEN   VASSAR,   ALASKA  GASLINE   DEVELOPMENT   CORPORATION,                                                                    
ANCHORAGE (via  teleconference), responded that  the primary                                                                    
intent of the provision was  to protect the bond holders and                                                                    
explained  that when  AGDC issued  bonds,  the holders  were                                                                    
purchasing them  with the belief  that AGDC would  be around                                                                    
long enough to  be able to repay them. The  provision was an                                                                    
added benefit  to the  bond holders  and helped  AGDC market                                                                    
the bonds. He expounded that  it helped AGDC market and sell                                                                    
bonds if  it could say  that the legislation said  that AGDC                                                                    
would be  around for  as long as  it had  bonds outstanding;                                                                    
however, AGDC  going in the  red and  not being able  to pay                                                                    
its debts  represented a separate  question that  related to                                                                    
the kind  of bonds  that AGDC planned  to issue,  which were                                                                    
revenue bonds that  were supported by the  revenues that the                                                                    
pipeline would  generate. He explained that  the bonds would                                                                    
be marketed as  revenue bonds and the  purchasers would know                                                                    
that the only  source of revenue to back the  bonds from and                                                                    
get paid from were the  revenues of the project; if, despite                                                                    
best  forecasts,  it turned  out  that  these revenues  were                                                                    
insufficient, the bond  holders simply did not  get paid. He                                                                    
concluded   that  unpaid   bondholders  would   pursue  what                                                                    
remedies they  could, but  that it would  be clear  that the                                                                    
only source of  payment available to them  were the revenues                                                                    
that AGDC had pledged.                                                                                                          
                                                                                                                                
Co-Chair Stoltze  interjected that the  administration would                                                                    
address  the issue  at  a later  hearing  because they  were                                                                    
involved in the state's bonds.                                                                                                  
                                                                                                                                
Representative  Gara  asked  if  the  state  had  the  moral                                                                    
obligation to  pay the bonds  off if the project  was unable                                                                    
to. He  noted that  the state  being unable  to pay  off the                                                                    
bonds  would   affect  its  credit  rating.   Ms.  Delbridge                                                                    
responded  that the  sponsors of  HB 4  understood that  the                                                                    
ability of  AGDC to create  a capital reserve fund  and have                                                                    
that  backed by  the moral  obligation of  the state  was of                                                                    
great concern  to some committee  members and others  in the                                                                    
Capitol  Building;  furthermore,  through  discussions  with                                                                    
AGDC  and  Co-Chair  Stoltze's   staff,  the  sponsors  were                                                                    
prepared  to  offer an  amendment  to  the bill  that  would                                                                    
essentially  leave  the  ability  and the  intent  to  do  a                                                                    
capital  reserve  fund  that  was  backed  by  state  moral-                                                                    
obligation  debt in  the  bill, but  make  it contingent  on                                                                    
future  legislative   action  that  expressively   gave  the                                                                    
authorization to AGDC to create  that reserve fund backed by                                                                    
moral obligation  debt. She stated that  the amendment would                                                                    
allow  AGDC to  give the  legislature hard  information that                                                                    
explained  what kind  of shippers  and what  kind of  credit                                                                    
worthiness  that it  was actually  trying  to backstop  with                                                                    
that capital reserve fund, if  one was required, in order to                                                                    
give the  legislature information  that it needed  to decide                                                                    
whether  to   authorize  the   fund,  including   the  moral                                                                    
obligation  piece and  whether there  should be  a limit  on                                                                    
that.                                                                                                                           
                                                                                                                                
9:36:40 AM                                                                                                                    
                                                                                                                                
Representative Gara  asked Mr. Dubler  if it would  risk the                                                                    
state's  credit  rating  if  the  state  put  in  its  moral                                                                    
obligation and neither  the pipeline nor the  state was able                                                                    
to meet the  bond requirements. Mr. Dubler  responded in the                                                                    
affirmative and  explained that the  way a  moral obligation                                                                    
worked was through  the creation of a reserve  fund that was                                                                    
similar to the  one that was in HB 4.  He explained that the                                                                    
bonds were  30-year bonds  and that to  the extent  that the                                                                    
project drew  on that reserve  fund, AGDC would  be required                                                                    
to request of  the state that the fund  be recapitalized and                                                                    
brought  back up  to the  minimum  amount; furthermore,  the                                                                    
state  failing to  do this  for any  reason would  be a  big                                                                    
problem regarding its credit rating.  He relayed that he had                                                                    
spoken a  lot with DOR  regarding the impact of  just having                                                                    
the bonds  as a  moral obligation to  the state.  He pointed                                                                    
out that  the debt  portion of "this  financing at  about $8                                                                    
billion, at about  a quarter of it would be  $2 billion with                                                                    
a moral obligation  of the state"; "even  that" could impact                                                                    
the  state's credit  rating.  He stated  that  AGDC did  not                                                                    
currently anticipate  needing the capital reserve  fund, but                                                                    
that it was offered as a  tool. He pointed out that the more                                                                    
tools  one  had  availability  when  marketing,  the  better                                                                    
chance there was of a successful financing.                                                                                     
                                                                                                                                
Representative   Gara  recalled   hearing  the   bill  being                                                                    
presented  at the  Anchorage Legislative  Information Office                                                                    
in December and offered that  one of the sponsors had stated                                                                    
that  HB 4's  project should  be  viewed as  a public  works                                                                    
project and  something that would  require a  state subsidy;                                                                    
he inquired if this was part of the current plan.                                                                               
                                                                                                                                
Representative  Hawker  noted  that  he  took  exception  to                                                                    
having statements made about the  sponsors' intent that were                                                                    
inaccurate.                                                                                                                     
                                                                                                                                
Representative  Gara   asserted  that   there  had   been  a                                                                    
statement made  in December that  the bill's  project should                                                                    
be treated as a public-works project.                                                                                           
                                                                                                                                
Representative  Hawker  observed  that "should"  inferred  a                                                                    
very clear statement of intent.  He relayed that it had been                                                                    
discussed  that it  was one  way for  the state  to look  at                                                                    
this,  should  it  be  one of  the  courses  action  chosen;                                                                    
however, the sponsors  would much rather see  a project move                                                                    
forward on its economic merits  in the private sector and be                                                                    
facilitated  only  by an  economic  climate  and an  initial                                                                    
investment of funds  by the state that was  necessary to get                                                                    
a  project  going. He  offered  that  it was  possible  that                                                                    
through  separate legislative  action at  a later  date, the                                                                    
state  might choose  to  view  HB 4's  project  or even  the                                                                    
connecting  pipelines in  other projects  as something  that                                                                    
was  an  assistance   to  the  state  and   that  built  out                                                                    
infrastructure much  like roads and very  large public-works                                                                    
projects. He believed  that someone had misspoken  if it was                                                                    
said  that  HB  4's   project  "should"  be  a  public-works                                                                    
project.                                                                                                                        
                                                                                                                                
Representative Gara inquired  if there was any  plan to seek                                                                    
state  assistance to  make HB  4's project  pencil out.  Mr.                                                                    
Dubler  responded that  the tariffs  that AGDC  had produced                                                                    
to-date  did not  require a  state subsidy  beyond the  $400                                                                    
million to get  the project to an open  season. He explained                                                                    
that the  open season would  take AGDC through  another gate                                                                    
and prove  that the project  was feasible; as this  point, a                                                                    
3rd  party  builder/owner  or  builder/owner/operator  would                                                                    
come  onboard  and  build  and   operate  the  pipeline.  He                                                                    
concluded   that  AGDC   did   not   anticipate  any   state                                                                    
contribution  beyond   the  initial  $400  that   was  being                                                                    
requested in the bill.                                                                                                          
                                                                                                                                
9:40:50 AM                                                                                                                    
                                                                                                                                
Representative Costello asked Mr.  Vassar about the language                                                                    
on page  4, line 16  of the bill,  where it was  stated that                                                                    
AGDC  had a  legal existence  independent and  separate from                                                                    
the state;  however, on Page 2,  lines 24 and 25,  it stated                                                                    
that AGDC shall be treated  for all purposes as the transfer                                                                    
of a  corporation within the  state and not as  the creation                                                                    
of  a new  entity  by  the state.  She  thought  that the  2                                                                    
sections of  the bill might  be contradictory  and requested                                                                    
an explanation.  Mr. Vassar replied that  the first language                                                                    
that Representative Costello was  referencing was on page 10                                                                    
and was a  common type of language that was  used for public                                                                    
corporations of  the state; these corporations  were given a                                                                    
separate  legal existence  because  it was  the reason  that                                                                    
they  were created  in the  first place.  He expounded  that                                                                    
public  corporations  of  the state  were  created  to  help                                                                    
generally insulate the state from  the risks and liabilities                                                                    
that the corporations may be exposed to.                                                                                        
                                                                                                                                
Mr.    Vassar   addressed    the   second    language   that                                                                    
Representative  Costello  had  referenced and  thought  that                                                                    
although she  raised a good  point, that section was  ok the                                                                    
way it was  because unlike other corporations  of the state,                                                                    
AGDC was a subsidiary of  a public corporation of the state;                                                                    
the  corporation currently  existed, currently  had a  legal                                                                    
existence of its own, and was  a separate entity of its own.                                                                    
He further  explained that the  idea behind the  language on                                                                    
page 2 of the  bill was to ensure that if  AGDC moved from a                                                                    
subsidiary of  AHFC to  become a  public corporation  of its                                                                    
own, that  the transition  was done  in a  way that  did not                                                                    
interrupt   the    current   activities    and   contractual                                                                    
commitments   that   AGDC    had   already   entered   into;                                                                    
furthermore,  the purpose  of the  language was  to make  it                                                                    
clear  that a  new entity  was not  being created,  but that                                                                    
there was a transfer of title from AHFC to the state itself                                                                     
                                                                                                                                
9:43:49 AM                                                                                                                    
                                                                                                                                
Ms.   Delbridge   addressed   the   members'   pre-submitted                                                                    
questions  regarding  HB  4 and  believed  that  Mr.  Dubler                                                                    
answered  question  7:  "Could  the  state's  bond  rate  be                                                                    
affected by AGDC's capital reserve fund obligations?"                                                                           
                                                                                                                                
Ms.   Delbridge   discussed   the   members'   pre-submitted                                                                    
questions regarding HB 4 and  spoke to question 8: "There is                                                                    
a  30-day  timeline  with no  apparent  extensions  for  the                                                                    
recourse  tariff with  the RCA,  which calls  for meaningful                                                                    
review  of rates,  terms, conditions,  and calls  for public                                                                    
testimony.  Is this  a realistic  timeline to  evaluate what                                                                    
maybe extensive  data from shippers  and does there  need to                                                                    
be a  possible postponement  period, possibly only  for good                                                                    
cause?" She stated  that the bill provided for  a 30-day RCA                                                                    
process for  the approval for  the initial  recourse tariff,                                                                    
which  looked  at  the capital  structure,  the  depreciable                                                                    
life, and the return on  equity that was based on estimates;                                                                    
this was well in advance  of construction. She recalled that                                                                    
the bill's sponsors had presented to  the RCA on March 15 in                                                                    
Anchorage  to review  what was  in HB  4; the  RCA had  been                                                                    
clear that the 30-day period  was not sufficient enough time                                                                    
to  conduct the  level  of review  that  was requested.  She                                                                    
explained that  the sponsors were  prepared to  increase the                                                                    
level  of RCA  review and  pointed  out that  every time  an                                                                    
additional time  frame was  added that  was a  potential and                                                                    
not  given  up  front,  it delayed  all  of  the  commercial                                                                    
processes,  open seasons,  negotiations, and  progress on  a                                                                    
pipeline  that  were  scheduled  after  that  set  statutory                                                                    
window of review that was  allowed by the RCA; extending the                                                                    
30-day  review  period  to "for  example"  90  days,  AGDC's                                                                    
progress  would  be  delayed   for  another  2  months.  She                                                                    
expounded that if there was  an additional delay that kicked                                                                    
in after that 90 day window,  AGDC would not know that until                                                                    
90  days  was  over;  as   a  result,  AGDC's  open  season,                                                                    
commercial agreements,  and progress  could be  delayed. She                                                                    
offered  that for  every year  the project  was delayed,  it                                                                    
"essentially" added another $200  million in inflation costs                                                                    
at 2.5 percent.  She concluded that giving  an additional 6-                                                                    
month window to  the RCA to review contracts,  if it decided                                                                    
to, would come at a price  of roughly $100 million and would                                                                    
delay the gas to Alaskans for another 6 months.                                                                                 
                                                                                                                                
9:46:36 AM                                                                                                                    
                                                                                                                                
Representative Hawker  stated that  question 8 was  a policy                                                                    
question that  had been considered  by HB 4's  sponsors, who                                                                    
saw an  important role  for the RCA  in the  reviews because                                                                    
they were necessary  for the public good  and the protection                                                                    
of the  consumer. He  pointed out  that the  legislature had                                                                    
created the RCA in order to  have an oversight body for such                                                                    
things.  He reiterated  that it  was a  policy approach  and                                                                    
that   the  sponsors   wanted  reasonable   and  appropriate                                                                    
timelines  on   the  RCA.  He  recalled   passing  statutory                                                                    
requirements  that specified  that the  RCA had  to complete                                                                    
activity under  certain timeframes.  He reiterated  that the                                                                    
sponsors wanted  reasonable and appropriate  timeframes, but                                                                    
that  they did  not  want excessive  timeframes. He  offered                                                                    
that  "when you  were  a hammer,  everything  looked like  a                                                                    
nail," and  opined that if  he were a regulatory  agency, he                                                                    
would   prefer   unlimited   timelines;  however,   if   the                                                                    
legislature wanted  to get a  pipeline project  going, which                                                                    
he submitted it  wanted to see progress on,  it probably did                                                                    
not  want to  allow the  possibility for  unlimited time  to                                                                    
delay a  project. He  pointed out  that the  bill's sponsors                                                                    
were  working  with Co-Chair  Stoltze's  staff  in order  to                                                                    
reach  an accommodation  regarding  the  review period  that                                                                    
worked for everyone.                                                                                                            
                                                                                                                                
Vice-Chair  Neuman   asked  about   the  $2   billion  moral                                                                    
obligation of the  state and wondered where  the figure came                                                                    
from. He thought  maybe the $2 billion was  derived from the                                                                    
70 percent to  30 percent debt to equity  ratio and inquired                                                                    
if it  represented an equity  portion that the  state needed                                                                    
to come up with. Mr. Dubler  replied that the $2 billion was                                                                    
a made up number  and that if "we were to  do $2 billion, we                                                                    
probably would not  do the entire 6." He  explained that the                                                                    
current ratio  was 75 percent  to 25 percent debt  to equity                                                                    
and that there would be $6  billion in debt; the entire debt                                                                    
service  would probably  not need  to be  backed by  a moral                                                                    
obligation,  but  possibly  the  last ten  years  would.  He                                                                    
explained  that  the longer  bonds  would  have the  biggest                                                                    
impact and that as a result,  the entire amount would not be                                                                    
taken. He  offered that the  current state  moral obligation                                                                    
balance was a little over $1  billion and that $2 billion to                                                                    
$6 billion would represent a lot  more, which was why he had                                                                    
stated that it did have  the potential to impact the state's                                                                    
credit rating.  He stated that  moral obligations  showed up                                                                    
differently  than  general  obligation debt  on  the  rating                                                                    
agencies' analyses and were depicted as a credit negative.                                                                      
                                                                                                                                
9:50:50 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  asked  what the  state's  responsibility                                                                    
would be for the equity  portion. He additionally asked what                                                                    
the equity  portion was  and where it  would come  from. Mr.                                                                    
Dubler  responded that  the equity  portion would  come from                                                                    
the equity  investors, which would  be either  the producers                                                                    
that   were   shipping   the   gas    or   a   third   party                                                                    
build/owner/operator. He explained the  Alaska would own 1/8                                                                    
of the gas  in the form of royalty and  that the state could                                                                    
have the  potential of putting  up 1/8 of the  equity, which                                                                    
came  out  to  be  about  $250 million;  this  would  be  an                                                                    
investment, not  a subsidy and  was currently  calculated to                                                                    
have a return  of 11 percent, which he though  beat most "of                                                                    
what were are getting at least in the debt markets."                                                                            
                                                                                                                                
Representative  Gara discussed  AGIA and  noted that  it had                                                                    
required  a  debt  to  equity  ratio of  70  percent  to  30                                                                    
percent; the project had since  moved to 80 percent debt. He                                                                    
explained that  the more debt  a project had, the  lower the                                                                    
RCA allowed  the tariff to be.  He inquired if AGDC  had the                                                                    
same requirement with its project  to maximize the amount of                                                                    
debt by  the project owner in  order to keep the  tariff low                                                                    
for  consumers.  Mr.  Dubler   did  not  believe  that  AGDC                                                                    
currently  had  that  requirement.  He  explained  that  the                                                                    
original goal  had been a 70  percent to 30 percent  debt to                                                                    
equity  ratio, which  was  in line  with  the AGIA  project;                                                                    
however, AGDC  felt that  a 75 percent  to 25  percent ratio                                                                    
provided  a better  cost  of funds  because  there would  be                                                                    
"less  capital at  11 percent  and  more at  the lower  debt                                                                    
number."  He  stated that  going  to  an  80 percent  to  20                                                                    
percent split would depend on  what happened during the open                                                                    
season  when  AGDC attempted  to  sell  the project;  if  an                                                                    
investor  only  wanted to  put  in  20 percent,  AGDC  could                                                                    
probably  do the  80 percent  to 20  percent debt  to equity                                                                    
ratio. He  furthered that  if an investor  wanted to  put 30                                                                    
percent in, there would be a negotiation.                                                                                       
                                                                                                                                
Representative Gara asked about  the 30-day timeline for the                                                                    
RCA to  set the tariff.  He noted  that the RCA  stated that                                                                    
the  30-day period  was  way  too short  and  was glad  that                                                                    
people were taking  a look at that. He  explained that there                                                                    
was a  way that  a company  could run out  the clock  by not                                                                    
giving the RCA the information that  it needed and that if a                                                                    
company held out  for 90 days and  withheld the information,                                                                    
the RCA  would not even be  able to make the  decision in 90                                                                    
days. He hoped  that people would consider  a provision that                                                                    
would not  allow a company  that the RCA  needed information                                                                    
from to  run out  the clock  and pointed  out that  this had                                                                    
been put in prior legislation.                                                                                                  
                                                                                                                                
Ms. Delbridge  addressed Representative Gara's  comments and                                                                    
stated that  there were  a number  of provisions  already in                                                                    
the RCA section  of HB 4 that allowed the  RCA to extend any                                                                    
review  period where  delay was  caused by  a failure  of an                                                                    
applicant to provide additional  information as requested by                                                                    
the  duration of  that delay;  furthermore,  she would  make                                                                    
sure  that this  was  in fact  part  of the  recourse-tariff                                                                    
approval process.                                                                                                               
                                                                                                                                
9:55:13 AM                                                                                                                    
                                                                                                                                
Representative  Hawker pointed  out  that the  RCA would  be                                                                    
"reviewing" tariffs and would not be "setting" tariffs.                                                                         
                                                                                                                                
Ms.  Delbridge  continued  to speak  to  the  members'  pre-                                                                    
submitted questions  regarding HB  4 and  discussed question                                                                    
9: "Confidentiality  agreements appear to be  open-ended. Is                                                                    
this true? What is needed  to be included in confidentiality                                                                    
agreements?" She  pointed out  that the  ability of  AGDC to                                                                    
enter  into  a  confidentiality  agreement  with  a  private                                                                    
sector   entity  was   not  exactly   open   ended  in   the                                                                    
legisaltion, but that the terms  of the that agreement would                                                                    
be determined by the agreement  itself; it was unlikely that                                                                    
those  were things  that would  be disclosed  in the  future                                                                    
because they were  confidential in order to  provide for the                                                                    
protection  of   peoples'  commercial  and   private  sector                                                                    
interests. She  offered that  Mr. Kleppin  would be  able to                                                                    
discuss   what   would   need    to   be   included   within                                                                    
confidentiality agreements  and opined  that question  9 was                                                                    
asking  what  kinds  of  things  confidentiality  agreements                                                                    
would be needed for.                                                                                                            
                                                                                                                                
Co-Chair  Stoltze stated  that committee  would discuss  the                                                                    
concerns and benefits  of confidentiality agreements further                                                                    
with the administration and the Department of Law.                                                                              
                                                                                                                                
Representative   Gara   had   a   confidentiality   question                                                                    
regarding a different provision in  the bill. He pointed out                                                                    
that  under the  legislation,  AGDC's board  was allowed  to                                                                    
issue  bonds and  was  only  required to  give  24 hours  of                                                                    
public  notice; furthermore,  it was  unclear if  the public                                                                    
would be able to participate  at all under the provision. He                                                                    
offered that it seemed like the board could also "do this"                                                                      
electronically and  e-mail with each other  through a medium                                                                    
where the  public did not  get to see anything.  He inquired                                                                    
if he  was reading  the provision  correctly that  there was                                                                    
only  24 hours  public  notice and  that  the board  members                                                                    
could discuss the issue privately  via e-mail with no public                                                                    
participation.  Ms. Delbridge  clarified  that  AGDC had  to                                                                    
have  open  board meetings  regardless  and  could not  hold                                                                    
private meetings  whether it was  doing regular  business or                                                                    
conducting  a bond  issuance. She  explained  that AGDC  was                                                                    
subject to  the open meetings portion  of the Administrative                                                                    
Procedures  Act for  any  board meeting  and  would have  to                                                                    
provide  reasonable notice  and  comply with  all the  other                                                                    
things that  anyone else  did; however,  there was  an extra                                                                    
provision that  specified that outside  of this,  AGDC could                                                                    
provide 24-hour notice  for a meeting in  which bonds needed                                                                    
to  be issued.  She pointed  out  that AHFC  was allowed  to                                                                    
provide 24-hour notice  for a meeting in  which bonds needed                                                                    
to be  issued, but believed  that the corporation  had never                                                                    
exercised that ability; however,  there was a very important                                                                    
reason that the  ability was there. She asked  if Mr. Dubler                                                                    
would like to speak to the point.                                                                                               
                                                                                                                                
9:58:10 AM                                                                                                                    
                                                                                                                                
Mr.  Dubler  explained  the provision  that  gave  AGDC  the                                                                    
ability to  give a  24-hour public notice  for a  meeting in                                                                    
which  bonds  needed to  be  issued.  He reported  that  the                                                                    
provision  was  there  because  it  allowed  a  quick  board                                                                    
meeting and approval  if a corporation was in  the middle of                                                                    
a bond issuance  or was planning a bond  issuance and events                                                                    
happened in the  market that required getting  to the market                                                                    
quickly because  it might  not be  there in  a "week  or two                                                                    
weeks, or however  long the notice needs to  be." He related                                                                    
that the important consideration in  the context of AGDC was                                                                    
that the  bonds to be  issued would not  be the debt  of the                                                                    
state, but would  be the debt of the  project. He understood                                                                    
the concern  of having public  notice, as well as  access to                                                                    
the board and its information.  He pointed out that AGDC was                                                                    
still subject  to the online  public system and  would still                                                                    
be  required to  publish  the notice  24  hours in  advance;                                                                    
however,  in  order  to  react   to  declining  or  decaying                                                                    
markets, AGDC needed to have  the ability to operate quickly                                                                    
if it was necessary.                                                                                                            
                                                                                                                                
Ms. Delbridge added that it was  very clear on page 5 of the                                                                    
bill that  AGDC's board  may meet  and transact  business by                                                                    
electronic media  "if" there had  been public notice  of the                                                                    
times  and locations  where  the meeting  would  be held  by                                                                    
electronic media,  "if" participants and members  could hear                                                                    
and  have  the same  right  to  participate  as if  it  were                                                                    
conducted in  person, and  "if" copies  of all  the relevant                                                                    
materials were  also provided to  the public.  She concluded                                                                    
that  a meeting  via electronic  media would  not be  hidden                                                                    
from the public.                                                                                                                
                                                                                                                                
Representative Gara  inquired if  "electronic media"  in the                                                                    
bill was referencing a teleconference  that the public would                                                                    
be able  to see and  did not  include email that  the public                                                                    
would  not  be able  to  see.  Ms. Delbridge  believed  that                                                                    
regardless of  the actual electronic media  used, the public                                                                    
had to  be provided certain  things. She quoted from  page 5                                                                    
of the bill as follows:                                                                                                         
                                                                                                                                
     "if copies of pertinent reference materials, statute,                                                                      
     regulations, and audio visual material are reasonably                                                                      
     available to participants and to the public…"                                                                              
                                                                                                                                
     "if  participants   and  members   of  the   public  in                                                                    
     attendance  can  hear  and   have  the  same  right  to                                                                    
     participate  in  the meeting  as  if  the meeting  were                                                                    
     conducted in person…"                                                                                                      
                                                                                                                                
Ms.  Delbridge continued  to  address Representative  Gara's                                                                    
question and related that if  AGDC was transacting business,                                                                    
the public needed to be involved in that.                                                                                       
                                                                                                                                
10:00:18 AM                                                                                                                   
                                                                                                                                
Representative Kawasaki referenced subsection  (e) on page 5                                                                    
of the  bill and noted  that items 2,  3, and 4  also stated                                                                    
that the  sale and  disposition of  an asset,  the ownership                                                                    
structure  of the  pipeline, and  an  action committing  the                                                                    
corporation  to an  additional  natural  gas pipeline  could                                                                    
also  be  voted upon.  He  understood  the  need to  get  to                                                                    
markets  quickly,  but pointed  out  that  there were  other                                                                    
things  that  could  be done  "under  that."  Ms.  Delbridge                                                                    
responded that  the provisions that  Representative Kawasaki                                                                    
had  referenced did  not pertain  to the  24 hour  notice to                                                                    
issue bonds, but  required a higher threshold  of members of                                                                    
the board  to be  present for substantive  votes that  had a                                                                    
lot of bearing  and meaning to Alaskans.  She explained that                                                                    
the higher threshold  would be used for  things like issuing                                                                    
and selling  bonds, managing those  assets, and  deciding on                                                                    
ownership structures, and related that  there was no 24 hour                                                                    
notice required  for those votes  because they  were regular                                                                    
board  business;  furthermore,   the  sponsors  were  simply                                                                    
saying in  the bill that  those types of decisions  not only                                                                    
required a majority of the  quorum, but also that a majority                                                                    
of the board must be present.                                                                                                   
                                                                                                                                
Mr.  Dubler noted  that  the reason  the  bill was  allowing                                                                    
telephonic  boards meetings  was because  in Alaska,  it was                                                                    
sometimes difficult to get 7 or  5 people, or how every many                                                                    
would be  on the board,  in the same  room and that  if AGDC                                                                    
was negotiating  a sale, purchase, or  something that needed                                                                    
a majority  of the  boards, it  might not be  able to  get a                                                                    
majority of  the board in  the same room. He  expounded that                                                                    
AGDC wanted  to have  the ability  to have  a member  on the                                                                    
phone in case it was needed.                                                                                                    
                                                                                                                                
Ms.   Delbridge   discussed   the   members'   pre-submitted                                                                    
questions regarding HB 4 and  addressed question 10:" If the                                                                    
state's moral obligation  did not come into  play, how would                                                                    
that  affect AGDC's  credit rating?"  She discussed  a prior                                                                    
question  and asked  if it  had  been sufficiently  answered                                                                    
related to moral obligation.                                                                                                    
                                                                                                                                
Co-Chair Stoltze  thought that the question  was asking what                                                                    
the upside benefit of the  moral obligation was, but that he                                                                    
was unsure.                                                                                                                     
                                                                                                                                
Mr. Dubler noted  that the answer depended  in the structure                                                                    
that AGDC set  up. He relayed that a  financing package that                                                                    
AGDC would put  forward would be based on the  rating of its                                                                    
counter  parties.  He  offered that  Exxon  Mobile,  British                                                                    
Petroleum (BP),  and ConocoPhillips  were very  highly rated                                                                    
entities   and  that   if   those   companies  were   AGDC's                                                                    
counterparties   in   the   firm   transportation   shipping                                                                    
agreement,  he did  not believe  that  the moral  obligation                                                                    
would have  a very large  impact on the financing  and would                                                                    
probably not  be used.  He stated that  if the  majors opted                                                                    
not  to  be shippers  and  instead  the counterparties  were                                                                    
companies  like  the Enstar  Natural  Gas  Company or  other                                                                    
small utilities in the state  that would have relatively low                                                                    
ratings,  AGDC  could  get   a  "fairly  decent  advantage";                                                                    
however, the advantage would be  "probably not as big as the                                                                    
trucking project"  of the Alaska Industrial  Development and                                                                    
Export Authority (AIDEA), which he  believed was "200 or 250                                                                    
basis  points." He  thought  that AIDEA  was  looking at  an                                                                    
unrated  project,  while  AGDC  was planning  on  doing  its                                                                    
project on a  rated basis. He explained that  "what you get"                                                                    
was the difference between what  your project would be rated                                                                    
without  the credit  enhancement versus  the rating  you get                                                                    
with the  credit enhancement, which  could be  anywhere from                                                                    
10  basis points  to  100  or 150  basis  points; the  exact                                                                    
amount would  be hard  to determine  without looking  at the                                                                    
structure  again. He  explained  that a  basis  point was  a                                                                    
percent of a percent and was .01 percent.                                                                                       
                                                                                                                                
Representative  Hawker relayed  that the  cost of  financing                                                                    
ultimately  became  a  cost  to the  consumer  and  that  in                                                                    
crafting the  bill, the policy  call by the sponsors  was to                                                                    
allow AGDC  to avail itself  of the moral obligation  of the                                                                    
state if it was necessary  and appropriate to execute a most                                                                    
efficient financing  transaction that resulted in  the least                                                                    
possible cost to consumers.                                                                                                     
                                                                                                                                
10:05:15 AM                                                                                                                   
                                                                                                                                
Representative Gara stated that he  was hearing 2 things. He                                                                    
referred  to  testimony that  the  moral  obligation of  the                                                                    
state  might not  be needed,  but  observed that  if it  was                                                                    
needed, it put the state on  the hook. He inquired why there                                                                    
was not  a provision in  the bill  that stated that  if AGDC                                                                    
decided to use the moral obligation  of the state, it had to                                                                    
seek the legislature's or the governor's approval.                                                                              
                                                                                                                                
Ms. Delbridge responded that  based on committee's concerns,                                                                    
the sponsors were prepared to add  an amendment to HB 4 that                                                                    
left  in the  structure of  how a  capital reserve  fund and                                                                    
moral obligation would work, but  required as a preface that                                                                    
by law,  AGDC must  get come back  and get  express approval                                                                    
from  the  legislature  to actually  use  the  ability.  She                                                                    
explained that  if the  structure was left  in the  bill, it                                                                    
was clear that  this was the intent of  the legislature, but                                                                    
only  if and  not  until AGDC  could  come with  information                                                                    
regarding who it was hoping to  back stop, whether it was in                                                                    
fact  necessary, and  whether  it benefited  the state.  She                                                                    
reiterated that  the sponsors were  happy to amend  the bill                                                                    
to address the issue.                                                                                                           
                                                                                                                                
Ms.  Delbridge  continued  to speak  to  the  members'  pre-                                                                    
submitted questions  regarding HB  4 and  addressed question                                                                    
11:  Could a  cap be  set  on the  state's moral  obligation                                                                    
capacity?" She believed that the  question was referencing a                                                                    
cap per project or per  authorization to do so and responded                                                                    
that  a cap  could  be  set. She  stated  that the  specific                                                                    
circumstances regarding  how much of a  capital reserve fund                                                                    
backed by  how much of  moral obligation debt  was important                                                                    
when  determining  "these  things."  She  offered  that  Mr.                                                                    
Dubler  or   DOR  would   have  suggestions   regarding  how                                                                    
something like this would be capped.                                                                                            
                                                                                                                                
Co-Chair  Stoltze  asked  for  a  brief  commentary  on  the                                                                    
advocacy of  question 11, as  well as some of  its potential                                                                    
issues. Mr.  Dubler replied that a  cap could be put  on the                                                                    
moral obligation capacity on a  transaction like this; "they                                                                    
were typically no more than 10  percent of the debt that was                                                                    
issued,  which  in  this  case  would  be  approximately  $6                                                                    
billion"; 10 percent  of $6 billion was  $600 million, which                                                                    
would be the  amount of the reserve fund.  He explained that                                                                    
"they"  generally had  a  1 year  maximum  debt service.  He                                                                    
related that he had done a quick calculation and that a 30-                                                                     
year bond at  7 percent would yield just  under $500 million                                                                    
per  year  in  debt  service.   He  expounded  that  if  the                                                                    
potential  reserve fund  was capped  at  $500 million,  that                                                                    
would  be the  maximum  that would  need to  be  put in  the                                                                    
reserve fund; furthermore, AGDC  had not discussed the issue                                                                    
of a possible cap much because  it would have come back when                                                                    
it had  better numbers,  a better idea  what the  market and                                                                    
the project rating  would be, and had a  much better package                                                                    
to bring back to the  legislature when it requested approval                                                                    
for that moral obligation.                                                                                                      
                                                                                                                                
10:08:26 AM                                                                                                                   
                                                                                                                                
Ms.  Delbridge  continued  to   discuss  the  members'  pre-                                                                    
submitted  questions regarding  HB 4  and spoke  to question                                                                    
12: On  page 8, lines  18-19, what  type of hearings  do you                                                                    
envision AGDC  conducting?" She pointed out  that AGDC could                                                                    
conduct a  variety of hearings  and that it was  prepared to                                                                    
give  examples. She  stated  that it  was  AGDC's duty  once                                                                    
construction  had  been  started  on  a  mainline  to  start                                                                    
analyzing additional  pipeline opportunities  that benefited                                                                    
Alaskans and  opined that this  might represent  an instance                                                                    
in which AGDC  would like to hold hearings in  order to talk                                                                    
to communities  and other entities  to find out  where those                                                                    
opportunities  really were.  She pointed  out that  AGDC may                                                                    
call  a  hearing and  try  to  gather information  regarding                                                                    
different  explorers' plans  and entry  points into  oil and                                                                    
gas  basins  in  order  to  allow  for  future  planning  on                                                                    
additional pipelines.                                                                                                           
                                                                                                                                
10:09:38 AM                                                                                                                   
                                                                                                                                
Ms.  Delbridge  continued  to speak  to  the  members'  pre-                                                                    
submitted  questions  regarding  HB   4  and  addressed  the                                                                    
"bonding questions."  She spoke  to the 2  following bonding                                                                    
questions:                                                                                                                      
                                                                                                                                
     "If the bond mechanism  relies on the credit worthiness                                                                    
     of the shippers,  can the shippers build  the pipe line                                                                    
     with   their  own   resources,  and   keep  the   moral                                                                    
     obligation of the state out of the equation?"                                                                              
                                                                                                                                
     "If there was no  state moral obligation necessary what                                                                    
     will  that do  to  the potential  bond interest  rates?                                                                    
     Caveat:  If there  was a  draw on  the Capital  Reserve                                                                    
     Fund  (if the  shippers  fail to  meet their  financial                                                                    
     obligations)  there   is  the   danger  of   the  moral                                                                    
     obligation  pledge attaching  to all  moral obligations                                                                    
     of  the  state and  automatically  drag  down our  bond                                                                    
     rating."                                                                                                                   
                                                                                                                                
Mr. Dubler addressed  the first question and  stated that if                                                                    
a shipper wanted to build a  pipeline, they could do so with                                                                    
their  own equity  and  go  out to  the  capital markets  to                                                                    
borrow money; furthermore,  they could have done  that 10 or                                                                    
20 years ago, but it had not happened yet.                                                                                      
                                                                                                                                
Co-Chair  Stoltze wondered  if  Representative Hawker  would                                                                    
have met  his goal if  HB 4 was  the catalyst for  a shipper                                                                    
building the pipeline. Representative  Hawker replied in the                                                                    
affirmative and explained  that the desired outcome  of HB 4                                                                    
was that the  private sector would be able to  step up under                                                                    
the framework established by the  bill and take a project to                                                                    
fruition  on its  own. He  reminded the  committee that  the                                                                    
legislation was not  about building 1 pipeline,  but that it                                                                    
represented  a suite  of tools  for the  State of  Alaska to                                                                    
facilitate a  project going  forward; furthermore,  the bill                                                                    
would give  the state a  strong seat  at the table  with any                                                                    
project that  went forward regardless  if it was an  AGIA or                                                                    
AGDC pipeline, or even another pipeline project.                                                                                
                                                                                                                                
Mr.  Dubler  continued  to  discuss  members'  pre-submitted                                                                    
questions regarding  HB 4 and  addressed the  following bond                                                                    
question:                                                                                                                       
                                                                                                                                
     "If there was no  state moral obligation necessary what                                                                    
     will  that do  to  the potential  bond interest  rates?                                                                    
     Caveat:  If there  was a  draw on  the Capital  Reserve                                                                    
     Fund  (if the  shippers  fail to  meet their  financial                                                                    
     obligations)  there   is  the   danger  of   the  moral                                                                    
     obligation  pledge attaching  to all  moral obligations                                                                    
     of  the  state and  automatically  drag  down our  bond                                                                    
     rating."                                                                                                                   
                                                                                                                                
Mr. Dubler addressed the question  and related that the cost                                                                    
of the  financing could  increase significantly  without the                                                                    
moral  obligation;  his  standpoint  would be  that  if  the                                                                    
financing  was increased  significantly  to  the point  that                                                                    
tariffs were "out  of the money," then  the moral obligation                                                                    
was necessary in order to  get the project completed and get                                                                    
gas  to Alaskans.  He explained  that if  it was  necessary,                                                                    
AGDC  would approach  the  legislature  regarding using  the                                                                    
capital reserve fund.                                                                                                           
                                                                                                                                
Representative  Gara noted  that  the  legislature would  be                                                                    
appropriating  about   $360  million  to  the   project  and                                                                    
inquired  if  some of  that  money  would  be used  for  the                                                                    
capital reserve  fund. He further  inquired where  the money                                                                    
for the  capital reserve fund  would come from and  how much                                                                    
it  was. Mr.  Dubler  replied that  AGDC  was currently  not                                                                    
contemplating a  capital reserve  fund for the  project, but                                                                    
that it  did have the option  to come back and  request one.                                                                    
He  relayed  that  if  there  was  a  capital  reserve  fund                                                                    
utilized, there  were several  different sources  that could                                                                    
be used. He offered that  the appropriation was in fact $330                                                                    
million, would not  go into a capital reserve  fund, and was                                                                    
only  for  the  project's pre-sanction  costs;  the  capital                                                                    
reserve  fund would  come  into play  when  bonds were  sold                                                                    
because  it   was  only  made  available   to  satisfy  debt                                                                    
obligations  of the  corporation. He  stated that  a capital                                                                    
reserve fund  was typically borrowed  and would come  out of                                                                    
the bond  proceeds; if not,  the state could have  a general                                                                    
fund appropriation to the reserve  fund if it so desired, or                                                                    
the corporation could borrow the funds.                                                                                         
                                                                                                                                
10:13:52 AM                                                                                                                   
                                                                                                                                
Representative  Hawker clarified  for  the  record that  the                                                                    
request in  the legislation  was not  for $360  million, but                                                                    
was for $330  million in aggregate, which  included the $200                                                                    
million that AHFC already had.                                                                                                  
                                                                                                                                
Ms.  Delbridge continued  to discuss  members' pre-submitted                                                                    
questions regarding HB 4 addressed  "HB 4 General Questions"                                                                    
She spoke to the first talking point:                                                                                           
                                                                                                                                
   · Confidentiality Provisions (unlike all other state                                                                         
     semi-autonomous agencies);                                                                                                 
     · Insufficient Executive and Legislative branch checks                                                                     
        and balances                                                                                                            
                                                                                                                                
Ms. Delbridge related  that the HB 4  general questions were                                                                    
really  points and  not  specific  questions. She  explained                                                                    
that  many  of  the  state's  public  corporations  had  the                                                                    
ability  to  keep  some  or   a  lot  of  their  information                                                                    
confidential,  particularly  when  it came  to  things  like                                                                    
trade  secrets  and  proprietary technical  information  and                                                                    
pointed  out  that  the  Aerospace  Corporation  could  keep                                                                    
proprietary     technical      information     confidential;                                                                    
additionally,   AIDEA    could   keep    financial   records                                                                    
confidential  that  were  related   to  applicants  for  its                                                                    
programs  if they  were not  public previously.  She pointed                                                                    
out   that  the   Alaska  Permanent   Fund  also   had  some                                                                    
confidentiality  provisions  if information  would  disclose                                                                    
the business affairs of private  enterprise or investors and                                                                    
that  the  Alaska  Railroad also  had  some  provisions  for                                                                    
confidentiality;  however,  the  likelihood  of  AGDC  being                                                                    
unique from these and needing  to bring along private sector                                                                    
partners in ownership  and operating agreements necessitated                                                                    
a   different  level   of   confidentiality  provision,   in                                                                    
particular   the  ability   to   make  the   confidentiality                                                                    
agreements  in  order to  talk  freely  with private  sector                                                                    
entities in negotiating commercial  deals. She addressed the                                                                    
sub-bullet point  and offered  that by  listing some  of the                                                                    
reporting requirements, the  presenters had articulated what                                                                    
a lot  of those checks  and balances  do in fact  look like.                                                                    
She  stated   that  there  was  a   concern  in  legislature                                                                    
regarding AGDC's full exemption  in the Executive Budget Act                                                                    
and related  that AGDC believed  that it could  operate well                                                                    
with a partial  exemption that was similar to  that of other                                                                    
state  corporations; as  a  result,  AGDC's operating  money                                                                    
would be  subject to the  Executive Budget Act and  then the                                                                    
corporation  would have  the flexibility  to  deal with  its                                                                    
bond related finances outside of that process.                                                                                  
                                                                                                                                
10:16:42 AM                                                                                                                   
                                                                                                                                
Ms.  Delbridge continued  to discuss  members' pre-submitted                                                                    
questions regarding HB 4 and  addressed the the HB 4 general                                                                    
questions. She spoke to the second talking point:                                                                               
                                                                                                                                
   · RCA Regulatory related:                                                                                                    
                                                                                                                                
        · No common carriage in-state ((the contract                                                                            
          carriage requires  only a  30-day review;  need up                                                                    
          to  180 days  for  meaningful  public comment  and                                                                    
          review  of the  recourse  tariff  before the  open                                                                    
          season; public comment includes the shippers))                                                                        
                                                                                                                                
        · After Open Season the Legislature needs to review                                                                     
          and approve.                                                                                                          
                                                                                                                                
Ms.  Delbridge   noted  that  the  30-day   review  and  the                                                                    
sponsors' desire  to be responsive  to the RCA's need  for a                                                                    
longer  timeframe for  meaningful  review  had already  been                                                                    
voiced.  She  pointed  out  that  there  was  not  a  common                                                                    
carriage  provision for  "instate  in  the contract  carrier                                                                    
regulations."  She was  unsure what  aspects of  the talking                                                                    
point the committee wanted her to address.                                                                                      
                                                                                                                                
Representative Gara  noted that under the  AGIA statutes, HB                                                                    
4's project would  be small pipeline and  would deliver less                                                                    
than 500 million cubic feet (Mcf)  per day; he agreed that a                                                                    
contract carrier  made sense because  it was a  small amount                                                                    
of gas.  He explained  that a common  carrier meant  that if                                                                    
there was  an expansion,  everyone who  was shipping  gas in                                                                    
the pipeline would have to  share the cost of the expansion,                                                                    
which facilitated new  producers being able to  get into the                                                                    
line and  on the North  Slope. He  stated that he  was happy                                                                    
with the  AGIA provision that  stated that an  expansion was                                                                    
great  for the  state and  made  "everyone pay  to get  in";                                                                    
whereas, with a contract carrier,  new comers had to pay the                                                                    
full cost of the expansion and  would not be able to make it                                                                    
in.                                                                                                                             
                                                                                                                                
Representative Gara  inquired what would happen  if AGIA was                                                                    
evaporated, HB 4  became "the bill," and Alaska  was able to                                                                    
put  together a  huge  pipeline, which  was  in the  state's                                                                    
interest;  he  further inquired  if  HB  4's pipeline  would                                                                    
still  be a  contract carrier  at this  point and  expressed                                                                    
that he  would have some concern  if that was the  case. Ms.                                                                    
Delbridge responded  that the provisions in  AGIA related to                                                                    
a Lower-48 line that was  regulated by the Federal Regularly                                                                    
Commission  (FERC)  and  related  that  the  state  did  not                                                                    
"necessarily" have  a regulatory mechanism in  place to deal                                                                    
with that; the assumption was  that "that" does in fact work                                                                    
through FERC, which had a  host of special conditions for an                                                                    
Alaska gas  pipeline on  the assumption that  it would  be a                                                                    
massive diameter  line that went  through Canada  and served                                                                    
the Lower-48 and potentially other  markets. She pointed out                                                                    
that  while  the bill  provided  for  contract carriage,  it                                                                    
required   expansions  when   presented  with   commercially                                                                    
reasonable  opportunities,  so  that future  explorers  that                                                                    
found gas  and wanted access  to the pipeline would  be able                                                                    
to  do so;  if the  the explorers  had enough  gas and  were                                                                    
willing  to  sign a  contract  to  ship  it to  warrant  the                                                                    
expansion,  the pipeline  must do  that. She  explained that                                                                    
the point  that was trying  to be made  was that if  you had                                                                    
long-term contracts  governing your other shipment  on those                                                                    
pipelines, "those" people had  put up the initial investment                                                                    
to  actually make  the pipeline  happen;  to penalize  these                                                                    
investors  by   adding  to  their   rates  after   they  had                                                                    
shouldered that  initial investment  was not  something that                                                                    
the sponsors felt comfortable with.                                                                                             
                                                                                                                                
Ms. Delbridge continued to  respond to Representative Gara's                                                                    
question and  noted that the  entities that would  be paying                                                                    
for the  expansions would  be the ones  that would  be using                                                                    
that space, just  as ones paying for the  initial pipe would                                                                    
be the  ones using  that space. She  pointed out  that there                                                                    
was  also  the  possibility  of rolled-in  rates  in  HB  4,                                                                    
meaning that  they were not  precluded, if that is  what the                                                                    
contracts allowed for. If the  "big line" became the project                                                                    
that  was  moved forward  and  the  state  wanted it  to  be                                                                    
regulated under  "this chapter,"  it was  good to  note that                                                                    
FERC had not issued  anything definitive on "this"; however,                                                                    
there was a good chance that  if only a small portion of the                                                                    
gas from  a pipeline that  was going  to the North  Slope to                                                                    
export  at  tidewater was  going  to  instate-use, FERC  may                                                                    
assert jurisdiction over the regulation of the pipeline.                                                                        
                                                                                                                                
10:21:15 AM                                                                                                                   
                                                                                                                                
Representative  Gara  stated that  if  the  bill became  the                                                                    
mechanism to  build a big pipeline  and if AGIA went  by the                                                                    
wayside,  the  bill would  need  to  be amended  because  it                                                                    
currently  had 500  Mcf per  day  limitation. Ms.  Delbridge                                                                    
noted  that the  limitation was  only in  effect as  long as                                                                    
there was a licensee under  AGIA that was in compliance with                                                                    
its license and  that the state was  assisting through those                                                                    
payments as per  AGIA. She concluded that there  would be no                                                                    
need to amend HB 4 later  to lift the limitation if AGIA was                                                                    
somehow no  longer there.  She pointed  out that  while AGDC                                                                    
provided the opportunity for the  projects to come together,                                                                    
the  regulatory framework  was not  "necessarily" where  the                                                                    
projects  would come  together;  furthermore  the state  was                                                                    
unable to  tell the  federal government  that they  could or                                                                    
could not regulate something, but  would have to work within                                                                    
the framework to some degree.                                                                                                   
                                                                                                                                
Ms.  Delbridge continued  to discuss  members' pre-submitted                                                                    
questions regarding  HB 4  and pointed to  the HB  4 general                                                                    
questions. She spoke to the third talking point:                                                                                
                                                                                                                                
   · Cost estimate not transparent                                                                                              
                                                                                                                                
     · Base estimate currently ~ $7.7 billion; the cost for                                                                     
        larger diameter  pipelines  have  been estimated  at                                                                    
        under 10.0 billion. Example -Alyeska 2013 cost study                                                                    
        reported direct costs of replacing TAPS (plus owner,                                                                    
      management and engineering costs) less VMT at:                                                                            
                                                                                                                                
        o 30" pipe with 440,000 (650,000 w/DRA) bbl/d                                                                           
          capacity ~ $8.9 billion                                                                                               
                                                                                                                                
        o 48" pipe with 750,000 (1,000,000 w/DRA) bbl/d                                                                         
          capacity ~$9.7 billion                                                                                                
                                                                                                                                
Ms.  Delbridge  addressed  the first  sub-bullet  point  and                                                                    
stated that she  had been unable to locate  the Alyeska 2013                                                                    
cost  study;  furthermore,  she had  contacted  the  Alyeska                                                                    
Pipeline  Service Company,  which was  not aware  of a  2013                                                                    
cost study. She  relayed that she had been able  to find the                                                                    
Alyeska  2013 study  information  directly  referenced in  a                                                                    
slide prepared  for another committee, but  pointed out that                                                                    
she  had no  way of  knowing what  this cost  study said  in                                                                    
relation to the  "figures that we were  given." She believed                                                                    
that  the replacement  costs for  the Trans-Alaska  Pipeline                                                                    
System  (TAPS) involved  starting  with  something that  had                                                                    
already been largely done and that  one would not be doing a                                                                    
construction   project  from   the  start   and  would   see                                                                    
differences. Furthermore, TAPS was  an oil pipeline that was                                                                    
largely above ground, while HB 4's  line would be a gas line                                                                    
that  was largely  below ground;  there were  many different                                                                    
engineering,  safety, and  other concerns  related to  those                                                                    
and  she  was  unsure  if   the  comparisons  were  fair  or                                                                    
relevant. She  added that AGDC  would be able to  talk about                                                                    
the transparency  that actually  was in  place for  the cost                                                                    
estimates that it had put forward on the pipeline.                                                                              
                                                                                                                                
10:23:58 AM                                                                                                                   
                                                                                                                                
Mr.  Richards   addressed  the  concern  relating   to  cost                                                                    
estimate  transparency. He  stated  that  the $7.7  billion,                                                                    
which AGDC  had just updated at  the end of 2012,  was based                                                                    
on the design  premise that it had gone  forward with, which                                                                    
was  based  on  the  level  of  engineering  that  AGDC  had                                                                    
currently  advanced;  the  pipeline,  as  well  as  the  gas                                                                    
treatment and  compression station  on the North  Slope were                                                                    
the  major  components.  He relayed  that  based  on  AGDC's                                                                    
current  level of  engineering, it  felt confident  that the                                                                    
$7.7 billion estimate  was accurate with a plus  or minus of                                                                    
30 percent.                                                                                                                     
                                                                                                                                
Representative  Gara  stated that  he  was  unable to  parse                                                                    
through the  numbers that AGDC  had come up with,  but noted                                                                    
that  the original  cost  study  for a  500  Mcf or  smaller                                                                    
pipeline from 4  or 5 years prior was that  it would deliver                                                                    
gas at about  $21 per Mcf; however, the prior  year, a study                                                                    
had been  presented that  showed those  costs at  about $14,                                                                    
$12, or  $10 per Mcf and  the current year's study  showed a                                                                    
lower cost. Mr. Richard replied  that under HB 369 ["HB 369"                                                                    
was  made   in  reference   to  a   bill  from   a  previous                                                                    
legislature.], AHFC  was to  provide a  project plan  to the                                                                    
legislature.  In the  2011 project  plan, the  cost estimate                                                                    
for the 24 inch, high-pressure rich  gas case had come in at                                                                    
about $7.5  billion and would  deliver gas  at approximately                                                                    
$9.62 to the Cook Inlet  area; however, the update that AGDC                                                                    
had provided  to the instate gas  caucus at the end  of 2012                                                                    
had a design-premise  change to a lean gas case  with a cost                                                                    
estimate of  $7.7 billion. He  pointed out that in  the 2012                                                                    
update,  the  number  of facilities  had  been  reduced  and                                                                    
related  that  compressor  stations,  straddle  plants  that                                                                    
would have stripped  out the natural gas liquids  out of the                                                                    
line, and other associated  facilities had been removed from                                                                    
the plan. He stated that  AGDC had provided the current cost                                                                    
estimates based on the current  level of detail and reported                                                                    
that   the  major   facilities  were:   the  gas   treatment                                                                    
facilities on  the North Slope  and the  compressor station;                                                                    
he  noted that  the pipeline  now  only planned  to use  one                                                                    
compressor station to  push the gas from the  North Slope to                                                                    
the Cook  Inlet basin and  Fairbanks. He offered to  go into                                                                    
the  cost  estimates in  more  detail  if the  committee  so                                                                    
desired.                                                                                                                        
                                                                                                                                
10:26:45 AM                                                                                                                   
                                                                                                                                
Representative Gara observed that  there was an earlier cost                                                                    
estimate, but that it did not need to be addressed.                                                                             
                                                                                                                                
10:26:57 AM                                                                                                                   
                                                                                                                                
Ms.  Delbridge continued  to discuss  members' pre-submitted                                                                    
questions regarding  HB 4 and  jumped to the  final question                                                                    
on the bottom of the page:                                                                                                      
                                                                                                                                
     o Will the state's work to date on permitting (right                                                                       
        of way, etc) be considered as an equity                                                                                 
        contribution?                                                                                                           
                                                                                                                                
Ms.  Delbridge related  that  the state's  work  to date  on                                                                    
permitting,   right  of   way,  etc.   certainly  could   be                                                                    
considered  as  an  equity contribution;  furthermore,  AGDC                                                                    
could  potentially use  the early  state  investment as  the                                                                    
equity  contribution on  behalf of  AGDC as  it worked  with                                                                    
potential partners down the road.                                                                                               
                                                                                                                                
Mr. Richards added  that the mandate provided to  AGDC by HB                                                                    
369  ["HB 369"  was  made  in reference  to  a  bill from  a                                                                    
previous  legislature.]   was  to  advance  a   project  and                                                                    
identify what  its major components  and costs would  be and                                                                    
that through  that process,  AGDC had been  able to  talk to                                                                    
major  pipeline  companies  and  shippers  from  across  the                                                                    
nation;  AGDC had  learned  that the  project  had not  been                                                                    
advanced  to the  point where  these companies  and shippers                                                                    
felt  confident of  ascertaining  whether it  was worthy  of                                                                    
their  involvement. He  explained  that the  money that  the                                                                    
state would put forward to  advance the HB 4's project would                                                                    
get it  to the point  where those potential  shippers and/or                                                                    
builder/owner/operators would  feel confident that  AGDC had                                                                    
followed  industry standard  practice, cost  estimating, and                                                                    
engineering  that would  provide  a pipeline  that would  be                                                                    
worthy  of their  participation; at  this point,  AGDC would                                                                    
try to leverage that money in  order to best provide for the                                                                    
lowest  possible  cost  gas to  consumers  at  the  earliest                                                                    
possible date.                                                                                                                  
                                                                                                                                
Co-Chair  Austerman requested  a  brief  explanation of  the                                                                    
second to  last talking point on  the members' pre-submitted                                                                    
questions:                                                                                                                      
                                                                                                                                
     o Too little throughput for market demand; max 1.6                                                                         
        bcf/d and no NGLS's Market demand currently over 5                                                                      
        bcf/d NGLS's are feed stock for value added economy                                                                     
        (propane market e.g. helps rural Alaska)                                                                                
                                                                                                                                
Ms. Delbridge spoke to the  second to last talking point and                                                                    
related  that   AGDC  had  originally   considered  shipping                                                                    
natural gas liquids (NGLs) through  its pipeline and that at                                                                    
the current  time, NGLs had  a premium price;  however, that                                                                    
premium  was  disappearing as  shale  gas  took off  in  the                                                                    
Lower-48  and  elsewhere.  She  related  that  players  were                                                                    
turning  to  NGL  rich  plays in  order  to  compensate  for                                                                    
extraordinary  low prices  for the  dry gas  that they  were                                                                    
producing. She  stated that AGDC  had taken another  look at                                                                    
its  project  and had  realized  that  although the  premium                                                                    
price used  to warrant  the additional engineering  and pipe                                                                    
costs of carrying NGLs, that "is  not the way that the world                                                                    
is  looking  at  this  point"   and  was  not  where  AGDC's                                                                    
potential  shippers'  interests  were;  however,  there  was                                                                    
nothing  preventing AGDC,  if there  was market  interest at                                                                    
open season, from working out  a way to ship NGLs, providing                                                                    
that there was sufficient supply and demand to do so.                                                                           
                                                                                                                                
Representative   Hawker  appreciated   the  opportunity   to                                                                    
respond  to  committee  questions.   He  observed  that  the                                                                    
meetings with the  Joint In-State Gas Caucus,  which was co-                                                                    
chaired by  Vice-Chair Neuman,  was a  great forum  that had                                                                    
raised  a lot  questions and  answers; he  encouraged people                                                                    
who were  following HB 4  to take  a look at  those meetings                                                                    
because  there  had  been  really  good  dialogue  that  had                                                                    
discussed how  the project positions itself,  the visions of                                                                    
the sponsors, as  well as how the sponsors  had responded to                                                                    
those visions with the statute that was being proposed.                                                                         
                                                                                                                                
Co-Chair   Stoltze  noted   that   the  administration   was                                                                    
listening  to the  meeting  and observed  that  there was  a                                                                    
request to have  "Mr. Gibson" or someone from  the AGIA team                                                                    
respond  to the  interplay  between the  "two entities";  he                                                                    
would not make  that request officially, but  knew that they                                                                    
were listening.                                                                                                                 
                                                                                                                                
10:31:18 AM                                                                                                                   
RECESSED                                                                                                                        
                                                                                                                                
1:39:37 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Ms.  Delbridge   related  that  Representative   Hawker  was                                                                    
currently  in  another  hearing,  but could  return  if  the                                                                    
committee so desired. She shared  that she had been asked to                                                                    
elaborate  about the  ability  of an  AGDC  gas pipeline  to                                                                    
carry propane  under HB  4. She  related that  the committee                                                                    
had previously discussed  NGLs as a whole,  but that propane                                                                    
was of  particular importance to Alaska.  She requested that                                                                    
Mr.  Dubler be  allowed to  explain how  propane could  work                                                                    
within AGDC's pipeline.                                                                                                         
                                                                                                                                
Mr. Dubler stated  that in AGDC's new  dry-gas scenario, 1.5                                                                    
percent of  the gas coming  down the line would  be propane;                                                                    
for  in-state  use  and  to  the extent  that  there  was  a                                                                    
commercial enterprise  that wanted  to utilize  that propane                                                                    
in  the line,  3500  barrels  of propane  per  day could  be                                                                    
extracted  from  the  line, which  just  about  matched  the                                                                    
current propane  use in  Alaska. He  reported that  the 3500                                                                    
barrels  per day  would  not allow  for  expansion into  the                                                                    
future,  but  noted that  Alaska  was  currently using  that                                                                    
amount and was importing it.                                                                                                    
                                                                                                                                
Representative  Gara noted  that the  presentation had  been                                                                    
that  the  cost  of  AGDC's  project  had  been  reduced  by                                                                    
eliminating the infrastructure to  ship liquids. He inquired                                                                    
if  propane was  a  liquid  when it  was  shipped  by a  gas                                                                    
pipeline.  Mr.  Dubler  responded in  the  affirmative,  but                                                                    
stated that  1.5 percent propane  content was not  enough to                                                                    
cause problems in the gas pipeline.                                                                                             
                                                                                                                                
Representative  Gara observed  that one  of the  promises of                                                                    
this, and every pipeline project  "we've ever heard of," was                                                                    
that  propane would  get to  Rural Alaska  and that  its use                                                                    
would be  expanded; he inquired  if the pipeline  would need                                                                    
to ship  more propane,  "were the  promise to  come through"                                                                    
and  need  to  go  back   to  design  where  the  additional                                                                    
infrastructure  was needed  to  deal with  the liquids.  Mr.                                                                    
Dubler stated that AGDC had  not looked at that scenario yet                                                                    
and  pointed out  that the  issue during  its expression  of                                                                    
interest in 2011 was that  nobody was interested in propane;                                                                    
the expression  of interest  had been open  to all  users of                                                                    
gas and  no one  had been interested  in taking  the propane                                                                    
off  the  line  and  doing anything  with  it  in-state.  He                                                                    
explained  that it  was  not in  AGDC's  charter to  extract                                                                    
propane  from  the line  and  stated  that  AGDC was  a  gas                                                                    
pipeline  company  that was  to  bring  gas from  the  North                                                                    
Slope; furthermore, it was AGDC's  understanding that it was                                                                    
not the  intent of the  legislature for it to  be extracting                                                                    
propane and  the corporation had  been operating  under that                                                                    
assumption.                                                                                                                     
                                                                                                                                
1:44:42 PM                                                                                                                    
                                                                                                                                
Representative  Gara expressed  confusion and  observed that                                                                    
the presentations that he had  seen stated that the bill was                                                                    
a way to  get propane to Rural Alaska. He  noted that if the                                                                    
bill was  a way to get  propane to rural Alaska,  that would                                                                    
seem to  expand the  amount of propane  that would  be going                                                                    
through the  pipe; he inquired  if would it  necessitate re-                                                                    
instituting  the   older  project  proposal  that   had  the                                                                    
infrastructure to deal with NGLs if that were the case.                                                                         
                                                                                                                                
Ms. Delbridge  responded that on behalf  of bill's sponsors,                                                                    
there was no intent in the  legislation to have AGDC doing a                                                                    
project that would extract propane  and then have AGDC run a                                                                    
propane  distribution operation,  just  as it  had also  not                                                                    
been part  of other pipeline projects;  however, propane was                                                                    
considered by some  to be one of the  potential benefits and                                                                    
ancillary activities that could be  done once a pipeline was                                                                    
in place that  had a resource coming through  the areas that                                                                    
might in fact need it.  She reiterated earlier comments that                                                                    
having propane in  the pipe did not  necessarily require the                                                                    
plan  to revert  to  straddle plants  and other  engineering                                                                    
increments in  order to keep  that propane going as  long as                                                                    
it was  within a  given range  and there were  not a  lot of                                                                    
other heavier liquids in the pipe.                                                                                              
                                                                                                                                
Mr.  Dubler noted  that the  important time  in the  process                                                                    
would be during  the project's open season. If  AGDC went to                                                                    
a binding open  season and a propane company  stated that it                                                                    
wanted 10,000  barrels of  propane per day  off of  the line                                                                    
and bid  a firm transportation  on that, then AGDC  would go                                                                    
back and redesign, re-engineer, or  whatever it had to do as                                                                    
long as it did not cost  more to the entire project than the                                                                    
propane  brought to  the table;  furthermore,  this was  the                                                                    
purpose of  the open  season. He  explained that  AGDC would                                                                    
not know what  customers were out there  until the customers                                                                    
showed up and that the project  had to get to an open season                                                                    
first. He  explained that AGDC  had conducted  an expression                                                                    
of interest,  which was basically  a non-binding  "test run"                                                                    
for an open  season and that it had not  received any viable                                                                    
interest in propane  in the Alaska; the lack  of interest in                                                                    
propane during the  expression of interest was  why AGDC had                                                                    
taken it "out of the line."                                                                                                     
                                                                                                                                
1:47:12 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman understood  the current  pipe plan  would                                                                    
use Schedule  80 pipe at  about 2100 pounds per  square inch                                                                    
(psi)  and  believed  that  at   about  2500  psi,  propane,                                                                    
butanes, ethane, pentane and other  NGLs could be carried in                                                                    
the line.  He inquired if it  would be in AGDC's  ability to                                                                    
change  the physics  of the  pipeline  to accommodate  added                                                                    
value processing,  if there  was interest  in it  during the                                                                    
open season. He  believed that Schedule 80  pipe could still                                                                    
hold  up to  2500 psi  with  a higher  compression and  that                                                                    
under  current  design,  NGLs  could  still  be  carried  if                                                                    
needed;  he  inquired  if  this   was  correct.  Mr.  Dubler                                                                    
responded  that the  2500 psi  line that  AGDC had  proposed                                                                    
back in  2011 had been  modified in the December  report and                                                                    
that he believed the current line  was 1480 psi in a 36 inch                                                                    
pipe;  additionally, the  line  would probably  not use  X80                                                                    
steel,  but would  most likely  use X70  steel, which  had a                                                                    
little  thinner  wall  and  was  a  softer  pipe  with  less                                                                    
rigidity. He pointed  out that the X70 steel was  a lot less                                                                    
expensive  than the  X80, but  that it  was a  standard pipe                                                                    
that was  used all  over the country.  He relayed  that AGDC                                                                    
would  be able  to buy  the  X70 steel  from many  different                                                                    
mills in  the U.S. and  abroad and  pointed out that  all of                                                                    
the  valves and  fittings that  went  on the  pipe would  be                                                                    
available "pretty  much" off  the shelf;  the change  to X70                                                                    
steel  accounted for  a lot  of the  reduction in  cost that                                                                    
AGDC had realized with the new plan.                                                                                            
                                                                                                                                
Mr.  Dubler  addressed  the   part  of  Vice-Chair  Neuman's                                                                    
question related  to accommodating the line  for added value                                                                    
processing.  He  stated  that   AGDC  could  run  "what  if"                                                                    
scenarios, but  that what it  was trying  to do was  get the                                                                    
project to  a point where it  knew the what ifs,  as well as                                                                    
who  wanted to  participate; at  this point,  AGDC would  be                                                                    
able  to design  the pipe  and the  facilities to  meet that                                                                    
need.                                                                                                                           
                                                                                                                                
1:49:36 PM                                                                                                                    
                                                                                                                                
Co-Chair Austerman  understood that  the current  plan would                                                                    
not move propane  off the North Slope, but  would extract it                                                                    
and  ship the  gas down;  he inquired  if this  was correct.                                                                    
Mr. Dubler stated that current  plan was that 1.5 percent of                                                                    
the gas  stream would be  propane and would travel  down the                                                                    
line;  furthermore, if  there was  a commercial  interest in                                                                    
that   propane   when   it  reached   Southcentral   Alaska,                                                                    
Fairbanks, or  wherever the interest  was, then it  could be                                                                    
extracted. He  explained that approximately 3500  barrels of                                                                    
propane per day  could be extracted from the  line under the                                                                    
current plan.                                                                                                                   
                                                                                                                                
Co-Chair Austerman  inquired what would happen  if there was                                                                    
no  interest in  the 3500  barrels per  day of  propane. Mr.                                                                    
Dubler replied  that if  there was  no interest,  AGDC would                                                                    
either redesign  the plan  to remove all  of the  propane on                                                                    
the North  Slope or would continue  to ship it down  and mix                                                                    
air with  it in  Southcentral Alaska in  order to  bring the                                                                    
BTU content in line with utility-grade gas.                                                                                     
                                                                                                                                
Co-Chair    Austerman    related    that,    similarly    to                                                                    
Representative Gara,  he had anticipated that  propane would                                                                    
be  part of  the effort  to  get another  heating source  to                                                                    
customers, in  particular to the areas  that he represented.                                                                    
He  pointed  out  that  his constituents  were  not  on  the                                                                    
Railbelt  or the  road  system  and that  he  had hoped  and                                                                    
assumed that getting propane down  the line had been part of                                                                    
the project.  He referenced the expression  of interest that                                                                    
AGDC  had held  and  wondered  if the  lack  of interest  in                                                                    
propane meant  that the right  price was not  discussed with                                                                    
potential  interests. He  did not  want to  call HB  4's gas                                                                    
line project  a subsidy, but on  the other hand, he  did not                                                                    
see any  revenues been  generated for  the state;  he opined                                                                    
that this  made it  somewhat of a  subsidy. He  thought that                                                                    
there should be a way to  offer the propane at a price where                                                                    
it was attractive for people to consider extracting.                                                                            
                                                                                                                                
1:52:16 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:53:47 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Austerman  hoped  that  he  was  not  "throwing  a                                                                    
wrinkle"  with his  question, but  noted that  this was  the                                                                    
first time that the committee had seen the bill.                                                                                
                                                                                                                                
Ms.  Delbridge noted  that the  sponsors' intent  had always                                                                    
been to  make sure  that Alaska's needs  were taken  care of                                                                    
through AGDC and  HB 4, but at the same  time realizing that                                                                    
the state  needed buyers and  sellers of a product  in order                                                                    
to  have  a  market  to ship  it  within;  furthermore,  the                                                                    
sponsors  wanted  AGDC, generally  speaking,  to  be a  gas-                                                                    
pipeline  developer  and  not  necessarily  an  entity  that                                                                    
extended into different energy options  that were related to                                                                    
actually interfacing  with Alaskans "that way."  She pointed                                                                    
out,  however,  that  there were  opportunities  within  the                                                                    
legislation  in the  way that  AGDC had  been structured  to                                                                    
expand on  other potential energy options.  She offered that                                                                    
Mr. Dubler had a few points that could address the issue.                                                                       
                                                                                                                                
Mr. Dubler  stated that  the legislation  did allow  AGDC to                                                                    
create  under it  a subsidiary  for gas  marketing and  that                                                                    
AGDC would  more than likely utilize  that subsidiary, which                                                                    
had  original  had been  a  former  sister agency  that  had                                                                    
become dormant  that last several  years. He  explained that                                                                    
"we've actually  created a  new entity" that  would be  in a                                                                    
position to  utilize propane  from the line  if there  was a                                                                    
demand and a market for it;  the subsidiary would be able to                                                                    
solicit  interest  in propane  or  other  byproducts of  the                                                                    
natural gas for usage within  the state similarly to the way                                                                    
that AGDC was required to  go and solicit offtake points for                                                                    
the gas line.                                                                                                                   
                                                                                                                                
Ms.  Delbridge  stated  that  for  example,  the  subsidiary                                                                    
cooperation could  serve as an  aggregator of  small propane                                                                    
volumes that  a number of  in-state interests might  want to                                                                    
participate  with,  but  might  not  be  fully  equipped  to                                                                    
negotiate directly  with the pipeline  for. She  stated that                                                                    
the aggregator could  pay for shipment on  behalf of smaller                                                                    
communities and  get the propane  to them;  furthermore, the                                                                    
subsidiary would  have given advanced notice  to communities                                                                    
that were  interested in propane  to let it know  about that                                                                    
interest.  She reiterated  that  if  there was  insufficient                                                                    
interest, it would be difficult  for a pipeline to commit to                                                                    
shipping something that no one was ready to receive.                                                                            
                                                                                                                                
1:56:21 PM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman supported  HB  4 and  moving  it out  of                                                                    
committee because he  saw its advantage to  the Railbelt, as                                                                    
well  as the  advantages of  what the  natural gas  could do                                                                    
along the pipeline;  however, he had hoped  "all along" that                                                                    
the bill would have a  little more emphasis on areas besides                                                                    
the  Railbelt. Mr.  Dubler pointed  out that  AGDC had  held                                                                    
discussions  with the  governor's  office  and others  about                                                                    
getting propane down  the Yukon River, as well  as on barges                                                                    
to  get it  to  coastal communities;  AGDC  would look  into                                                                    
whether  its subsidiary  could take  on and  distribute that                                                                    
project.                                                                                                                        
                                                                                                                                
Co-Chair  Stoltze shared  Co-Chair  Austerman's caution  and                                                                    
did not want people following  the bill from Rural Alaska to                                                                    
get an  exaggerated or unrealistic  expectation of  what the                                                                    
legislation  would  provide.  He  offered  that  hyping  the                                                                    
benefits of legislation could raise  hopes unfairly and that                                                                    
he wanted  to "flesh  that out" as  well because  "this" had                                                                    
been an ancillary  benefit that had been  discussed that had                                                                    
brought  a  broader  consensus  of  support  for  the  bill;                                                                    
additionally, he was  a "little bit taken  aback, not having                                                                    
followed this detail in previous committees."                                                                                   
                                                                                                                                
Representative Edgmon echoed  the comments of Representative                                                                    
Gara, Co-Chair  Austerman, Co-Chair Stoltze,  and Vice-Chair                                                                    
Neuman. He  thought that  HB 4  was being  put forward  in a                                                                    
good-faith effort to get natural  gas to all Alaskans, which                                                                    
was  stated   in  the   legislative  intent.   He  expressed                                                                    
appreciation for the  intent language, but stated  that as a                                                                    
member from Rural Alaska, his  constituents were paying 3 to                                                                    
4  times more  than what  the primary  customer base  of the                                                                    
proposed pipeline  was paying. He inquired  why Rural Alaska                                                                    
was not a bigger part of  this whole solution. He was unsure                                                                    
of  what that  solution  would  be, but  noted  that in  the                                                                    
recognition   that  the   bill   was  a   creature  of   the                                                                    
legislature,  that the  legislature  could write  it how  it                                                                    
wanted;  furthermore,  he   intended  to  insert  additional                                                                    
language in the bill to put "those" safeguards in.                                                                              
                                                                                                                                
Representative  Wilson noted  that although  it was  not the                                                                    
bill  in front  of the  committee, SB  23 would  be trucking                                                                    
propane and  natural gas and  doing more build out,  so that                                                                    
there would be  more need for propane. She  noted that there                                                                    
were  not  currently a  lot  of  people using  propane.  She                                                                    
wondered if  a greater  need for propane  in a  more "urban"                                                                    
area would  make a  difference to those  who might  not have                                                                    
come to the table because as  a result of the increased use,                                                                    
they saw a bigger need  in the state than currently existed;                                                                    
she thought this  seemed logical. Mr. Dubler  agreed that it                                                                    
would be logical  and that for a smaller  amount of propane,                                                                    
it might  not make sense for  an entity to build  a plant to                                                                    
extract propane from  a line and ship  it in-state; whereas,                                                                    
if Alaska was only importing  3500 barrels per day, it could                                                                    
be  done very  easily from  Canada, which  was cheaper  than                                                                    
building  the infrastructure.  He offered  that if  the 3500                                                                    
barrels  per day  were doubled  or tripled,  then maybe  the                                                                    
infrastructure  would "pencil"  to where  it would  actually                                                                    
make sense to build a  plant in Alaska, extract propane, and                                                                    
ship it around the state.                                                                                                       
                                                                                                                                
Representative  Wilson asked  how  many  homes or  residents                                                                    
3500 barrels per day would  serve. Mr. Dubler responded that                                                                    
he  did  not have  that  data,  but  that 3500  barrels  was                                                                    
roughly 18,000  gallons. He was  unsure how large  the tanks                                                                    
were  in  homes,  but  indicated   that  he  could  get  the                                                                    
requested information.                                                                                                          
                                                                                                                                
Co-Chair Stoltze  thought that  there was an  opportunity to                                                                    
discuss  propane  in relation  to  the  current project  and                                                                    
noted that there was interest  and support for the issue; he                                                                    
thought that it just needed more "fleshing out."                                                                                
                                                                                                                                
2:01:31 PM                                                                                                                    
                                                                                                                                
SPEAKER  MIKE  CHENAULT,  explained  that  HB  4  was  about                                                                    
opportunities for  Alaska and  offered there  were currently                                                                    
zero  such  opportunities.  He  discussed  different  lines,                                                                    
sizes, and  pressures and  what could  be moved  under those                                                                    
different  scenarios.  He spoke  about  a  48 inch  pipeline                                                                    
scenario that some were discussing  that would carry NGLs to                                                                    
market and stated that he was  unsure of how many people had                                                                    
thought  of that  scenario. He  relayed that  when AGDC  had                                                                    
first  proposed the  current project,  there was  1 straddle                                                                    
plant  in Fairbanks  to remove  the liquids;  however, under                                                                    
the AGIA process there were  5 straddle plants. He explained                                                                    
that under  AGIA, an estimated  $250 million  straddle plant                                                                    
would need to  be built in each of the  5 locations in order                                                                    
to take  off dry  gas for communities  and pointed  out that                                                                    
someone  would  have to  pay  for  the straddle  plants.  He                                                                    
offered that  if might not  necessarily be true that  HB 4's                                                                    
current project would  bring liquid gas and  its benefits to                                                                    
Alaskans. He pointed out that  HB 4 was about opportunities.                                                                    
He explained that  until AGDC got to an open  season and saw                                                                    
who  wanted gas,  in  what quantity,  and  in what  chemical                                                                    
makeup,  the state  would not  know what  opportunities were                                                                    
there.                                                                                                                          
                                                                                                                                
Speaker  Chenault stated  that AGDC  had held  a non-binding                                                                    
expression of interest  and that no one had  wanted NGLs; as                                                                    
a result, the  project had been redesigned to  send dry gas,                                                                    
plus 1.5 percent propane. He  explained that the 1.5 percent                                                                    
propane in the line represented  about 3500 barrels per day,                                                                    
which was roughly  20,000 gallons. He opined that  a tank in                                                                    
most  people's homes  would probably  be in  the 300  gallon                                                                    
range and would  last most homes months. He  related that HB                                                                    
4 was  all about opportunities and  that if AGDC got  to the                                                                    
open  season  and there  were  people  that wanted  to  sell                                                                    
propane,  it would  be there  to  sell. He  shared that  the                                                                    
bill's sponsors  wanted the  gas to go  to all  Alaskans. He                                                                    
acknowledged  the  concerns  of  Rural  Alaskans  that  they                                                                    
wanted to  see some benefit from  HB 4 and pointed  out that                                                                    
there  was an  opportunity for  benefit in  the legislation;                                                                    
whereas, there  was currently  zero opportunity.  He offered                                                                    
that  the  legislature  could continue  to  talk  about  the                                                                    
project, but  that until it made  a move and put  together a                                                                    
real  project, the  state  would not  have  any shippers  or                                                                    
buyers that would come and  put down the billions of dollars                                                                    
that  needed  to be  spent  in  order  to make  the  project                                                                    
happen.                                                                                                                         
                                                                                                                                
2:05:20 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  would not view the  questions and comments                                                                    
as  negative, but  offered that  the discourse  was building                                                                    
the record and  explaining some of the steps that  had to be                                                                    
taken;  additionally,  he  noted  for the  public  that  the                                                                    
questions  and  comments  were   part  of  the  constructive                                                                    
dialogue of  building what  the realistic  expectations were                                                                    
and  what steps  needed  to  be taken  if  the project  went                                                                    
forward.                                                                                                                        
                                                                                                                                
Representative Gara offered that  there were 2 opportunities                                                                    
facing the  state and that  there were 2  pipeline proposals                                                                    
that should both be looked at.                                                                                                  
                                                                                                                                
Co-Chair Stoltze  interjected that  there should be  a sound                                                                    
bite limit of 2 or 3 times per meeting.                                                                                         
                                                                                                                                
Representative Gara disagreed  with the "zero opportunities"                                                                    
comment, but acknowledged that Co-Chair Stoltze was right.                                                                      
                                                                                                                                
Representative   Gara  revisited   the  propane   issue  and                                                                    
recalled  that  before last  December,  HB  4's project  was                                                                    
intended  to   carry  NGLs;  however,  there   was  analysis                                                                    
conducted  that  showed  that  by  stripping  out  the  NGLs                                                                    
portion,  a  certain  amount  of money  would  be  saved  on                                                                    
straddle plants. He inquired how  much was shaved off of the                                                                    
project by removing the infrastructure  that would allow the                                                                    
shipment of  a large amount  of liquids. Mr.  Dubler replied                                                                    
that  the straddle  plants cost  approximately $250  million                                                                    
apiece and that  there were 2 of them; the  cost savings was                                                                    
$500 million.                                                                                                                   
                                                                                                                                
Representative  Gara  thought  that  at  least  1  of  those                                                                    
straddle  plants would  be needed  at a  cost of  about $250                                                                    
million  if HB  4's project  became the  project that  would                                                                    
send  propane to  rural  Alaska to  lower  energy costs;  he                                                                    
inquired if this  was correct. Mr. Dubler  responded that it                                                                    
would depend on where the  straddle plant was and whether or                                                                    
not  it was  located  above  the first  offtake  point by  a                                                                    
utility. He  expounded that above  the straddle  plant would                                                                    
be enriched gas  that could not just be put  into a home for                                                                    
heating fuel;  if the  straddle plant  was in  Fairbanks and                                                                    
there was  no one above  Fairbanks that wanted or  could get                                                                    
the gas, 1  straddle plant would be  sufficient, otherwise 2                                                                    
would be needed.                                                                                                                
                                                                                                                                
Representative Gara  understood the  comments that if  a big                                                                    
user on  the Railbelt wanted  propane, enough might  be sold                                                                    
to  make  it economic,  but  offered  that it  sounded  like                                                                    
getting propane  to Rural Alaska  would have a  $250 million                                                                    
to  $500  million  cost;  he wondered  how  this  would  get                                                                    
funded. Mr. Dubler responded that  the problem with planning                                                                    
for  in-state  propane  and  designing  the  whole  pipeline                                                                    
around in-state propane as a  definite end use was that AGDC                                                                    
had  to  find an  in-state  use  that  could handle  a  $250                                                                    
million plant  that would make  sense and one that  ended up                                                                    
with propane  that was cheaper  than what could  be imported                                                                    
from   Canada.   He   recalled   his   earlier   answer   to                                                                    
Representative Wilson's  question and  related that  at 3500                                                                    
barrels per  day, that $250  million plant probably  did not                                                                    
make sense;  however, at some  greater quantity  of propane,                                                                    
it probably  would make  sense. He  explained that  AGDC did                                                                    
not  know  what  exact  quantity of  propane  would  make  a                                                                    
straddle plant make  sense and related that AGDC  was not in                                                                    
propane business; AGDC relied on  the private sector to come                                                                    
in and  say that, at  a certain  price of propane,  it could                                                                    
build a  plant, extract the  propane, and distribute  it all                                                                    
through Alaska.                                                                                                                 
                                                                                                                                
Representative  Gara  noted  for  the record  that  he  just                                                                    
wanted to get the costs on the table.                                                                                           
                                                                                                                                
2:09:09 PM                                                                                                                    
                                                                                                                                
Representative Munoz  inquired if it was  possible that AGDC                                                                    
could  get to  the open  season and  find that  there was  a                                                                    
greater demand than a 36  inch line could accommodate and if                                                                    
so, how  that would be  dealt with. Mr. Dubler  replied that                                                                    
"it  would be  hopefully  a good  day for  us"  if AGDC  had                                                                    
oversubscribed. He  related that  AGDC's directive  from the                                                                    
legislature was  to provide  gas for  Alaskans and  that the                                                                    
utilities that  were using gas  for Alaskan  residents would                                                                    
get  first  priority  on  the gas;  He  indicated  that  Mr.                                                                    
Kleppin, who  was AGDC's commercial manager,  could speak to                                                                    
the  issue,  but  believed  that  there  was  an  allocation                                                                    
between  the remaining  proposers. He  believed that  if the                                                                    
project  had  been FERC  regulated,  it  would require  that                                                                    
there  could  not be  a  priority  to the  allocation  among                                                                    
proposers. He deferred further comments to Mr. Kleppin.                                                                         
                                                                                                                                
2:10:27 PM                                                                                                                    
                                                                                                                                
DARYL  KLEPPIN,  ALASKA   GASLINE  DEVELOPMENT  CORPORATION,                                                                    
ANCHORAGE (via teleconference), replied  that Mr. Dubler was                                                                    
correct and  related that the  recourse tariff  filing would                                                                    
include methodology for allocating  capacity if there was an                                                                    
oversubscription. He  expounded that if AGDC  had a pipeline                                                                    
that it was designing for 500  Mcf per day and people wanted                                                                    
600 Mcf,  then it  would have to  allocate capacity  so that                                                                    
the total was 500 Mcf per day.                                                                                                  
                                                                                                                                
Representative Munoz inquired at  what point the limitations                                                                    
of AGIA would  go away and further queried  what the state's                                                                    
commitment was in terms of  the size, shipping capacity, and                                                                    
financial   obligations.   Mr.   Dubler  stated   that   the                                                                    
restrictions under AGIA  would not go away as  long as there                                                                    
was a valid license in place  and a licensee working on that                                                                    
license  and furthered  that as  long as  work continued  on                                                                    
AGIA,  AGDC's project  was limited  to 500  Mcf per  day. He                                                                    
noted  that AGDC  had been  asked "more  times than  I would                                                                    
like to remember"  if it could do more if  there was no AGIA                                                                    
project and related  that it was a question that  he did not                                                                    
really like  because it was a  what if. He pointed  out that                                                                    
obviously, a  bigger pipeline was more  economical and would                                                                    
bring cheaper gas for Alaskans;  however, it seemed naïve to                                                                    
think  that if  ConocoPhillips, Exxon  Mobile, and  BP could                                                                    
not make  larger line,  that the state  of Alaska  could. He                                                                    
doubted that  the state could  "pull off" a 3  billion cubic                                                                    
feet per  day pipeline or  a something similar to  what AGIA                                                                    
was proposing  if ConocoPhillips,  Exxon Mobile, and  BP had                                                                    
not been able to.                                                                                                               
                                                                                                                                
Representative  Munoz  wondered   if  ConocoPhillips,  Exxon                                                                    
Mobile,  and BP  all had  active  licenses in  terms of  the                                                                    
definition that was used.                                                                                                       
                                                                                                                                
Ms.  Delbridge believed  that  the Trans-Canada  Corporation                                                                    
was the  sole licensee with the  state on AGIA and  that the                                                                    
commissioners  of   the  Department   of  Revenue   and  the                                                                    
Department of  Natural Resources had signed  a contract with                                                                    
just the  Trans-Canada Corporation. She believed  that Exxon                                                                    
Mobile was  participating with the  Trans-Canada Corporation                                                                    
as a partner,  but was not subject to  the license agreement                                                                    
with  the state.  She furthered  that BP  and ConocoPhillips                                                                    
were the other two producers  that "they" have generally all                                                                    
thought needed to  participate in a bigger  project in order                                                                    
to make it happen; however, the  2 companies had not, to her                                                                    
knowledge, signed on as partners  to Trans-Canada like Exxon                                                                    
Mobile had. She believed  that ConocoPhillips, Exxon Mobile,                                                                    
and BP, as per the  governor's request to them, were working                                                                    
together  with  the  Trans-Canada  Corporation  to  look  at                                                                    
another  option,  including  the large  export  pipeline  to                                                                    
tidewater in Alaska.                                                                                                            
                                                                                                                                
2:13:30 PM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman  understood that  AGDC  was  not in  the                                                                    
propane business.  He referred to  work that AIDEA  had done                                                                    
for  Fairbanks;  he wondered  about  a  similar option  that                                                                    
would allow  AGDC to use  a subsidiary to transport  gas via                                                                    
tanker from Kenai or other rural coastal Alaska regions.                                                                        
                                                                                                                                
Mr.  Dubler believed  that the  legislation would  allow the                                                                    
option as it was currently written.                                                                                             
                                                                                                                                
Co-Chair Austerman asked if the  bill would allow the option                                                                    
for gas  and not propane.  Mr. Dubler replied that  the bill                                                                    
would allow propane as well as gas.                                                                                             
                                                                                                                                
Representative  Costello asked  about the  market's role  in                                                                    
the legislation.  She referred  to comments that  the market                                                                    
would answer particular questions.                                                                                              
                                                                                                                                
Ms.  Delbridge responded  that the  sponsors had  been clear                                                                    
that they  wanted to rely  on the  market to define  how the                                                                    
arrangement  would  take  form  rather  than  prescribing  a                                                                    
pipeline size regardless of demand;  the sponsors wanted the                                                                    
market to  determine the  size of  the pipeline.  She stated                                                                    
that the sponsors believed that  the state had gone wrong in                                                                    
the  past  when  it  tried   to  prescribe  the  arrangement                                                                    
narrowly  when the  market  would  have preferred  different                                                                    
conditions. The  legislation had been structured  to provide                                                                    
AGDC with as much latitude  as possible within the bounds of                                                                    
its mission to bring gas  to Alaskans at the lowest possible                                                                    
rates.  For  example, AGDC  had  flexibility  to follow  the                                                                    
project plan  pipeline as described, but  with modifications                                                                    
as necessary.  She cited one  of the modifications  shown in                                                                    
AGDC's 2012 year-end project  plan amendment, where interest                                                                    
in  NGLs was  lacking. As  a  result AGDC  had adjusted  the                                                                    
pipeline to match the market's environment.                                                                                     
                                                                                                                                
Ms. Delbridge furthered that part  of allowing the market to                                                                    
work meant  ensuring that  AGDC was not  able to  go forward                                                                    
with  a  project   without  sufficient  commercial  shipping                                                                    
contracts  that would  support  the  project financing.  She                                                                    
stated that the bill did not  allow AGDC to build a pipeline                                                                    
without the  market interest. She stated  that providing the                                                                    
transportation  tool  the market  needed  in  order to  make                                                                    
things happen would create other  opportunities for the rest                                                                    
of Alaska. She stated that  a businessperson in the Interior                                                                    
could see a  business opportunity in pulling  propane out of                                                                    
the  pipeline   and  extending  it   down  the   Yukon.  She                                                                    
hypothesized  that   perhaps  there  was   another  business                                                                    
enterprise that  saw the value  in converting gas  to liquid                                                                    
or  compressed  gas  for  transportation  to  small  coastal                                                                    
communities within the state.                                                                                                   
                                                                                                                                
2:17:52 PM                                                                                                                    
                                                                                                                                
Representative Costello  asked whether there was  a timeline                                                                    
or  deadline for  the opportunities.  Ms. Delbridge  replied                                                                    
that there were no timelines or deadlines.                                                                                      
                                                                                                                                
Representative   Edgmon   thanked   Speaker   Chenault   for                                                                    
providing  clarification  on  the   bill.  He  believed  the                                                                    
current  conversation was  critical  for the  state and  his                                                                    
constituents.  He   referred  to   HB  9  (from   the  prior                                                                    
legislative  session)  and asked  if  it  had included  more                                                                    
intent  language about  distribution to  regions outside  of                                                                    
Southcentral Alaska  that could occur once  the pipeline was                                                                    
in place.                                                                                                                       
                                                                                                                                
Ms. Delbridge  answered that HB  4 continued to  provide the                                                                    
information.  She   pointed  to  a  provision   on  page  9,                                                                    
subsection (b),  which told AGDC that  once construction had                                                                    
been  started  on an  instate  pipeline  that it  needed  to                                                                    
analyze  other pipelines  that connected  to industrial  and                                                                    
residential  utility  customers  in  other  regions  of  the                                                                    
state. She elaborated that the  legislation had been crafted                                                                    
to allow AGDC  to pursue other pipelines in  the future. The                                                                    
corporation  could consider  pipelines that  would feed  off                                                                    
the  pipeline to  connect to  other communities,  utilities,                                                                    
and mines that  could benefit from the gas;  AGDC would also                                                                    
have  the ability  to look  outside  the immediate  pipeline                                                                    
corridor.  She stated  that the  legislature had  passed oil                                                                    
and  gas  exploration credits  for  middle  earth the  prior                                                                    
session; the legislation would provide  the ability for AGDC                                                                    
to  assist  with a  pipeline  that  would connect  a  future                                                                    
gasline   to   other   communities  if   the   project   was                                                                    
economically   viable  and   there  was   sufficient  public                                                                    
interest.                                                                                                                       
                                                                                                                                
2:20:39 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon asked  where  the  bill provided  the                                                                    
ability  to create  a subsidiary  corporation for  gas work.                                                                    
Ms. Delbridge pointed to page 13, Section 31.25.120.                                                                            
                                                                                                                                
Representative  Gara  asked  whether there  was  a  scenario                                                                    
under  which  the  project  could   be  built  with  private                                                                    
financing and  without AGDC financing.   Mr.  Dubler replied                                                                    
in  the  affirmative. He  stated  that  there were  multiple                                                                    
scenarios where  that would  be the case  and that  AGDC was                                                                    
hoping it  would be  the case. The  corporation hoped  for a                                                                    
successful  open season  in  which  numbers, customers,  and                                                                    
shippers  would validate  a viable  project that  AGDC could                                                                    
bid out. He  furthered that pipeline companies  could bid to                                                                    
take over the project and continue construction.                                                                                
                                                                                                                                
Representative Gara  surmised that under the  scenario there                                                                    
would  be  private  financing and  bonding  that  would  not                                                                    
require the legislature to appropriate additional funding.                                                                      
                                                                                                                                
2:22:26 PM                                                                                                                    
                                                                                                                                
Mr.  Dubler agreed  and detailed  that  developers would  be                                                                    
responsible for securing financing through the market.                                                                          
                                                                                                                                
Representative Gara asked if  the possibility was realistic.                                                                    
Mr. Dubler answered  that with a successful  open season the                                                                    
scenario was definitely in the realm of possibilities.                                                                          
                                                                                                                                
Representative  Gara asked  for  verification  that if  [the                                                                    
legislation became  law] AGDC did  not need to come  back to                                                                    
the legislature for funding, that  the legislature would not                                                                    
have the  ability to  approve or  disapprove the  project in                                                                    
the future.                                                                                                                     
                                                                                                                                
Mr. Dubler replied  that like other private  projects in the                                                                    
state, the  legislature would not have  control over whether                                                                    
a  project was  built or  not.  He added  that if  producers                                                                    
wanted to  build a  pipeline at present,  they would  not be                                                                    
required to obtain legislative approval.                                                                                        
                                                                                                                                
2:23:40 PM                                                                                                                    
                                                                                                                                
Ms. Delbridge stated it was important  to note that the HB 4                                                                    
provision  allowing AGDC  to enter  into an  arrangement was                                                                    
clear  about the  corporation's  purpose to  provide gas  to                                                                    
Alaskans at the lowest possible rates.                                                                                          
                                                                                                                                
2:24:24 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:30:05 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Stoltze  noted that  he  had  stepped out  of  the                                                                    
committee room when  there had been a  very salient question                                                                    
and response  and that  he would like  it addressed  for his                                                                    
edification  and  clarification  for   the  public.  He  had                                                                    
overheard part of  the conversation and thought  that it was                                                                    
the intent to  not have any further  legislative approval of                                                                    
the  project  subsequent  to  HB  4;  He  wanted  the  issue                                                                    
addressed very clearly on the record.                                                                                           
                                                                                                                                
DAN  FAUSKE,   CEO/EXECUTIVE  DIRECTOR  OF   ALASKA  GASLINE                                                                    
DEVELOPMENT  CORPORATION,  related  that  he  would  briefly                                                                    
defer to Mr. Dubler to clarify a comment that he had made.                                                                      
                                                                                                                                
Mr.  Dubler noted  that the  committee  had been  discussing                                                                    
whether  or  not the  HB  4's  project  would come  back  to                                                                    
legislature  for  approval  in  the  event  that  a  private                                                                    
corporation  took over  and was  building the  pipeline; the                                                                    
answer to  this was no and  in that case, the  project would                                                                    
not  come  back to  the  legislature.  However, the  project                                                                    
would   come  back   to  legislature   if  it   needed  more                                                                    
appropriations; in other words, if  the state was still in a                                                                    
position to  be an owner  of the project and  was continuing                                                                    
it forward or  if AGDC asked the state  for moral obligation                                                                    
debt,  AGDC  would have  to  come  back to  legislature.  He                                                                    
related  that  it was  important  to  note that  although  a                                                                    
private company that took over  the line would not be before                                                                    
the legislature,  it would be back  in front of the  RCA for                                                                    
its  tariff.  He   offered  that  there  would   not  be  an                                                                    
unregulated  group of  people  out  there charging  Alaskans                                                                    
whatever they  wanted. He explained  that a  private company                                                                    
would still  be subject to  RCA overview in  accordance with                                                                    
HB 4 provisions.                                                                                                                
                                                                                                                                
2:32:06 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  observed that  his question  represented a                                                                    
public interest question.                                                                                                       
                                                                                                                                
Representative  Gara  saw  realistic scenarios  where  there                                                                    
might  be private  financing and  that AGDC  would not  come                                                                    
back  to  the state  for  an  appropriation; therefore,  the                                                                    
legislature  would  not have  another  say.  He inquired  if                                                                    
there were realistic scenarios where this would happen.                                                                         
                                                                                                                                
Mr. Dubler  replied in the affirmative,  but reiterated that                                                                    
the  even though  the legislature  would not  have any  more                                                                    
review  of the  project, the  RCA  would review  all of  the                                                                    
aspects that were in the bill.                                                                                                  
                                                                                                                                
Co-Chair   Stoltze  apologized   for  missing   the  earlier                                                                    
comments  and  offered  that  not  being  in  the  room  had                                                                    
probably led  to some of  the confusion. He  appreciated the                                                                    
clarification.                                                                                                                  
                                                                                                                                
Representative  Holmes  clarified  that  a  private  company                                                                    
would  either be  back before  the RCA  or possibly  FERC if                                                                    
FERC  determined  that it  was  a  pipeline subject  to  its                                                                    
jurisdictions.                                                                                                                  
                                                                                                                                
Mr.  Dubler stated  that Representative  Holmes was  correct                                                                    
and that it depended on how  FERC looked at the pipeline. He                                                                    
knew that  with the larger line,  FERC was viewing it  as an                                                                    
entire project, including the export  and believed that FERC                                                                    
would have  jurisdiction over that  whole line;  however, he                                                                    
believed   that   FERC    viewed   AGDC's   potential   line                                                                    
differently.                                                                                                                    
                                                                                                                                
Mr. Fauske  noted the  propane piece that  was going  in the                                                                    
AGDC  pipeline was  for  the distinct  reason  of seeing  if                                                                    
there was a  way that a propane market down  the Yukon River                                                                    
and the  Richardson Highway could  be developed;  there were                                                                    
also discussions  of getting propane to  Valdez and shipping                                                                    
it  down to  Southeast Alaska.  He related  that these  were                                                                    
ideas that  AGDC was  looking at  that needed  further study                                                                    
and that  he did not  want to  leave the committee  with the                                                                    
impression  that  AGDC would  not  explore  these areas.  He                                                                    
offered that  AGDC's position had  always been that  the key                                                                    
was to  get a pipeline, get  some product in it,  and get to                                                                    
the  open season.  He  explained that  the  open season  was                                                                    
really  where the  rubber hits  the road  and was  when AGDC                                                                    
would   start  finding   out  what   it  had;   under  ideal                                                                    
circumstances,  the product  viability  would  be there  and                                                                    
AGDC  could  start  exploring  other  options.  He  reminded                                                                    
people  that  AGDC's project  under  HB  4, other  than  the                                                                    
requested $400  million, had a revenue  bond structure where                                                                    
the  underlined  credit  of the  project  was  the  project;                                                                    
therefore, if  the revenue  were there  to support  the debt                                                                    
service,  it  freed up  other  options  for legislators.  He                                                                    
explained  that  creating a  project  that  paid for  itself                                                                    
would enable  looking at further enhancements  or expansions                                                                    
and would,  in his mind,  free up additional revenues;  as a                                                                    
result,  there would  be opportunities  in areas  that would                                                                    
have needed to  be otherwise subsidized, but  there would be                                                                    
a product  coming down  the line "that  you can  actually do                                                                    
something with."                                                                                                                
                                                                                                                                
Mr. Fauske  related that he  liked the bill's  structure. He                                                                    
pointed out that the legislation  had a stage-gated approach                                                                    
and  that  AGDC  would  be giving  the  legislature  monthly                                                                    
reports;  furthermore,  there was  no  way  that AGDC  would                                                                    
continue with  a project that  it determined was  not viable                                                                    
simply because it had the  authorization. He appreciated the                                                                    
questions  and  acknowledged  that  the  bill  was  big.  He                                                                    
thought  that the  legislation accomplished  a  lot of  good                                                                    
things.                                                                                                                         
                                                                                                                                
2:36:31 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  asked if there  was an incentive  for AGDC                                                                    
to not spend the full $400  million if it found out early on                                                                    
that the  project would  not work.  Mr. Fauske  replied that                                                                    
"that  would not  be  in the  cards" and  was  not how  AGDC                                                                    
operated.                                                                                                                       
                                                                                                                                
Mr. Dubler noted  that out of the $400 million,  there was a                                                                    
significant  amount of  money  for  re-engineering after  an                                                                    
open season and that if AGDC  had a failed open season, that                                                                    
amount  would  definitely not  be  spent  because there  was                                                                    
nothing to re-engineer. If an  open season was unsuccessful,                                                                    
AGDC would "end the game" right there.                                                                                          
                                                                                                                                
Representative  Wilson clarified  that  there was  a lot  of                                                                    
people  in  Fairbanks  in  rural areas  that  would  not  be                                                                    
getting the gas. She offered  that those in Rural Alaska had                                                                    
the same  issue that some  in Fairbanks had, which  was that                                                                    
they were  not "big"  enough to make  the economics  work at                                                                    
this point.  She stated that  if propane use could  be grown                                                                    
and Alaska  could make a  market, it would  enable potential                                                                    
interests to see  a high demand and market.  She opined that                                                                    
people  would not  come to  the  table when  the demand  for                                                                    
propane was  too low.  She related  that Fairbanks  could be                                                                    
growing  a  propane  opportunity   in  the  Interior  if  it                                                                    
"pencils out,  even on the  other project." She  inquired if                                                                    
her  above statements  were correct.  Mr. Fauske  replied in                                                                    
the  affirmative.  He reiterated  that  once  a product  was                                                                    
flowing  and  there  was  access to  something,  he  was  an                                                                    
absolute believer  in the economic spirit  of "our" country,                                                                    
state,  people,  and  businesses.  He  could  not  guarantee                                                                    
anything except that  without the gas being  there, "none of                                                                    
this"  was going  to happen;  the  opportunity existed  once                                                                    
there was product. He relayed  that it was everyone's desire                                                                    
to  fix  everything all  at  once,  but  that it  became  so                                                                    
difficult; however, people's hearts  were in the right place                                                                    
and he thought that people  would be pleasantly surprised at                                                                    
the potential that "exists here"  once things were going and                                                                    
started expanding.                                                                                                              
                                                                                                                                
2:39:44 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  understood that Alaska would  never have a                                                                    
plan  that would  reach every  Alaskan. He  noted that  many                                                                    
people considered his district urban,  but that he could not                                                                    
think of a single sewer  hook in his district, unless "maybe                                                                    
there  was  a  peripheral   public  building";  it  was  not                                                                    
economic   for  natural   gas  to   reach  a   lot  of   his                                                                    
constituents. He concluded that  even in an urban tax-paying                                                                    
area  like his  district,  a  lot of  folks  would not  have                                                                    
access to potential natural gas.                                                                                                
                                                                                                                                
Co-Chair   Austerman  believed   that   Mr.  Fauske's   last                                                                    
statement  was  absolutely  true  and that  if  the  HB  4's                                                                    
gasline were built, there would  be all kinds of things that                                                                    
would  come from  it, including  transportation issues;  the                                                                    
state would  have the  opportunity to change  over a  lot of                                                                    
its vehicles and  those kinds of things as time  went by. He                                                                    
inquired  what  the effective  date  on  the bill  was.  Ms.                                                                    
Delbridge  replied that  the  legislation  had an  immediate                                                                    
effective date.                                                                                                                 
                                                                                                                                
Co-Chair  Austerman inquired  what  the project's  timeframe                                                                    
would  be to  get to  open season.  Mr. Dubler  replied that                                                                    
AGDC intended to have an open  season complete by the end of                                                                    
2014, which was the end of the following calendar year.                                                                         
                                                                                                                                
2:41:12 PM                                                                                                                    
                                                                                                                                
Representative  Gara  noted  that  there  was  a  discussion                                                                    
regarding  whether   HB  4's  project  could   be  privately                                                                    
financed  and   therefore,  would  not   require  additional                                                                    
legislative  approval and  that the  response had  been that                                                                    
the RCA would get to review  it. He wanted to understand the                                                                    
RCA's  role and  observed that  legislators had  their role,                                                                    
which  was to  make sure  that  the maximum  benefit got  to                                                                    
constituents. He inquired  if the RCA's role  was limited to                                                                    
making  sure  that  the  tariff  that  was  charged  by  the                                                                    
pipeline owner only granted them  reasonable profit, and was                                                                    
not  geared to  whether this  was the  best project  for the                                                                    
State of Alaska. Mr. Dubler responded in the affirmative.                                                                       
                                                                                                                                
Representative Gara  inquired if the RCA  also regulated the                                                                    
price of  gas. Ms.  Delbridge replied that  the RCA  did not                                                                    
regulate the  price of gas  for "anything in the  state that                                                                    
way."; furthermore, under legislation,  the RCA did not just                                                                    
look  at an  appropriate rate  of return,  but also  ensured                                                                    
that the rates were cost based  and were supported by all of                                                                    
the  cost  data,  operations   and  maintenance  costs,  and                                                                    
everything  else  that went  into  the  pipeline. Under  the                                                                    
legislation,  the  RCA would  make  sure  that there  was  a                                                                    
reasonable rate of return,  depreciation method, and capital                                                                    
structure  involved; the  RCA would  not be  looking at  the                                                                    
ownership of  the pipeline beyond looking  at the regulatory                                                                    
framework. However,  if AGDC did  not own the  pipeline that                                                                    
was to  be regulated, the  legislation required a  full CPCN                                                                    
process  that delved  quite far  into the  owner's financial                                                                    
situations  to make  sure that  they  were financially  fit,                                                                    
willing,  and able  to take  on the  service that  they were                                                                    
proposing to handle.                                                                                                            
                                                                                                                                
2:43:03 PM                                                                                                                    
                                                                                                                                
Representative  Munoz inquired  about the  cumulative fiscal                                                                    
note and pointed  to page 1 where there was  $56 million for                                                                    
all of the  agency work from FY14 to FY19.  She wondered why                                                                    
the  reimbursable services  portion  of the  budget was  $27                                                                    
million  if  the  full  fiscal note  was  $56  million.  Ms.                                                                    
Delbridge deferred  the question to Mr.  Dubler and believed                                                                    
that   AGDC  had   prepared  the   fiscal   note  with   the                                                                    
administration.                                                                                                                 
                                                                                                                                
Mr. Dubler  stated that coming  up with the fiscal  note had                                                                    
been an intricate  process and that it  was rather involved.                                                                    
He asked if the question could be repeated.                                                                                     
                                                                                                                                
Representative  Munoz noted  that on  page 1  of the  fiscal                                                                    
note, the  cumulative costs in additional  personnel for the                                                                    
agencies to  complete the  tasks necessary  in HB  4 totaled                                                                    
$56 million,  but that the budget  for reimbursable services                                                                    
that would  be repaid  to the agencies  was $27  million for                                                                    
that  additional personnel  cost. She  wondered why  those 2                                                                    
numbers  did  not  line  up. Mr.  Dubler  replied  that  the                                                                    
difference between  the 2 represented  AGDC's cost  and that                                                                    
the  reimbursable service  agreements  were  only for  other                                                                    
agencies that would incur costs on AGDC's behalf.                                                                               
                                                                                                                                
Co-Chair Stoltze  asked if the  fiscal note would be  one of                                                                    
the last  ones the legislature  would see if "this"  was not                                                                    
under the  executive budget act.  Mr. Dubler  responded that                                                                    
it  would depend  on the  appropriation  amount and  related                                                                    
that AGDC  would need about  $400 million to get  through an                                                                    
open  season  and  to  project  sanction;  however,  if  the                                                                    
appropriation were significantly less  than that, AGDC would                                                                    
come   back   to   the   legislature   for   an   additional                                                                    
appropriation.                                                                                                                  
                                                                                                                                
Ms. Delbridge clarified  that part of that  $400 million had                                                                    
already  been  provided to  AGDC  and  what was  needed  was                                                                    
roughly $330  million. Mr. Dubler stated  that Ms. Delbridge                                                                    
was the correct.                                                                                                                
                                                                                                                                
2:45:21 PM                                                                                                                    
                                                                                                                                
Representative Gara recollected  a previous appropriation of                                                                    
$200 million and  inquired if he was  mistaken. He requested                                                                    
a history  of the appropriations  as well as what  was being                                                                    
requested.  Ms.  Delbridge  believed  that  the  legislature                                                                    
appropriated had appropriated $200  million in 2011 for AGDC                                                                    
to the  AHFC Fund; the  language in the  appropriation would                                                                    
hold that money in the  fund until the In-State Gas Pipeline                                                                    
Fund was created  through what was then HB  9. She explained                                                                    
that the In-state Gas Pipeline  Fund would now to be created                                                                    
in  HB  4. She  believed  that  the  $200 million  had  been                                                                    
partially appropriated,  but that it required  an additional                                                                    
appropriation in order  move it from the AHFC  Fund into the                                                                    
In-state Gas Pipeline Fund.                                                                                                     
                                                                                                                                
Mr. Dubler stated  that Ms. Delbridge was  correct and added                                                                    
that what had  happened was that the bill  creating the fund                                                                    
never passed the legislature. He  explained that the funding                                                                    
appropriation  had  been  specific   about  the  fund  being                                                                    
created  by  the  27th  Legislature, but  that  it  was  not                                                                    
created by that  legislature; as a result,  the $200 million                                                                    
was  sitting in  limbo at  AHFC and  if and  when a  fund is                                                                    
created, a  separate appropriation would be  required to put                                                                    
it into the In-state Gas  Pipeline Fund because the original                                                                    
appropriation language had lapsed.                                                                                              
                                                                                                                                
Representative Gara  inquired if there was  additional money                                                                    
being  requested on  top  of the  $200  million. Mr.  Dubler                                                                    
replied  in the  affirmative and  stated that  there was  an                                                                    
additional  $130 million  request,  for a  total request  of                                                                    
$330 million.                                                                                                                   
                                                                                                                                
2:47:48 PM                                                                                                                    
HB  4   was  HEARD  and   HELD  in  committee   for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:47:48 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:50:34 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
2:50:34 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:50 p.m.                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
HB 4 NEW FN CSSS(RES)-DOR-AHFC-AGDC-03-26-13.pdf HFIN 3/27/2013 9:00:00 AM
HB 4
HB 4 HFIN Members Questions.pdf HFIN 3/27/2013 9:00:00 AM
HB 4
HB 4 Back-up for House Finance Questions March 27.pdf HFIN 3/27/2013 9:00:00 AM
HB 4
HB 4 DOE Dismissal of AGPA Application.pdf HFIN 3/27/2013 9:00:00 AM
HB 4
HB 4 LeMaster backup to testimony.pdf HFIN 3/27/2013 9:00:00 AM
HB 4