Legislature(2007 - 2008)BARNES 124

03/29/2007 03:00 PM OIL & GAS

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03:06:37 PM Start
03:07:23 PM HB177
05:44:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         March 29, 2007                                                                                         
                           3:06 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Vic Kohring, Chair                                                                                               
Representative Kurt Olson, Vice Chair                                                                                           
Representative Nancy Dahlstrom                                                                                                  
Representative Ralph Samuels                                                                                                    
Representative Mike Doogan                                                                                                      
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
Representative Jay Ramras                                                                                                       
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 177                                                                                                              
"An  Act   relating  to  the   Alaska  Gasline   Inducement  Act;                                                               
establishing   the  Alaska   Gasline   Inducement  Act   matching                                                               
contribution  fund; providing  for an  Alaska Gasline  Inducement                                                               
Act coordinator; making conforming  amendments; and providing for                                                               
an effective date."                                                                                                             
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 177                                                                                                                  
SHORT TITLE: NATURAL GAS PIPELINE PROJECT                                                                                       
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
03/05/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/05/07       (H)       O&G, RES, FIN                                                                                          
03/06/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/06/07       (H)       -- MEETING CANCELED --                                                                                 
03/08/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/08/07       (H)       -- MEETING CANCELED --                                                                                 
03/13/07       (H)       O&G AT 3:30 PM HOUSE FINANCE 519                                                                       
03/13/07       (H)       Heard & Held                                                                                           
03/13/07       (H)       MINUTE(O&G)                                                                                            
03/15/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/15/07       (H)       Heard & Held                                                                                           
03/15/07       (H)       MINUTE(O&G)                                                                                            
03/19/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/19/07       (H)       Heard & Held                                                                                           
03/19/07       (H)       MINUTE(O&G)                                                                                            
03/20/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/20/07       (H)       Heard & Held                                                                                           
03/20/07       (H)       MINUTE(O&G)                                                                                            
03/21/07       (H)       O&G AT 5:30 PM SENATE FINANCE 532                                                                      
03/21/07       (H)       Heard & Held                                                                                           
03/21/07       (H)       MINUTE(O&G)                                                                                            
03/22/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/22/07       (H)       Heard & Held                                                                                           
03/22/07       (H)       MINUTE(O&G)                                                                                            
03/23/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/23/07       (H)       Heard & Held                                                                                           
03/23/07       (H)       MINUTE(O&G)                                                                                            
03/24/07       (H)       O&G AT 1:00 PM SENATE FINANCE 532                                                                      
03/24/07       (H)       -- Public Testimony --                                                                                 
03/26/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/26/07       (H)       Heard & Held                                                                                           
03/26/07       (H)       MINUTE(O&G)                                                                                            
03/27/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/28/07       (H)       O&G AT 7:30 AM CAPITOL 106                                                                             
03/28/07       (H)       Heard & Held                                                                                           
03/28/07       (H)       MINUTE(O&G)                                                                                            
03/28/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/28/07       (H)       Heard & Held                                                                                           
03/28/07       (H)       MINUTE(O&G)                                                                                            
03/29/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
KIRK MORGAN, President                                                                                                          
Kern River Gas Transmission Company                                                                                             
MidAmerican Energy Holdings Company                                                                                             
(No address provided)                                                                                                           
POSITION STATEMENT:  Testified regarding the gas pipeline                                                                       
project, offered support for HB 177 and suggestions for                                                                         
BILL WALKER, Project Manager                                                                                                    
General Counsel                                                                                                                 
Alaska Gasline Port Authority (AGPA)                                                                                            
(No address provided)                                                                                                           
POSITION STATEMENT:  Explained the AGPA's proposed project.  He                                                                 
offered support for, and suggested modifications to, HB 177 and                                                                 
answered questions.                                                                                                             
PAUL FUHS, Lobbyist                                                                                                             
for the Alaska Gasline Port Authority (AGPA)                                                                                    
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Provided   information  on  gas  pipeline                                                               
development issues.                                                                                                             
JOHN ZAGAR, General Manager, Alaska                                                                                             
Chevron Corporation, Inc.                                                                                                       
(No address provided)                                                                                                           
POSITION  STATEMENT:    Testified  as  to  Chevron  Corporation's                                                               
position on HB 177, and  indicated support for some provisions of                                                               
the bill and suggested changes for other provisions.                                                                            
TIM HOUSTON, Alaska Commercial Manager                                                                                          
Chevron Corporation, Inc.                                                                                                       
(No address provided)                                                                                                           
POSITION STATEMENT:  Answered questions on gas pipeline issues.                                                                 
ACTION NARRATIVE                                                                                                              
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas meeting  to order at  3:06:37 PM.   Representatives Kawasaki,                                                             
Olson, Samuels, Doogan,  and Kohring were present at  the call to                                                               
order.   Representative Dahlstrom arrived  as the meeting  was in                                                               
3:07:23 PM                                                                                                                    
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
3:09:22 PM                                                                                                                    
CHAIR KOHRING announced that the  only order of business would be                                                               
HOUSE  BILL NO.  177,  "An  Act relating  to  the Alaska  Gasline                                                               
Inducement Act;  establishing the  Alaska Gasline  Inducement Act                                                               
matching  contribution  fund;  providing for  an  Alaska  Gasline                                                               
Inducement  Act coordinator;  making  conforming amendments;  and                                                               
providing for an effective date."                                                                                               
3:10:02 PM                                                                                                                    
KIRK MORGAN,  President, Kern River Gas  Transmission Company, of                                                               
MidAmerican  Energy  Holdings  Company paraphrased  from  written                                                               
testimony {original punctuation provided]:                                                                                      
     MidAmerican  has assets  totaling  $37  billion and  an                                                                    
     employee  base  of  18,000. MidAmerican,  through  Kern                                                                    
     River  and its  sister company,  Northern Natural  Gas,                                                                    
     owns and operates more than  17,500 miles of interstate                                                                    
     natural  gas  transmission  pipelines with  a  combined                                                                    
     capacity exceeding 6.4  Bcf'd.  MidAmerican's pipelines                                                                    
     deliver   approximately  8.3%   of   the  natural   gas                                                                    
     delivered  in  the  United  States.    The  Kern  River                                                                    
     pipeline,  which  our  company built  in  1991,  brings                                                                    
     natural  gas  from  the Rocky  Mountain  supply  basins                                                                    
     across  926  miles  of rugged  mountainous  and  remote                                                                    
     desert  terrain  to  customers  in  Utah,  Nevada,  and                                                                    
     California.   Kern River was  the largest  gas pipeline                                                                    
     project  to have  been built  in the  United States  in                                                                    
     more than a  decade.  In 2003, Kern  River expanded the                                                                    
     pipeline, more  than doubling its capacity,  adding 717                                                                    
     miles of  36-inch and 42-inch  diameter pipeline.   The                                                                    
     $1.2  billion  project  was   completed  on  time,  $87                                                                    
     million under  budget, and helped restore  stability to                                                                    
     energy markets in the Western United States.                                                                               
     MidAmerican  is  a  subsidiary of  Berkshire  Hathaway,                                                                    
     Inc. Berkshire  is one of  only a few companies  in the                                                                    
     world  with  a AAA  credit  rating.   Berkshire  has  a                                                                    
     market capitalization  in excess  of $160 billion.   It                                                                    
     is  recognized   world-wide  for   financial  strength,                                                                    
     investment acumen, and integrity.                                                                                          
     The development  of Alaska's huge natural  gas reserves                                                                    
     is  essential to  both Alaska  and  the United  States.                                                                    
     Projected  market growth,  combined with  a decline  in                                                                    
     North  American  production,   has  created  a  growing                                                                    
     supply/demand  imbalance  that   cannot  be  adequately                                                                    
     addressed  by  traditional  gas  supply  basins  alone.                                                                    
     Alaska's natural  gas is needed  to help  ensure energy                                                                    
     security,  reliability,  and  price  stability  in  the                                                                    
     United States.                                                                                                             
     The   Alaska   natural    gas   pipeline   project   is                                                                    
     unprecedented  in  its  scale   and  complexity.    The                                                                    
     successful development  of the project will  require an                                                                    
     alignment  of  stakeholder   interests,  including  the                                                                    
     state  of Alaska,  the  North  Slope producers,  future                                                                    
     North  Slope   explorers  and  producers,   a  pipeline                                                                    
     developer, shippers and the federal government.                                                                            
     Projects of  this scale can  be easily delayed.   (That                                                                    
     has been  the history of  this project.)   Only through                                                                    
     proper  planning, organization  and  execution can  the                                                                    
     project achieve its goals  to accelerate development of                                                                    
     Alaska's  natural gas  resources and  transport gas  to                                                                    
     lower 48 markets  at the lowest reasonable  cost. To do                                                                    
     otherwise  will relegate  this project  and development                                                                    
     of this resource to reacting  to the next energy crisis                                                                    
     where goals are frequently  compromised in the interest                                                                    
     of expediency.                                                                                                             
     MidAmerican has  a serious interest in  developing this                                                                    
     project in a  manner that is consistent  with the state                                                                    
     of  Alaska's  interests.   From  our  perspective,  the                                                                    
     negotiations conducted  by the  pervious administration                                                                    
     under the Stranded  Gas Act were not  fruitful for many                                                                    
     reasons.  Foremost among these  were that they produced                                                                    
     proposals  not supported  by the  people of  the state;                                                                    
     they   failed   to   give  serious   consideration   to                                                                    
     alternative   proposals  for   development;  and   they                                                                    
     consumed years without advancing the project.                                                                              
     We believe AGIA is  a positive step toward revitalizing                                                                    
     the  gas pipeline  development process  in  a way  that                                                                    
     will move  the project  forward.   The bill  will allow                                                                    
     consideration  of  competing  proposals and  ideas  for                                                                    
     developing the pipeline.  The  state benefits from such                                                                    
     competition.  The bill  offers positive  inducements to                                                                    
     those who already have discovered  gas to commit to the                                                                    
     pipeline,  while defining  tariff provisions  that will                                                                    
     encourage   new  exploration.   And  the   bill  offers                                                                    
     inducements  to a  pipeline  developer  to advance  the                                                                    
     project in  a manner that  the state defines as  in its                                                                    
     best  interest.  Perhaps  most  importantly,  the  bill                                                                    
     establishes a  process where  each party  that proposes                                                                    
     to develop  the line  must make  meaningful commitments                                                                    
     to development milestones for  the. legislature and the                                                                    
     public to see what it will  and will not do and by what                                                                    
     AGIA  is   a  good  first   step.  AGIA  is   an  open,                                                                    
     transparent   and  competitive   process  designed   to                                                                    
     advance the project  on a deliberate schedule  and in a                                                                    
     manner  that  achieves  the overarching  goals  of  the                                                                    
     State which are to 1)  encourage new exploration on the                                                                    
     North Slope,  2) provide for expansion  of the pipeline                                                                    
     as  new  reserves  are   brought  into  production,  3)                                                                    
     achieve   the  lowest   cost  commercially   reasonable                                                                    
     tariff,  4) create  jobs for  Alaskans, and  5) provide                                                                    
     natural gas to Alaskans for in-state use.                                                                                  
     AGIA recognizes the  magnitude of front-end development                                                                    
     risks and offers  to share that risk,  in a significant                                                                    
     way, by offering  dollar-for-dollar matching of initial                                                                    
     development expenditures,  by offering  worker training                                                                    
     for  Alaskans,  and  by committing  to  expedite  state                                                                    
     permitting    requirements.   These,    plus   separate                                                                    
     inducements   offered    to   resource    owners,   are                                                                    
     significant   commitments    which   signal    to   the                                                                    
     marketplace  that the  project is  moving on  a serious                                                                    
     and  credible path  to completion.  In  the absence  of                                                                    
     such progress,  markets will  have no  alternative than                                                                    
     to seek  other means  to meet  market demand.  The most                                                                    
     significant alternative would be  to allow imported LNG                                                                    
     even greater market  access, uncontested by development                                                                    
     of Alaska's natural gas resources.                                                                                         
     While LNG is certainly a  necessary part of the natural                                                                    
     gas  resource  mix, it  makes  little  policy sense  to                                                                    
     unnecessarily increase  our reliance on  foreign energy                                                                    
     from  many unstable  and  unpredictable regions  around                                                                    
     the  world. This  project,  in  MidAmerican's view,  is                                                                    
     undeniably necessary  and the  time is  now to  push it                                                                    
     forward. The  key to moving  the project forward  is to                                                                    
     determine the appropriate balance  of risks and rewards                                                                    
     for all stakeholders.                                                                                                      
     There  is  an  alternate   approach.  The  North  Slope                                                                    
     producers  have  for   years  articulated  their  "must                                                                    
     haves"  before advancing  the project.  You have  heard                                                                    
     these  prerequisites  before   including:  1)  tax  and                                                                    
     royalty  certainty on  gas and  on  oil, 2)  regulatory                                                                    
     certainty  in  both  the  U.S.   and  Canada,  3)  cost                                                                    
     reductions through  technological advancements,  and 4)                                                                    
     federal enabling legislation.                                                                                              
     This approach  is effectively  saying that  the project                                                                    
     will get started  if and when all  of the preconditions                                                                    
     have been met and  all concessions have been extracted.                                                                    
     This  approach   has  proven   to  be   ineffective  in                                                                    
     advancing  the  project.    MidAmerican's  approach  is                                                                    
     different.   We  believe  the project  can be  advanced                                                                    
     concurrent with resolution of  issues that today remain                                                                    
     outstanding.  I want  to  emphasize MidAmerican's  view                                                                    
     that alignment  of stakeholder interests  is essential.                                                                    
     Parties will understandably  act in their self-interest                                                                    
     and  in  their  own  business  interest.  That  is  why                                                                    
     stakeholder  interest   alignment  is  critical   to  a                                                                    
     successful  project. That  alignment  must clearly  set                                                                    
     forth the roles and  responsibilities of each party, as                                                                    
     well  as the  commercial structure  which will  balance                                                                    
     the   risks   and   rewards,   such   that   investment                                                                    
     expectations will be known up  front. Our approach does                                                                    
     not exclude  interested parties  or discount  new ideas                                                                    
     which may be  offered to help manage  project risks. We                                                                    
     know  that even  if  the pipeline  is  developed by  an                                                                    
     independent developer,  the North Slope  producers will                                                                    
     play  the crucial  role  as shippers  on  the line  and                                                                    
     sellers of  gas to  other shippers. MidAmerican,  as an                                                                    
     independent  pipeline, is  impartial  and  in a  unique                                                                    
     position    to   help    facilitate   solutions    when                                                                    
     stakeholders' interests diverge.  We are confident that                                                                    
     an  appropriate  capital  structure  and  rate  design,                                                                    
     coupled  with  our  low cost  of  capital  and  project                                                                    
     experience,  can result  in  a  project structure  with                                                                    
     appropriate  allocations of  risk  and  reward for  all                                                                    
     stakeholders,  including the  state of  Alaska and  the                                                                    
     Indeed,  MidAmerican   believes  that   an  independent                                                                    
     pipeline  provides  the  best alignment  of  interests.                                                                    
     National  energy  policy  promotes, in  fact  requires,                                                                    
     competition and the unbundling  of market segments. For                                                                    
     example,  the market  structure  in  the United  States                                                                    
     typically  requires  that exploration  and  production,                                                                    
     interstate  transportation, marketing  and distribution                                                                    
     be  performed by  separate companies.  Competition, not                                                                    
     market concentration,  will lead to  efficient markets.                                                                    
     MidAmerican  has  no  upstream, downstream,  or  global                                                                    
     commercial interest that would  create any conflicts of                                                                    
     interest  or raise  any type  of  market power  concern                                                                    
     with    respect   to    this   project.    Accordingly,                                                                    
     MidAmerican's interests  align extremely well  with the                                                                    
     state of Alaska and include:                                                                                               
     1)   Accelerating   development  of   this   critically                                                                    
     important project;                                                                                                         
     2)  Achieving the  lowest cost  commercially reasonable                                                                    
     3) Offering a commercial  structure that encourages new                                                                    
     exploration and  production to  both expand  and extend                                                                    
     the life of the  pipeline. Thirty-five Tcf implies only                                                                    
     a  22-  year  project  life, and  new  discoveries  are                                                                    
     critical to fill the pipeline over its useful life;                                                                        
     4)     Providing    open-access,     non-discriminatory                                                                    
     transportation  services to  ensure  both receipts  and                                                                    
     deliveries are provided for in-state use; and                                                                              
     5)  Ensuring Alaskan  jobs  and workforce  development.                                                                    
     The  state's  commitment   to  workforce  training  and                                                                    
     development  is  extremely   important.  Skilled  labor                                                                    
     shortage  is   one  of  the  contributing   factors  in                                                                    
     construction cost increases  throughout the industry. A                                                                    
     skilled  Alaskan workforce  will not  only ensure  jobs                                                                    
     for Alaskans,  but will  help address  an industry-wide                                                                    
     demand for these workers.                                                                                                  
     The process set  forth in AGIA will  allow these ideas,                                                                    
     and all  parties' ideas and  proposals, to  be advanced                                                                    
     and  tested  in  an  open and  transparent  manner.  We                                                                    
     support  that  process  and  while  we  can  understand                                                                    
     debate   over  what   constitutes  the   best  pipeline                                                                    
     development proposal,  it is  harder to  understand why                                                                    
     parties would  object to  a process  that calls  for an                                                                    
     open and  transparent comparison of proposals.  We urge                                                                    
     the  legislature  to   approve  this  legislation  this                                                                    
     session, so  that a pipeline developer  can be selected                                                                    
     in  a time  frame  that will  allow  a productive  2008                                                                    
     field   season   for  engineering   and   environmental                                                                    
     programs to be conducted.                                                                                                  
     That  concludes my  prepared testimony.  Thank you  for                                                                    
     the opportunity to appear before  you today. I would be                                                                    
     happy to address any questions.                                                                                            
3:22:10 PM                                                                                                                    
CHAIR  KOHRING  asked  if  Mr. Morgan  had  any  suggestions  for                                                               
amendments or modifications to AGIA.                                                                                            
3:22:49 PM                                                                                                                    
Mr.  MORGAN replied  that AGIA  is a  good piece  of legislation,                                                               
although not  perfect.   He expressed  concern about  how quickly                                                               
the  bill  could be  passed  and  the  timing of  the  subsequent                                                               
application  and  selection  periods.    He  stated  his  company                                                               
desires to  preserve 2008 field season  and opined that to  do so                                                               
would require a  lot of work within  a short period of  time.  He                                                               
went  on to  mention that  some of  the rate  provisions in  AGIA                                                               
could  be modified  to  allow  more negotiation  in  the area  of                                                               
rates.  He  offered that the 15 percent initial  cap should apply                                                               
to any rate, not just the recourse rate.                                                                                        
3:24:41 PM                                                                                                                    
REPRESENTATIVE  DAHLSTROM  asked  about  the  10  year  tax  rate                                                               
MR.  MORGAN  said  that  a project  of  this  magnitude  requires                                                               
investment certainty  up front.   He noted that a  10-year period                                                               
is shorter  than the  life of  the project,  and suggested  it be                                                               
negotiated to  cover the life  of the  project.  He  offered that                                                               
the tax  protection offered could be  based on the amount  of gas                                                               
committed rather than a specified time period.                                                                                  
REPRESENTATIVE  DAHLSTROM asked  how a  failed open  season would                                                               
affect his company.                                                                                                             
MR. MORGAN replied  that he has heard talk of  the possibility of                                                               
a failed open season, and offered  that at this point there is no                                                               
assurance  the  project is  economic  as  the last  project  cost                                                               
estimates were  done in  2001.   By the time  of an  open season,                                                               
there  will  be  information  to  show  whether  the  project  is                                                               
economic, he opined.  He  expressed his belief that the producers                                                               
do not  have an interest  in withholding  their gas from  an open                                                               
season.   He opined  that holders  will want to  commit gas  to a                                                               
project  that  appears  economic.   He  told  the  committee  his                                                               
company  is  prepared  for various  market  scenarios  as  market                                                               
timing is important in the gas  market.  He expressed support for                                                               
project advancement  through certification by the  Federal Energy                                                               
Regulatory  Commission (FERC).   In  response to  a question,  he                                                               
said it  was too early  to comment  with regard to  project labor                                                               
agreements and whether they should be written into the bill.                                                                    
3:30:55 PM                                                                                                                    
REPRESENTATIVE SAMUELS asked  about the time period  to develop a                                                               
partnership agreement and complete an application.                                                                              
MR. MORGAN replied that there is  no definitive answer.  He noted                                                               
that  early  in  2003,  his  company  developed  agreements  with                                                               
interested  parties.    He  noted that  agreements  can  be  done                                                               
quickly if there are motivated parties with aligned interests.                                                                  
MR.  MORGAN  responded to  a  question  regarding a  failed  open                                                               
season by  explaining that first  one would examine why  the open                                                               
season failed.   He offered  that by  the open season,  one would                                                               
expect to have  done a full cost  estimate to be able  to offer a                                                               
definitive tariff  so that shippers have  the knowledge necessary                                                               
to commit  their gas.  He  said that if the  project is economic,                                                               
but the  open season  fails, his company  would continue  to FERC                                                               
certification.  If the project  fails because it is not economic,                                                               
one  would look  to  the provisions  in  AGIA concerning  project                                                               
3:34:29 PM                                                                                                                    
REPRESENTATIVE SAMUELS noted that the  producers who hold the gas                                                               
have significant  leverage for the  open season, and  asked about                                                               
whether that leverage ever goes away.                                                                                           
MR.  MORGAN answered  that  he considers  the  issue whether  the                                                               
taxes will  remain stable.   He stated that  investment decisions                                                               
require  stability, but  offered that  as of  today there  is not                                                               
sufficient  information to  make a  decision  on tax  rates.   He                                                               
emphasized that  there needs to  be stability once  an investment                                                               
decision  is  made.    He  explained  that  tariff  rates  should                                                               
encourage  new  exploration and  a  long-term  commitment of  the                                                               
REPRESENTATIVE SAMUELS  noted that debate on  the appropriate tax                                                               
will likely return in the future.                                                                                               
MR.  MORGAN  stated that  an  independent  "top to  bottom"  cost                                                               
estimate will  be part of  the FERC  filing and will  provide the                                                               
benchmark for  the project costs.   He  opined that would  be the                                                               
point  where  there is  adequate  information  to make  decisions                                                               
regarding the appropriate tax rate.   He cautioned that a 10-year                                                               
tax stabilization may not be long enough for this project.                                                                      
3:40:56 PM                                                                                                                    
REPRESENTATIVE SAMUELS  asked for clarification as  to the effect                                                               
of the 15 percent limit above any rate.                                                                                         
MR.  MORGAN  responded  that  it  is not  uncommon  to  assign  a                                                               
percentage of  the firm transportation (FT)  commitment capacity,                                                               
to a shipper for recovery.   He explained that those costs can be                                                               
allocated over  time.  It will  have a significant impact  on the                                                               
tariff  if those  costs must  be  recovered over  a shorter  time                                                               
3:43:40 PM                                                                                                                    
REPRESENTATIVE SAMUELS  asked about the  normal range of  debt to                                                               
equity ratios for pipelines.                                                                                                    
MR. MORGAN said that the typical  range in the industry is for no                                                               
more than  70 percent  debt.   He said  there are  FERC regulated                                                               
pipelines  which  have 60  percent  equity.    In response  to  a                                                               
question, he  noted that his  company does not have  pipelines in                                                               
Canada,  but  that he  has  some  familiarity with  the  Canadian                                                               
system.  He said that generally  the returns in Canada are lower,                                                               
the risk profile is different,  and the pipelines are more highly                                                               
leveraged.  There are protections  in the Canadian regulations to                                                               
protect pipelines from  some risk factors such  as "through put,"                                                               
he indicated.                                                                                                                   
3:46:30 PM                                                                                                                    
REPRESENTATIVE DOOGAN  asked about  the risks  that are  posed by                                                               
potential changes in  tax rates and whether the  witness knows of                                                               
a case in which tax changes caused failure of a company.                                                                        
MR. MORGAN replied that he knows  of no such case.  In interstate                                                               
pipeline systems, the federal  commerce clause protects pipelines                                                               
from being  subject to  unreasonable and  multiple taxes  by each                                                               
jurisdiction the  pipeline passes  through.   He noted  that when                                                               
costs  rise, a  pipeline company  can file  for a  rate increase,                                                               
which is a  complicated procedure.  There is no  guarantee that a                                                               
company may  be able to pass  rates through to its  customers, he                                                               
The committee took an at ease from 3:51 to 4:04.                                                                                
4:04:32 PM                                                                                                                    
BILL  WALKER, Project  Manager, General  Counsel, Alaska  Gasline                                                               
Port Authority (AGPA) provided the  committee with a presentation                                                               
titled  "Alaska  Legislature  Testimony" dated  March,  2007  and                                                               
explained  that the  AGPA was  formed  under state  statute as  a                                                               
municipal  port authority  to  build,  or cause  to  be built,  a                                                               
project to commercialize Alaska's North  Slope gas.  The goals of                                                               
AGPA are to  ensure that a gas pipeline is  built with the lowest                                                               
tariffs possible for Alaska and  the marketplace.  A gas pipeline                                                               
would provide a  stable source of energy,  employment in pipeline                                                               
and liquefaction  industries, direct net-project  revenue sharing                                                               
of 60 percent to the state  and 40 percent to municipalities, and                                                               
an opportunity  to supply gas  liquids to  in-state petrochemical                                                               
industries, he explained.   He went on to indicate  that the AGPA                                                               
is not  necessarily opposed  to a Y-line  through Canada  at some                                                               
time.  He explained that the  AGPA plans a "pre-build" from North                                                               
Slope to Delta  Junction for later tie-in  with the Alaska/Canada                                                               
Highway Project.   He emphasized  the need  for early use  of in-                                                               
state gas.                                                                                                                      
4:14:03 PM                                                                                                                    
MR. WALKER explained  that the project proposed  by AGPA includes                                                               
a  40 inch  high  density  line, a  liquefied  natural gas  (LNG)                                                               
facility in  Valdez, integrated  gas liquefaction  and extraction                                                               
facilities, storage  and vessel  loading facilities.   He relayed                                                               
that AGPA has purchased the  Yukon Pacific Corporation ("YPC") to                                                               
facilitate obtainment  of permits for  the pipeline project.   He                                                               
offered   that  there   is  an   approved  environmental   impact                                                               
statement, terminal  permit, and  export license related  to this                                                               
project.  He referred to the  need for LNG facilities on the West                                                               
Coast  and  noted  that  there   is  currently  a  project  under                                                               
construction in Costa  Azul.  He predicted that  Alaska gas would                                                               
go to  markets in California, New  Mexico, and Arizona.   He said                                                               
that AGPA  has made  significant progress  towards a  pipeline to                                                               
date  in  areas  of  federal   law,  market  research,  and  cost                                                               
estimates, referring to slide 7 of the presentation.                                                                            
4:20:49 PM                                                                                                                    
MR.  WALKER opined  that the  initial  phase for  the Alaska  gas                                                               
pipeline  should focus  on in-state  gas distribution.   He  said                                                               
AGPA  defines "full-phase"  gas  distribution as  a line  through                                                               
Canada  or an  expansion of  LNG capabilities.   He  offered that                                                               
AGPA's project is  the right size project, referring  to slide 9.                                                               
He offered  his belief that  the LNG project will  allow Alaska's                                                               
gas  to  reach the  market  sooner,  as exploration  efforts  are                                                               
underway  for the  larger  pipeline projects.    He offered  that                                                               
Alaska  could  provide a  stable  supply  of  LNG to  West  Coast                                                               
4:25:12 PM                                                                                                                    
MR. WALKER  opined that LNG  will create "market  optionality" in                                                               
ways that  a single gas pipeline  will not.  He  said that prices                                                               
can vary in markets, noting that  markets in Asia have had higher                                                               
prices  than markets  in Alberta.    He offered  that the  phased                                                               
development proposed  by AGPA is  less of  a strain on  the steel                                                               
and pipe  markets.  He said  that AGPA suggests a  large line out                                                               
of the  basin going  approximately 800  miles to  Delta Junction.                                                               
Cold  weather  in Valdez  could  actually  help the  liquefaction                                                               
facilities  operate more  efficiently, he  explained.   He opined                                                               
that  the  Valdez  port  could accept  more  tanker  traffic  and                                                               
benefits  from substantial  existing  North Slope  infrastructure                                                               
and developed fields such as Prudhoe Bay.                                                                                       
4:31:39 PM                                                                                                                    
MR.  WALKER suggested  that HB  177  be amended  to require  more                                                               
details  from Canadian  line applicants,  referring to  slide 13.                                                               
He suggested  that applicants be required  to provide information                                                               
regarding the  determination of off-take amounts  at Prudhoe Bay,                                                               
the  budget and  timeline for  exploration programs,  anticipated                                                               
oil  loss, analysis  of liquid  availability in  Alaska, and  the                                                               
timeline for project start up and completion.                                                                                   
MR.  WALKER  expressed support  for  rolled-in  rates and  AGIA's                                                               
support for  independently owned infrastructure.   He opined that                                                               
the  $500  million  incentive  sends  a  positive  message  about                                                               
Alaska's desire  to commercialize  Alaska's gas.   He went  on to                                                               
say  it is  good  for  Alaska to  have  an  open and  competitive                                                               
process  in the  planning and  development of  this project.   He                                                               
expressed support for inducements  in exchange for specific risks                                                               
and  for  the empowering  of  successful  applicants to  build  a                                                               
successful consortium  prior to  open season.   He opined  that a                                                               
return to anything  like the Stranded Gas  Development Act (SGDA)                                                               
would be  a "step backwards."   He  opined that the  main project                                                               
risk is  that Alaska will  lose out on  the "great race"  to move                                                               
gas into the United States markets.                                                                                             
4:41:41 PM                                                                                                                    
REPRESENTATIVE SAMUELS  asked whether the AGPA's  revenue sharing                                                               
proposal of  60 percent  to the  state and  40 percent  to Alaska                                                               
municipalities is subject to change by the board of directors.                                                                  
MR. WALKER replied that the  board of directors could change this                                                               
ratio, but  that there  is some possibility  that the  AGPA would                                                               
enter  a long-term  arrangement  restricting the  ability of  the                                                               
board to change this provision.                                                                                                 
PAUL FUHS, Lobbyist for the  Alaska Gasline Port Authority (AGPA)                                                               
noted  that  the  state will  receive  production  and  severance                                                               
taxes, but  if there are any  net proceeds which remain  with the                                                               
AGPA  they   would  be   distributed  back   to  the   state  and                                                               
4:43:26 PM                                                                                                                    
REPRESENTATIVE SAMUELS asked  if the AGPA would  state at present                                                               
that it would not file a lawsuit if not chosen for the project.                                                                 
MR. WALKER  replied that he  cannot speak  for board, but  he may                                                               
recommend that  the board agree not  to litigate in an  effort to                                                               
move the  project forward.   He suggested that the  parties could                                                               
agree to move  original jurisdiction to the  Alaska Supreme Court                                                               
to expedite any litigation.                                                                                                     
MR.  FUHS noted  one could  limit the  time in  which to  file an                                                               
REPRESENTATIVE  DAHLSTROM stated  it  is  within the  committee's                                                               
scope to address dispute resolution issues and approaches.                                                                      
4:46:14 PM                                                                                                                    
REPRESENTATIVE DOOGAN  asked whether  the AGPA  will ship  gas to                                                               
Valdez and beyond.                                                                                                              
MR. WALKER replied that the gas may be sold at Valdez.                                                                          
REPRESENTATIVE  DOOGAN  asked  if  the  AGPA,  as  a  tax  exempt                                                               
organization, would pay property taxes.                                                                                         
MR.  WALKER   agreed  with   the  aforementioned   statement  but                                                               
indicated that AGPA would pay  "fixed property taxes to the state                                                               
as well" on the current status quo of 2 percent.                                                                                
4:48:27 PM                                                                                                                    
CHAIR  KOHRING asked  about  the possibility  of  a gas  pipeline                                                               
along the Parks Highway to Port McKenzie.                                                                                       
MR. WALKER replied  that the AGPA has looked  at that possibility                                                               
but that route  has significant challenges.   The disadvantage of                                                               
that route is timing because a  great deal of regulatory work has                                                               
been  done  on  other  routes,  but  not  on  the  aforementioned                                                               
suggestion.    He went  on to say  that the AGPA  includes tie-in                                                               
points along the route.                                                                                                         
MR. FUHS explained  that AGPA's proposal includes  a proposals to                                                               
include  lines  of  various  dimensions  to  loop  into  existing                                                               
systems and basically "tie in" at Palmer.                                                                                       
CHAIR KOHRING asked  whether the AGPA would work  with a Canadian                                                               
company to follow through on a  spur to the South-central area as                                                               
an offshoot of the main line.                                                                                                   
MR. WALKER  said that AGPA  would work  with such an  option, but                                                               
expressed  concerns  with the  timing  and  the possibility  that                                                               
delay would cause demand for Alaska gas to diminish.                                                                            
4:52:07 PM                                                                                                                    
CHAIR KOHRING  asked about  production and  shipment of  gas from                                                               
Sakhalin Island and its possible  effect on the market for Alaska                                                               
MR.  WALKER  indicated   that  the  Sakhalin  Island   may  be  a                                                               
politically unstable  region and may  not be able to  guarantee a                                                               
secure  source   of  gas.     In  contrast,  Alaska   provides  a                                                               
politically stable geographic area.                                                                                             
MR.  FUHS  added  that  the  Sakhalin  Island  project  has  some                                                               
similarities to the  Alaska project.  The Sakhalin  project has a                                                               
500  mile pipeline  to an  ice-free port,  and requires  twice as                                                               
many  tankers  as the  Alaska  project.    He offered  that  this                                                               
provides an example of the  viability of the proposal to transfer                                                               
Alaska gas to Valdez.                                                                                                           
4:54:25 PM                                                                                                                    
REPRESENTATIVE DOOGAN queried  why the AGPA project  has not gone                                                               
MR. WALKER answered  that the project is  actually going forward,                                                               
but is  in need  of gas.   He  noted that  the AGPA  submitted an                                                               
offer to  purchase gas in April,  2005 and that access  to gas is                                                               
the "single piece"  missing from its project.  He  went on to say                                                               
that  there has  been a  "significant  shift" in  the Alaska  gas                                                               
market since the termination of the Point Thomson lease.                                                                        
REPRESENTATIVE  DOOGAN  about  the   amount  of  gas  potentially                                                               
available from Point Thomson.                                                                                                   
MR. WALKER  replied that the  gas at Point Thompson,  in addition                                                               
to the state's royalty gas at  Prudhoe Bay, is sufficient for the                                                               
AGPA project.                                                                                                                   
The committee took an at ease from 4:56:44 PM to 5:06:00 PM.                                                                
5:06:48 PM                                                                                                                    
JOHN ZAGER,  General Manager,  Alaska, Chevron  Corporation Inc.,                                                               
provided  the   committee  with   a  presentation   titled  "AGIA                                                               
Testimony HB  177" dated March  29, 2007.   He said  that Chevron                                                               
has a 1 percent interest in  Prudhoe Bay which means it will have                                                               
gas available for  the first open season.  He  noted that Chevron                                                               
is  a 25  percent owner  in Point  Thompson, and  that the  lease                                                               
issues there are currently in litigation.                                                                                       
MR.  ZAGER  opined  that the  various  stakeholders  should  work                                                               
together to find common ground  so that this project can proceed.                                                               
He  said  that  the  Alaska gas  pipeline  project's  large  size                                                               
increases  the risk  inherent in  the  project due  to the  large                                                               
amount of money at stake.   He explained that Chevron's investors                                                               
are disciplined and conservative,  therefore may be somewhat wary                                                               
of  a possibly  uneconomic project.   He  set forth  the proposal                                                               
that  the objectives  of the  state, pipeline  owners, producers,                                                               
and explorers vary  for the pipeline project,  referring to slide                                                               
3.   He noted that all  parties benefit from low  tariffs as they                                                               
increase the netback, attract more gas, and encourage expansion.                                                                
He summarized  his observations  about HB 177  by noting  that it                                                               
provides inducements  for key risks  in two segments:   midstream                                                               
and upstream, referring to slide 4.                                                                                             
5:17:48 PM                                                                                                                    
REPRESENTATIVE SAMUELS  asked about  locking in  tax rates  for a                                                               
certain amount of gas instead of for a certain time period.                                                                     
MR.  ZAGER  offered  his  belief  that  there  are  a  number  of                                                               
mechanisms  that can  be used  to provide  fiscal certainty.   He                                                               
noted the  aforementioned issue  would have  to be  considered in                                                               
conjunction with the volume of gas committed.                                                                                   
MR.  ZAGER  went  on  to   say  that  whether  AGIA's  inducement                                                               
provisions  are  sufficient  for  a  successful  open  season  is                                                               
difficult to answer  because it will depend  on the circumstances                                                               
at the  time.  He explained  that although Chevron wants  to sell                                                               
its gas, it will make a  decision based on the economic situation                                                               
at the time.                                                                                                                    
5:20:27 PM                                                                                                                    
REPRESENTATIVE SAMUELS asked about rolled-in tariffs.                                                                           
MR. ZAGER  replied that the issue  with the tariffs is  whether a                                                               
company  has gas  and  is  putting up  one  of  the initial  firm                                                               
transportation  (FT) commitments.    In that  case,  the rate  is                                                               
being locked  in and will  be preserved  with only a  possible 15                                                               
percent future increase.                                                                                                        
5:21:19 PM                                                                                                                    
TIM  HOUSTON,  Alaska  Commercial  Manager,  Chevron  Corporation                                                               
Inc., opined  that although  the concept  of rolled-in  rates has                                                               
been  presented, there  are many  variables as  to how  the rates                                                               
will  be  designed and  set.    In  response  to a  question,  he                                                               
explained that in  Canada, pipelines receive a rate  of return of                                                               
around 8  to 8.5  percent, compared  to 12 to  13 percent  in the                                                               
United States.   He noted  that although there is  some confusion                                                               
about how AGIA's proposed 15 percent  cap would work, it could be                                                               
MR. ZAGER  explained that  the cost and  allocation of  risk will                                                               
affect the  commercial viability of  the project.  He  noted that                                                               
the cost  estimate is unknown  at present, but  that construction                                                               
costs  are  increasing.    He  said  that  there  is  uncertainty                                                               
regarding  gas  volumes, future  gas  prices,  and fiscal  terms.                                                               
These terms can change to help  or harm the commercial success of                                                               
the project, he  said.  He went  on to say that at  present it is                                                               
difficult to  argue for a  particular tax rate since  the project                                                               
has not yet started.  He  offered that the inducements offered by                                                               
AGIA offer a positive factor in  favor of commercial success.  He                                                               
noted that  there is  still a  great deal  of uncertainty  in the                                                               
5:30:03 PM                                                                                                                    
REPRESENTATIVE DOOGAN asked if these  issues favor development of                                                               
a smaller, faster project rather than a larger, slower project.                                                                 
MR.  ZAGER replied  that he  would be  "hard-pressed" to  jump to                                                               
that  conclusion,  noting that  there  are  advantages to  moving                                                               
ahead at a  quicker rate, yet also advantages  to proceeding with                                                               
a larger project for reasons of scale and efficiency.                                                                           
REPRESENTATIVE  DOOGAN asked  if  a smaller  project, with  lower                                                               
construction costs and possibly fewer delays, is less risky.                                                                    
MR. ZAGER noted that  one rule of pipelines is to  "go big" so as                                                               
to capture economies of scale.                                                                                                  
MR.  HOUSTON noted  that schedule  delays related  to permits  or                                                               
other aspects  of construction will  exist regardless  of project                                                               
REPRESENTATIVE DOOGAN referenced the  possibility that a smaller,                                                               
faster project may decrease many  of the uncertainties facing the                                                               
project, referring to slide 5.                                                                                                  
5:33:49 PM                                                                                                                    
MR. ZAGER  opined that a  longer and more  comprehensive approach                                                               
to  fiscal stability  will help  to move  the project  forward by                                                               
making it  more commercially attractive.   He set forth  that his                                                               
understanding is  that AGIA proposes a  cap of 15 percent  on the                                                               
cumulative  rolled-in rate,  but  offered that  the provision  as                                                               
currently set forth  in AGIA is unclear.  He  queried whether the                                                               
intent is  to cap the initial  shippers' rates by 15  percent, or                                                               
whether it  is to  cap the  shippers' rates  with the  15 percent                                                               
increase.  He  suggested that this language be  "tightened up" to                                                               
clearly reflect the intent.   He expressed some uncertainty as to                                                               
the  AGIA  provisions  designed to  remove  future  uncertainties                                                               
where possible,  as that provision  as written seems to  open the                                                               
door for regulatory  changes.  He opined that  this provision may                                                               
provide some  benefits if it  is intended  to allow the  state to                                                               
adjust any provisions that are not working as intended.                                                                         
5:37:32 PM                                                                                                                    
REPRESENTATIVE   SAMUELS  asked   about  Chevron's   interest  in                                                               
partnering with other parties.                                                                                                  
MR. ZAGER replied that some  type of partnership is a possibility                                                               
to seriously consider,  but noted that Chevron's  desire would be                                                               
to  own   pipeline  capacity   commensurate  with   its  shipping                                                               
5:39:26 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked whether  the  witness  is aware  of                                                               
changes in a  tax regime that caused pipeline  project or shipper                                                               
to cease operations.                                                                                                            
MR. ZAGER answered  that he is unaware of  taxes which "cratered"                                                               
an upstream project, although they can lower a project's value.                                                                 
MR.  HOUSTON replied  that  he is  not aware  of  a project  that                                                               
ceased due to changes in tax regimes.                                                                                           
REPRESENTATIVE  SAMUELS asked  if tariffs  rise at  the end  of a                                                               
project's life.                                                                                                                 
5:41:18 PM                                                                                                                    
MR. HOUSTON  responded that tariffs  can rise, but it  depends on                                                               
how  the stakeholders  allocate the  volume  risk up  front.   If                                                               
depreciation rates are  set on the known volume  at start-up, and                                                               
lowered as more volumes are found,  the tariff rate can be higher                                                               
at the  project's beginning,  but not "fly  up" at  the project's                                                               
end.   If rates  are set with  FERC by capacity,  there can  be a                                                               
"catch up" problem at the end  which can increase the tariffs, he                                                               
REPRESENTATIVE SAMUELS noted Chevron's  unique position as both a                                                               
producer  and  explorer,  and  asked  how  that  may  effect  the                                                               
company's position on rolled-in tariffs.                                                                                        
MR. HOUSTON noted  that Chevron's view as to  the favorability of                                                               
rolled-in rates depends  on the other pieces of  the rate design.                                                               
He  noted  that sometimes  during  pipeline  expansion, blame  is                                                               
placed on  rolled-in rates, when the  real issue may be  the rate                                                               
design  as  a whole.    He  set  forth  that the  rolled-in  rate                                                               
provisions of  AGIA are not  definite enough to allow  an opinion                                                               
on the impact of the rolled-in rate provisions of the bill.                                                                     
[HB 177 was held in committee.]                                                                                                 
There being no  further business before the  committee, the House                                                               
Special  Committee  on  Oil  and Gas  meeting  was  adjourned  at                                                               
5:44:37 PM.                                                                                                                   

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