Legislature(2007 - 2008)BARNES 124

04/13/2007 01:00 PM RESOURCES


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01:02:17 PM Start
01:02:31 PM HB177
05:28:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 177 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 13, 2007                                                                                         
                           1:02 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Carl Gatto, Co-Chair                                                                                             
Representative Craig Johnson, Co-Chair                                                                                          
Representative Vic Kohring                                                                                                      
Representative Bob Roses                                                                                                        
Representative Paul Seaton                                                                                                      
Representative Peggy Wilson                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
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                                                                              
03/29/07       (H)       Heard & Held                                                                                           
03/29/07       (H)       MINUTE(O&G)                                                                                            
03/30/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/30/07       (H)       Heard & Held                                                                                           
03/30/07       (H)       MINUTE(O&G)                                                                                            
03/31/07       (H)       O&G AT 1:00 PM BARNES 124                                                                              
03/31/07       (H)       -- MEETING CANCELED --                                                                                 
04/02/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
04/02/07       (H)       Heard & Held                                                                                           
04/02/07       (H)       MINUTE(O&G)                                                                                            
04/03/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
04/03/07       (H)       Moved CSHB 177(O&G) Out of Committee                                                                   
04/03/07       (H)       MINUTE(O&G)                                                                                            
04/04/07       (H)       O&G RPT CS(O&G) NT 3DP 2NR 2AM                                                                         
04/04/07       (H)       DP: RAMRAS, DOOGAN, OLSON                                                                              
04/04/07       (H)       NR: SAMUELS, KAWASAKI                                                                                  
04/04/07       (H)       AM: DAHLSTROM, KOHRING                                                                                 
04/04/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
04/04/07       (H)       -- MEETING CANCELED --                                                                                 
04/05/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
04/05/07       (H)       -- MEETING CANCELED --                                                                                 
04/10/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/10/07       (H)       Heard & Held                                                                                           
04/10/07       (H)       MINUTE(RES)                                                                                            
04/11/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/11/07       (H)       Heard & Held                                                                                           
04/11/07       (H)       MINUTE(RES)                                                                                            
04/12/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/12/07       (H)       Heard & Held                                                                                           
04/12/07       (H)       MINUTE(RES)                                                                                            
04/13/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                              
DAVID VAN TUYL, Gas Commercialization Manager                                                                                   
BP Exploration (Alaska) Inc. (BP)                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified  regarding BP Exploration (Alaska)                                                               
Inc.'s concerns about HB 177 and responded to questions.                                                                        
                                                                                                                                
WILLIAM M. WALKER, Project Manager                                                                                              
General Counsel                                                                                                                 
Alaska Gasline Port Authority (AGPA)                                                                                            
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Testified in favor of HB  177 and responded                                                               
to questions.                                                                                                                   
                                                                                                                                
PAUL FUHS, Lobbyist                                                                                                             
for the Alaska Gasline Port Authority                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Provided   information  on  gas  pipeline                                                               
development issues and on suggested amendments to HB 177.                                                                       
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  CARL   GATTO  called   the  House   Resources  Standing                                                             
Committee  meeting  to  order at  1:02:17  PM.    Representatives                                                             
Gatto,  Wilson,  Seaton,  Roses,   Guttenberg,  and  Edgmon  were                                                               
present  at   the  call  to  order.     Representatives  Johnson,                                                               
Kawasaki, and Kohring arrived as the meeting was in progress.                                                                   
                                                                                                                                
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
                                                                                                                                
1:02:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  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."   [Before  the committee  was                                                               
CSHB 177(O&G).]                                                                                                                 
                                                                                                                                
1:03:48 PM                                                                                                                    
                                                                                                                                
DAVID  VAN TUYL,  Gas Commercialization  Manager, BP  Exploration                                                               
(Alaska) Inc. (BP), referred to  a PowerPoint presentation, slide                                                               
2, and  paraphrased from written testimony  [original punctuation                                                               
modified slightly]:                                                                                                             
                                                                                                                                
     BP has a long history in  Alaska.  BP has been actively                                                                    
     involved   in   the   exploration,   development,   and                                                                    
     production  of Alaska's  North  Slope energy  resources                                                                    
     for decades.   [We]  see the  opportunity for  a bright                                                                    
     future ahead.  In fact,  we envision our 50-year future                                                                  
     in Alaska.  It's not just  a slogan.  So how might that                                                                    
     vision look to our company?                                                                                                
                                                                                                                                
     I'd like  to turn  your attention to  the graph  at the                                                                    
     bottom of slide  2, which shows the  possibility of the                                                                    
     future that BP sees in  Alaska, depicting BP's share of                                                                    
     production through time.                                                                                                   
                                                                                                                                
     There  are a  few key  points to  draw from  the graph.                                                                    
     The days of high plateau  production are behind us.  We                                                                    
     still  have a  significant level  of production  today,                                                                    
     but  that  production  will continue  to  decline  with                                                                    
     time.  That's  what the dotted red line  depicts.  That                                                                    
     shows  production declining  at historic  levels, which                                                                    
     already would require significant investment.                                                                              
                                                                                                                                
     We  can make  up that  decline in  production with  new                                                                    
     investment  that would  result in  new production  from                                                                    
     heavy  oil resources  and from  gas.   But  it's not  a                                                                    
     given.  It's  a view of what is POSSIBLE.   That future                                                                    
     is  only  made possible  with  an  Alaska gas  pipeline                                                                    
     project.                                                                                                                   
                                                                                                                              
                                                                                                                                
1:06:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  whether one  should assume  the gas  is in                                                               
"barrels of oil equivalents."                                                                                                   
                                                                                                                                
MR. VAN TUYL answered yes.                                                                                                      
                                                                                                                                
CO-CHAIR GATTO noted  that slide 2 shows a future  decline in oil                                                               
production despite  continued investment,  however it  also seems                                                               
to indicate some future production above the projected decline.                                                                 
                                                                                                                                
MR. VAN TUYL  explained that the chart on slide  2 shows possible                                                               
future production increases  in viscous oil and  gas should there                                                               
be further  investment "beyond which  we have  had historically."                                                               
He said  the historic  decline rate has  been around  six percent                                                               
annually, but that rate could  be slowed somewhat should there be                                                               
more  investment in  the development  of  viscous oil  resources.                                                               
Alternately, if  the investment rate  was reduced,  the projected                                                               
rate of future decline would be even greater.                                                                                   
                                                                                                                                
1:08:36 PM                                                                                                                    
                                                                                                                                
MR.  VAN  TUYL  paraphrased   from  written  testimony  [original                                                               
punctuation modified slightly]:                                                                                                 
                                                                                                                                
   So BP wants and needs  a gas pipeline.  And  we need that                                                                  
   pipeline to  be built  for a  low capital  cost and  then                                                                    
   operated cost efficiently.   We believe  that is  what is                                                                    
   required to make  the project  happen and  be successful.                                                                    
   Low costs are good for  both BP and the  State because it                                                                    
   results  in  lower  tariffs,  higher  netbacks  and  more                                                                    
   revenues for the State and BP.                                                                                               
                                                                                                                                
   Also, a  low  cost  project  will  provide  incentive  to                                                                    
   explore for more gas  to keep the pipeline  full into the                                                                    
   future.  That is also good for the State and for BP.  The                                                                    
   best way to ensure there is gas exploration in the future                                                                    
   is to get a gas pipeline built in the first place, and to                                                                    
   get it built for a low cost.                                                                                                 
                                                                                                                                
   This is a hugely  important project to BP,  to Alaska and                                                                  
   to  the  nation.    It  represents  the  largest,  known,                                                                    
   undeveloped gas  resource in  the United  States, and  in                                                                    
   BP's global portfolio.   The gas project is  important in                                                                    
   its own right - but it also extends  the economic life of                                                                    
   Alaska's oil  production  for  decades.    Extending  oil                                                                    
   production is good for the State, the nation and for BP.                                                                     
                                                                                                                              
                                                                                                                                
1:10:10 PM                                                                                                                    
                                                                                                                                
     We share  the governor's  and the  legislature's desire                                                                    
     to get a  successful gas project moving,  and BP stands                                                                    
     ready   to   engage   with   the   administration   and                                                                    
     legislature to  reach a balanced fiscal  framework that                                                                    
     works for all the parties.                                                                                                 
                                                                                                                                
     And  finally,  a  successful  framework  will  set  the                                                                    
     foundation for  a stable, healthy,  and viable  oil and                                                                    
     gas  business  for decades  to  come.   BP's future  in                                                                    
     Alaska is directly linked to the gas pipeline project.                                                                     
                                                                                                                                
     That is  why we are  very encouraged by  the Governor's                                                                    
     and   the   legislature's  enthusiasm   about   getting                                                                    
     Alaska's gas to  market.  That is also  our vision, and                                                                    
     so  we  share  your  enthusiasm.   It  is  the  key  to                                                                    
     Alaska's  future,   and  to  BP's  future   in  Alaska.                                                                    
     Therefore, it is important that we get it right.                                                                           
                                                                                                                                
     BP sees AGIA as  the Administration's expression of its                                                                    
     commitment to  advance the gas  pipeline project  in an                                                                    
     open and transparent  way.  We applaud  that good faith                                                                    
     expression.                                                                                                                
                                                                                                                                
     Developing  the  right  process is  difficult.    Since                                                                    
     first seeing  AGIA at its  roll out to  the legislature                                                                    
                                  nd                                                                                            
     and  the public  on  March  2,   we  have identified  a                                                                    
     number  of  important  areas  of  concern  for  you  to                                                                    
     consider.   We believe AGIA  CAN be successful  if some                                                                    
     key issues  are addressed, and I  have summarized those                                                                    
     concerns  here, and  will discuss  them in  more detail                                                                    
     shortly.                                                                                                                   
                                                                                                                                
     We   believe   AGIA    may   create   some   unintended                                                                    
     consequences  that  could   jeopardize  the  vision  of                                                                    
     getting  Alaska's gas  to market  quickly,  and at  low                                                                    
     cost.  We  believe it is important  for the Legislature                                                                    
     to consider  these areas of  concern as  you deliberate                                                                    
     on AGIA.                                                                                                                   
                                                                                                                                
     Why do we  feel these changes are so important?   It is                                                                    
     because we  want the project  to be a  success, because                                                                    
     there is much at stake for BP and for Alaskans.                                                                            
                                                                                                                                
                                                                                                                                
1:12:15 PM                                                                                                                    
                                                                                                                                
MR. VAN TUYL referred to slide 4 of the PowerPoint and                                                                          
paraphrased from written testimony [original punctuation                                                                        
modified slightly]:                                                                                                             
                                                                                                                                
   It is  worth a  brief  reminder of  the  importance of  a                                                                    
   successful project.  And  I would like to  emphasize that                                                                    
   what we need is  a SUCCESSFUL gas pipeline,  not just ANY                                                                    
   gasline.  As we've said, this is  a project of tremendous                                                                    
   scope and scale  and that's what  the picture  reminds us                                                                    
   of.  Because of this it presents tremendous risk.  But if                                                                    
   it is done  right, it also  presents the  opportunity for                                                                    
   great benefits as well.  Because there  is much at stake,                                                                    
   we need to get it right.                                                                                                     
                                                                                                                                
   The  project  creates   the  opportunity  for   jobs  for                                                                    
   Alaskans, and  if  we  deliver  a  successful,  low  cost                                                                    
   project, for revenues  to the State  and to BP  well into                                                                    
   the future.  We  can create a  whole new industry  of gas                                                                    
   exploration with  a successful,  low cost  project.   Gas                                                                    
   exploration  and  expansion  are  only  possible  if  the                                                                    
   pipeline gets  built in  the first  place, and  if it  is                                                                    
   built for a  low capital and  operating cost.   That will                                                                    
   make it  attractive  for bringing  new  volumes into  the                                                                    
   project, which  benefits the  State,  gas explorers,  and                                                                    
   initial shippers as well.                                                                                                    
                                                                                                                                
   A  successful  gas  pipeline  project  will  provide  the                                                                    
   opportunity to bring  a long term  gas supply  source for                                                                    
   use by Alaskans.   And finally, gas sales  will diversify                                                                    
   Alaska's economy for decades into the future.                                                                                
                                                                                                                                
                                                                                                                                
1:14:03 PM                                                                                                                    
                                                                                                                                
MR. VAN  TUYL opined that AGIA  can help to deliver  a successful                                                               
gas  pipeline  if  certain  modifications are  made.    He  first                                                               
recommended  that  the  bill  set  forth  objectives  instead  of                                                               
prescriptive requirements and  paraphrased from written testimony                                                               
[original punctuation modified slightly]:                                                                                       
                                                                                                                                
     We  fully  support  the  State  clearly  providing  its                                                                    
     objectives for a successful gas  pipeline project.  The                                                                    
     concern  we have  is that  AGIA as  drafted presupposes                                                                    
     solutions to those objectives,  such as those contained                                                                    
     in Section .130 starting on page 3 of the bill.                                                                            
                                                                                                                                
     We think  that prescribing solutions up  front will not                                                                    
     result  in   the  best  project.     We've   heard  the                                                                    
     administration state their intent  that "we need to let                                                                    
     industry do  what they do  best".  We fully  agree with                                                                    
     that intent, and think it  only gets met if industry is                                                                    
     allowed to offer its own unique, creative solutions.                                                                       
                                                                                                                                
     One specific example of prescribing  a solution we find                                                                    
     particularly   troubling   is   the   issue   of   toll                                                                    
     subsidization.    AGIA as  drafted  can  result in  one                                                                    
     party  subsidizing another  [referring to  the language                                                                    
     in Section  .130(7) of  the bill on  page 6-7.].   AGIA                                                                    
     specifically   requires   initial    shippers   -   who                                                                    
     financially underpin  the project and who  already bear                                                                    
     most of the risk associated  with the project - to bear                                                                    
     yet  another risk  and additional  cost:   the risk  of                                                                    
     tariff  increases   of  15%  or  more   by  subsidizing                                                                    
     expansion shippers:                                                                                                        
                                                                                                                                
     First I want  to make clear that the issue  is not just                                                                    
     the potential  for a 15%  rise in  the tariff.   And by                                                                    
     the  way, the  "15% cap"  as I've  heard this  language                                                                    
     characterized  is not  15%, and  it's  not a  cap.   In                                                                    
     reality  it  could  result in  a  significantly  higher                                                                    
     increase than 15%.   But the more  fundamental issue is                                                                    
     that we believe the  issue of subsidization is contrary                                                                    
     to FERC policy.   We understand and we  fully share the                                                                    
     State's desire for  a pipeline to be  expandable - it's                                                                    
     absolutely  good business.   However,  we believe  that                                                                    
     the  State  should  carefully  consider  the  potential                                                                    
     adverse  consequences of  requiring pipeline  owners to                                                                    
     increase rates on their  initial customers to subsidize                                                                    
     expansion shippers.   A policy of  subsidization places                                                                    
     additional  risk on  the initial  shippers, making  the                                                                    
     project  less   attractive,  and  therefore   puts  the                                                                    
     project at risk.                                                                                                           
                                                                                                                                
   1:17:15 PM                                                                                                                 
                                                                                                                                
     Now  if the  State wants  to subsidize  others, it  can                                                                    
     certainly do  so itself, directly, as  a policy choice.                                                                    
     But we  don't believe  it's good policy  to do  so with                                                                    
     other  peoples'  money.   Congress  made  clear in  the                                                                    
     Alaska Natural Gas Pipeline Act  of 2004 that rates for                                                                    
      initial shippers should NOT increase if a mandatory                                                                       
      expansion was ordered.  In fact, the language of the                                                                      
     Federal Law states that                                                                                                    
                                                                                                                                
     "The   [Federal  Energy  Regulatory Commission]  (FERC)                                                                    
     shall…ensure  that the  rates do  not require  existing                                                                    
     shippers  on  the  Alaska  natural  gas  transportation                                                                    
     project  to subsidize  expansion shippers."   -  ANGPA,                                                                    
     Sect. 105(b)                                                                                                               
                                                                                                                                
                                                                                                                                
1:18:17 PM                                                                                                                    
                                                                                                                                
MR. VAN TUYL referred to Order 2005  in which FERC put in place a                                                               
rebuttable  presumption   of  rolled  in  rates   for  expansions                                                               
provided it did not require subsidization by initial shippers.                                                                  
                                                                                                                                
REPRESENTATIVE  ROSES  asked  whether future  pipeline  expansion                                                               
could  ever result  in  rates lower  than  the shippers'  initial                                                               
rates.                                                                                                                          
                                                                                                                                
MR. VAN  TUYL replied  that it  is possible  for an  expansion to                                                               
result in  a reduction in  an initial shipper's rates.   However,                                                               
it  is "not  necessarily a  given that  the first  expansion will                                                               
reduce rates ... [it is] just  as possible that it could increase                                                               
rates."                                                                                                                         
                                                                                                                                
1:20:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES   referenced  FERC  policy   ensuring  that                                                               
existing  shippers  are  not   required  to  subsidize  expansion                                                               
shippers and  asked about  the situation where  a new  shipper is                                                               
given a lower rate than the  original shippers.  He asked whether                                                               
in that situation,  BP would claim the new  shipper was receiving                                                               
a subsidy.                                                                                                                      
                                                                                                                                
MR.  VAN  TUYL  replied  that   he  believes  the  aforementioned                                                               
situation is  what FERC was trying  to address in Order  2005 and                                                               
that is  why it established  a rebuttal presumption to  rolled in                                                               
rates.  He  said there is "quite  a bit of language"  in the FERC                                                               
order  regarding  the  subsidy  issue.     He  opined  that  FERC                                                               
recognizes  the complexity  in this  area and  accepts that  each                                                               
case needs to  be evaluated on a case-by-case basis.   He pointed                                                               
out that FERC  is meant to regulate  inter-state gas transmission                                                               
and that  there is a  body of  law and regulation  regarding this                                                               
area.                                                                                                                           
                                                                                                                                
1:22:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  noted that  prior testimony  emphasized the                                                               
need  for "predictability  of expenses."   He  questioned whether                                                               
the  need  to  go  to  FERC for  various  issues  establishes  or                                                               
undermines predictability.                                                                                                      
                                                                                                                                
MR. VAN TUYL  replied that on this particular  issue of expansion                                                               
and   subsidization,  he   believes   that   the  existing   FERC                                                               
regulations   provide   predictability  for   initial   shippers.                                                               
However,  he  went on  to  say  that  AGIA as  currently  drafted                                                               
appears to  allow an expansion to  take place and that  the rates                                                               
would be  rolled in  provided they did  not increase  the initial                                                               
maximum recourse rate  to the downstream terminus.   He explained                                                               
that BP is  concerned that the magnitude of the  subsidy could be                                                               
"well  in excess  of 15  percent."   He explained  that the  term                                                               
"initial" is  a concern  because the initial  rate can  be higher                                                               
than the rate after the  "period of levelization."  Additionally,                                                               
"maximum recourse" raises some concern  because this term usually                                                               
means the maximum rate allowable by FERC.                                                                                       
                                                                                                                                
MR.  VAN  TUYL  said  that  most  pipelines  are  operated  under                                                               
negotiated rates, a  point which seems to be  recognized in AGIA.                                                               
Negotiated  rates are  typically 85  percent of  maximum recourse                                                               
rates, he said.   This could result in a  potential rate increase                                                               
of 30 percent  to an initial shipper, he concluded.   Last, there                                                               
is  some concern  over the  effect of  the language  if the  rate                                                               
relates  to  the  downstream  terminus   of  the  pipeline.    He                                                               
explained  that   the  term  "downstream  terminus"   could  mean                                                               
Chicago, Illinois  if the  gas was  shipped to  the Midwest.   He                                                               
expressed concern  that an expansion  to a different part  of the                                                               
line  could  perhaps  still  count   Chicago  as  the  downstream                                                               
terminus, which results in a  "high degree of uncertainty" to the                                                               
pipeline owner.   He opined  that FERC policy gives  more comfort                                                               
as it has precedent and policy regarding rate issues.                                                                           
                                                                                                                                
1:27:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked  if  this  language  would  be  more                                                               
palatable  if  amended  to  exclude   the  terms  "original"  and                                                               
"terminus,"  and referred  instead to  the "cost  at the  time of                                                               
expansion," and "the cost to the point of expansion."                                                                           
                                                                                                                                
MR.  VAN TUYL  replied that  although  BP has  concerns with  the                                                               
technical  aspects  of  AGIA,  its  main  concern  is  that  some                                                               
provisions  of AGIA  are  in conflict  with  FERC regulation  and                                                               
federal law.   He suggested  that a preferable approach  would be                                                               
to  request that  the  applicant describe  how  it would  support                                                               
recovery of  expansion costs consistent with  FERC regulation and                                                               
federal law.                                                                                                                    
                                                                                                                                
1:28:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  sought  clarification as  to  whether  the                                                               
witness said that  the initial shippers do not  want to subsidize                                                               
any  expansion, but  do want  to  share should  there be  lowered                                                               
rates.                                                                                                                          
                                                                                                                                
MR. VAN TUYL answered the  aforementioned characterization is not                                                               
accurate;  rather  the issue  is  subsidization  as described  by                                                               
FERC.  He explained that under  FERC guidelines if the rate drops                                                               
as  a  result of  expansion,  it  is  not considered  a  subsidy.                                                               
However, if  the rate increases  it may or  may not be  a subsidy                                                               
depending on the  situation.  He reiterated that FERC  has a body                                                               
of  policy which  it considers  in making  a determination  as to                                                               
whether a subsidy has taken place.                                                                                              
                                                                                                                                
1:29:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON stated  that a  primary objective  for the                                                               
state  is   to  encourage  expansion  and   further  exploration.                                                               
Today's testimony seems  to indicate a desire  to remove possible                                                               
benefits to later shippers and explorers, he opined.                                                                            
                                                                                                                                
MR. VAN  TUYL disagreed  with the  aforementioned statement.   He                                                               
said  BP  believes it  is  entirely  appropriate that  the  state                                                               
encourage  design  of  an   expandable  pipeline  which  enhances                                                               
prospects  for  further  exploration.   He  emphasized  that  his                                                               
comments  relate  more  to  jurisdictional  issues  because  FERC                                                               
regulates  inter-state gas  transmission.   He expressed  concern                                                               
that  AGIA as  currently drafted  conflicts with  federal law  in                                                               
this  area.   He  opined  that the  state  should articulate  its                                                               
objective  by asking  the applicants  to describe  how they  will                                                               
plan for expansion  and enhanced exploration.   He cautioned that                                                               
an overly  specific approach regarding  rates is  problematic and                                                               
may conflict with federal law.                                                                                                  
                                                                                                                                
1:31:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  relayed  that   the  state's  desire  for                                                               
pipeline  expansion and  future  exploration  might be  different                                                               
than  FERC's regulatory  structure,  therefore  the state  should                                                               
have  some  control over  this  issue  so  as to  accomplish  its                                                               
objectives.   He  asked  whether there  are  other mechanisms  to                                                               
encourage  future  exploration  such   as  assuring  that  future                                                               
explorers  receive  conditions  of   shipment  similar  to  those                                                               
received by the initial shippers.                                                                                               
                                                                                                                                
MR.  VAN TUYL  replied that  he thinks  that the  best assurances                                                               
that  can be  provided to  initial and  expansion shippers  is to                                                               
first build  a pipeline  at a  low cost.   He  opined that  it is                                                               
entirely appropriate for the state  to desire further exploration                                                               
and an expandable  pipeline.  However, he  expressed concern that                                                               
the state's attempts  to mandate the expansion  process and rates                                                               
could create conflict with federal law.                                                                                         
                                                                                                                                
1:34:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  said  that FERC  recognizes  that  higher                                                               
rates may  or may not  be considered a  subsidy.  He  opined that                                                               
the provision  in AGIA that  increases within 15 percent  are not                                                               
considered a subsidy is not  necessarily in conflict with federal                                                               
law.                                                                                                                            
                                                                                                                                
                                                                                                                                
MR. VAN  TUYL agreed that the  above statement may or  may not be                                                               
in conflict with  federal law.  He  went on to explain  it is the                                                               
manner  in  which  "this  is  laid out"  that  could  create  the                                                               
conflict.                                                                                                                       
                                                                                                                                
1:35:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  suggested that subsequent shippers  can subsidize                                                               
the  initial shippers  to some  extent.   He  indicated that  the                                                               
state  is  justified  in setting  forth  some  encouragement  for                                                               
future expansion and exploration efforts.                                                                                       
                                                                                                                                
1:38:27 PM                                                                                                                    
                                                                                                                                
MR.  VAN TUYL  read an  excerpt from  FERC Order  2005, which  he                                                               
characterized  as putting  in place  a rebuttable  presumption of                                                               
rolled  in  rates for  expansion  provided  it does  not  require                                                               
subsidization   by   initial   shippers   [original   punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     In  conclusion,   to  provide  guidance   to  potential                                                                    
     shippers in advance of the  initial open season that is                                                                    
     the  subject of  this rule,  the Commission  intends to                                                                    
     harmonize  both  objectives  (rate  predictability  for                                                                    
     initial shippers  and reduction  of barriers  to future                                                                    
     exploration  and  production)  in designing  rates  for                                                                    
     future   expansions   of   any   Alaska   natural   gas                                                                    
     transportation  project.   It  is  consistent with  our                                                                    
     guiding principle  that competition  favors all  of the                                                                    
     Commission's customers, as well  as with the objectives                                                                    
     of the  Act, to  adopt rolled-in  rate treatment  up to                                                                    
     the point  that would  cause there to  be a  subsidy of                                                                    
     expansion shippers by initial  shippers, if any subsidy                                                                    
     were to be found."  [Order 2005, paragraph 125]                                                                            
                                                                                                                                
1:39:28 PM                                                                                                                    
                                                                                                                                
MR. VAN TUYL  opined that the two excerpts of  Order 2005 suggest                                                               
that AS 43.90.130(7)  could be in conflict with federal  law.  He                                                               
said the issue is quite  complicated, and is still being studied.                                                               
He  warned   that  a   conflict  could   result  in   delays  and                                                               
uncertainties.                                                                                                                  
                                                                                                                                
1:40:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  if this  issue  would be  resolved if  the                                                               
language  in section  130 (7)  read "not  more than  zero" rather                                                               
than "not more than 15."                                                                                                        
                                                                                                                                
MR. VAN TUYL opined that even  with that change there would still                                                               
be conflict  and concern because it  puts the state in  the place                                                               
as the rate-maker rather than FERC.                                                                                             
                                                                                                                                
1:40:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked whether  this  is  just part  of  a                                                               
negotiated rate process.                                                                                                        
                                                                                                                                
MR.  VAN  TUYL   agreed  that  FERC  certainly   does  allow  for                                                               
negotiated rates,  but he went  on to say that  his understanding                                                               
of  AGIA is  that it  sets  forth parameters  for any  negotiated                                                               
rate.   He offered that  this raises the  issue of whether  it is                                                               
really a negotiated rate or a mandated rate.                                                                                    
                                                                                                                                
1:41:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  noted  that  the state  is  the  resource                                                               
owner, and perhaps this provision  could be considered a term put                                                               
forth by one of the parties, in this case the state.                                                                            
                                                                                                                                
MR.  VAN TUYL  opined that  negotiation requires  terms that  are                                                               
agreed to  by both parties.   He indicated that in  this instance                                                               
there is a question as to  whether it is really a negotiated rate                                                               
since AGIA's  terms appear  to mandate a  certain structure.   He                                                               
continued  by  explaining  that BP  believes  a  provision  which                                                               
requires a subsidy  for not-yet-ready shippers at  the expense of                                                               
initial shippers  would be a disincentive  for potential shippers                                                               
to participate in an open season.                                                                                               
                                                                                                                                
1:43:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked for  clarification as to  whether the                                                               
concern  was regarding  possible  conflict with  federal law,  or                                                               
more with  the desire to  allow the applicants greater  leeway to                                                               
describe  how  they  would  plan  for  future  expansion  of  the                                                               
pipeline.                                                                                                                       
                                                                                                                                
MR. VAN  TUYL emphasized  that he believes  it would  be entirely                                                               
appropriate for  the state  to articulate  its objectives  and to                                                               
require an applicant to explain  how its proposal would allow for                                                               
pipeline  expansion  and  future  exploration.   He  assured  the                                                               
committee  that expansion  and future  exploration  are also  key                                                               
objectives  of BP.    However,  BP is  concerned  that an  overly                                                               
prescriptive  application  requirement  could create  a  conflict                                                               
with federal law.                                                                                                               
                                                                                                                                
REPRESENTATIVE  ROSES  asked  whether  it would  be  possible  to                                                               
request a ruling  from FERC as to whether the  provisions in AGIA                                                               
are in conflict with FERC provisions.                                                                                           
                                                                                                                                
MR. VAN  TUYL said this is  an issue of federal  law, noting that                                                               
the FERC provisions referred to today are regulatory.                                                                           
                                                                                                                                
REPRESENTATIVE ROSES pressed on  to ascertain whether the concern                                                               
would  still exist  if there  was a  ruling from  the appropriate                                                               
federal  entity that  AGIA's  language is  not  in conflict  with                                                               
federal law.                                                                                                                    
                                                                                                                                
MR. VAN TUYL  replied that the issue about the  conflict would be                                                               
satisfied.  However, the issue  of the magnitude of the potential                                                               
subsidy would still exist and could  expose the shipper to a rate                                                               
increase "significantly higher" than 15 percent.                                                                                
                                                                                                                                
1:46:16 PM                                                                                                                    
                                                                                                                                
MR.  VAN TUYL  suggested that  a second  modification that  would                                                               
enable AGIA to help deliver  a successful gas pipeline relates to                                                               
the issue of exclusivity.   He paraphrased from written testimony                                                               
[original punctuation modified slightly]:                                                                                       
                                                                                                                                
     Under Sections  .260 and .440  of the bill on  pages 18                                                                    
     and  23,  AGIA  would  result in  an  exclusive  winner                                                                    
     before any  real work  is done  and awards  State funds                                                                    
     based on promises, not results.   We are concerned that                                                                    
     this  feature   may  actually  PRECLUDE   a  successful                                                                    
     project  from  moving  forward.    That's  clearly  not                                                                    
     anyone's   intent,   but   could  be   an   unfortunate                                                                    
     unintended consequence.                                                                                                    
                                                                                                                                
     Our understanding of AGIA  is that expedited regulatory                                                                    
     handling is  offered only to the  licensed project, and                                                                    
     that the  State can be penalized  for assisting another                                                                    
     competing project.  We're  concerned that this approach                                                                    
     may actually conflict with  Federal law and regulation,                                                                    
     which   favor   competition   among   various   project                                                                    
     proposals and market involvement in the choice.                                                                            
                                                                                                                                
     We think it  wise that the State  consider avoiding any                                                                    
     notion  of exclusivity  or  the  government 'picking  a                                                                    
     winner'; I'm  not aware of  any example where  that has                                                                    
     worked successfully.                                                                                                       
                                                                                                                                
1:47:34 PM                                                                                                                    
                                                                                                                                
     We  recognize  that  the Administration  has,  in  good                                                                    
     faith, laid  out selection criteria under  Section .170                                                                    
     to enable the  selection of the exclusive  winner in as                                                                    
     transparent a way as possible.                                                                                             
                                                                                                                                
     So  that leaves  a  fundamental question:   Should  the                                                                    
     State  pick  an  exclusive  "winner" based  only  on  a                                                                    
     proposal?  That approach gives  us concern.  We believe                                                                    
     that  the State  can  help to  advance  the project  by                                                                    
     setting  out a  clear  framework for  investors -  from                                                                    
     there  the  market  will  work  to  identify  the  most                                                                    
     effective project                                                                                                          
                                                                                                                                
     And  we support  open competition  in the  marketplace,                                                                    
     rather than in advance  of actual performance or before                                                                    
     the competition actually starts                                                                                            
                                                                                                                                
1:48:47 PM                                                                                                                    
                                                                                                                                
     In fact, the FERC  requires that the market demonstrate                                                                    
     that  it  wants  that  application  before  awarding  a                                                                    
     certificate to an applicant.   That's what happens in a                                                                    
     successful  open season.   We  believe the  Federal law                                                                    
     under [Alaska  Natural Gas Pipeline Act  of 2004] ANGPA                                                                    
     offers  a good  model,  in  which expedited  regulatory                                                                    
     handling is provided to ANY project.                                                                                       
                                                                                                                                
     We   certainly  understand   that   from  the   State's                                                                    
     perspective,  there are  a  number  of specific  things                                                                    
     desired  from  ANY  project   (jobs  and  training  for                                                                    
     Alaskans,   gas    access   for    Alaskans,   pipeline                                                                    
     expansions).                                                                                                               
                                                                                                                                
     We support  all of these objectives.   Those objectives                                                                    
     can  and  will be  addressed  by  a successful  project                                                                    
     through open competition in the marketplace.                                                                               
                                                                                                                                
1:49:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked for  more  clarification  as to  how                                                               
market factors  will help determine  the best solution  to actual                                                               
performance  if  the  performance   is  building  a  pipeline  or                                                               
expanding an  existing pipeline.   He  questioned how  this would                                                               
work prior to establishment of a market.                                                                                        
                                                                                                                                
MR. VAN TUYL  clarified that he was referring to,  as an example,                                                               
"performance  through   conducting  a  successful   open  season"                                                               
wherein  a project  sponsor does  the work  necessary to  attract                                                               
customers to  assure a  successful open season.   He  opined that                                                               
this was the model under federal law.                                                                                           
                                                                                                                                
REPRESENTATIVE  ROSES asked  if the  open season  should be  held                                                               
before there is a bidder on the project.                                                                                        
                                                                                                                                
MR. VAN TUYL  responded that he believes the best  model would be                                                               
to  allow multiple  projects  to go  forward so  as  to insure  a                                                               
successful open  season.  He  opined that  if only one  entity is                                                               
chosen,  yet becomes  unable to  go  forward to  open season,  it                                                               
could result in a substantial project delay.                                                                                    
                                                                                                                                
1:51:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  commented that requests for  proposals (RFPs) are                                                               
a common business  practice whereby proposals are  evaluated.  He                                                               
opined that  AGIA sets forth  a procedure  to allow the  state to                                                               
evaluate various  proposals.  He  queried as to whether  BP seeks                                                               
an open  process that  allows applicants to  come forth  with any                                                               
proposal they want.                                                                                                             
                                                                                                                                
MR.  VAN  TUYL  said  his  suggestion is  that  the  state  allow                                                               
companies to advance a project  through actual performance in the                                                               
marketplace.    He opined  that  a  successful open  season  will                                                               
provide the information  necessary to know if  a proposed project                                                               
will actually advance.                                                                                                          
                                                                                                                                
CO-CHAIR  GATTO clarified  that under  the witness'  description,                                                               
bidders  could  choose which  projects  they  were interested  in                                                               
during an open season.                                                                                                          
                                                                                                                                
MR.  VAN  TUYL  agreed  with the  aforementioned  scenario.    He                                                               
reminded the committee  that the Alaska Natural  Gas Pipeline Act                                                               
of  2004 (ANGPA)  provides for  the federal  government to  grant                                                               
expedited  regulatory review  of  "any project."    He said  this                                                               
encompasses the possibility that  there will be multiple possible                                                               
projects, and  any one of  them will receive  expedited approval.                                                               
He  predicted that  the customers  will sign  up for  the project                                                               
that gives them the best service.                                                                                               
                                                                                                                                
1:54:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON said  he was  trying to  ascertain whether                                                               
the state was setting the stage for a successful open season.                                                                   
                                                                                                                                
MR. VAN  TUYL said that  as a resource owner  BP wants to  have a                                                               
successful open season so that  the pipeline project can advance.                                                               
He set  forth that  there are three  components to  establish the                                                               
confidence   needed  to   bid   for   firm  transportation   (FT)                                                               
commitments  and  therefore  assure  a  successful  open  season:                                                               
knowledge of the resource rules,  confidence that the open season                                                               
sponsor can deliver the project  offered, and an understanding of                                                               
the commercial  terms of the FT  commitments.  He opined  that BP                                                               
could advance a successful open  season, but that there should be                                                               
marketplace competition as "we don't  have the market cornered on                                                               
all the good ideas."                                                                                                            
                                                                                                                                
1:57:14 PM                                                                                                                    
                                                                                                                                
MR.  VAN  TUYL  paraphrased   from  written  testimony  [original                                                               
punctuation modified slightly]:                                                                                                 
                                                                                                                                
     A  third area  we  suggest be  considered carefully  is                                                                    
     that, although AGIA seeks to  get a project moving, and                                                                    
     we   fully  support   that  objective,   it  does   not                                                                    
     sufficiently address  the resource framework,  which is                                                                    
     the key enabler for a financeable project.                                                                                 
                                                                                                                                
     That said,  we are  encouraged that AGIA  recognizes at                                                                    
     least  in part,  the importance  of some  of these  key                                                                    
     resource issues.                                                                                                           
                                                                                                                                
     In Section .310  on page 19, AGIA seeks  to address the                                                                    
     issue of royalty valuation, which  has been an historic                                                                    
     source  of conflict  between  industry  and the  State.                                                                    
     But we  are concerned that  these terms do  not provide                                                                    
     sufficient   clarity  to   justify   making  the   firm                                                                    
     transportation  commitments  required to  underpin  the                                                                    
     project.                                                                                                                   
                                                                                                                                
     The  royalty  valuation  provisions  depend  on  future                                                                    
     regulations; neither  the shippers nor  the legislature                                                                    
     know what  those regulations might say.   The valuation                                                                    
     regulations  would allow  for retroactive  adjustments,                                                                    
     and the  regulations associated with  RIV/RIK switching                                                                    
     imply  that  "reasonable"  disproportionate  costs  and                                                                    
     "reasonable" interference  with marketing  is okay.   I                                                                    
     don't know what that means or how to evaluate that.                                                                        
                                                                                                                                
     Also, these regulations may change every two years.                                                                        
                                                                                                                                
     In  Section .310(b)(3)  on page  19 of  the bill,  AGIA                                                                    
     seeks  to   address  royalty  issues   associated  with                                                                    
     RIV/RIK switching which is  incompatible with the long-                                                                    
     term  arrangements  required  to make  a  gas  pipeline                                                                    
     project  happen  (RIV  =  "royalty  in  value";  RIK  =                                                                    
     "royalty in  kind").  RIV/RIK switching  is problematic                                                                    
     for at least two reasons:                                                                                                  
                                                                                                                                
1:59:39 PM                                                                                                                    
                                                                                                                                
     One is that if the State chooses to switch let us say                                                                      
     from in-value to in-kind, the shipper would have to                                                                        
     come up with additional gas to satisfy its customers                                                                       
     in the marketplace.                                                                                                        
                                                                                                                                
     The second problem is associated with obtaining the                                                                        
     capacity on the pipeline if the State switches.  For                                                                       
     instance, if the State had originally elected to take                                                                      
     gas in value, the shipper would have obtained the                                                                          
     associated capacity to ship the State's associated                                                                         
     share of gas.  If the State then switched from in-                                                                         
     value to in-kind, this could result in stranding                                                                           
     downstream capacity, raising the question of who would                                                                     
     pay for that cost of unused capacity.                                                                                      
                                                                                                                                
     Under AGIA, the specific  solution to RIV/RIK switching                                                                    
     is  left  to future  regulation  that,  as I  mentioned                                                                    
     earlier,   would  allow   for   the   lessee  to   bear                                                                    
     disproportionate costs, and  potentially interfere with                                                                    
     long-term marketing.                                                                                                       
                                                                                                                                
     AGIA  includes a  provision related  to gas  production                                                                    
     tax  in Section  .320 on  page  21.   However, the  gas                                                                    
     production  tax  rate  is  not  established,  and  only                                                                    
     becomes known after the conclusion  of the open season.                                                                    
     A shipper  would not  know what  the production  tax is                                                                    
     before having  to make the  FT commitment,  which would                                                                    
     be an incredible risk.                                                                                                     
                                                                                                                                
     The gas  production tax rate  is then  only established                                                                    
     for  a period  of 10  years, which  for reference  is a                                                                    
     fraction  of the  period that  shippers will  likely be                                                                    
     required    to   make    their   firm    transportation                                                                    
     commitments.                                                                                                               
                                                                                                                                
2:01:27 PM                                                                                                                    
                                                                                                                                
     AGIA is  silent as to  the many other payments  made to                                                                    
     the State,  which constitute  the majority  of industry                                                                    
     payments.   It is  widely understood that  the resource                                                                    
     owners will pay the cost  and bear the risk in building                                                                    
     a  pipeline  whether they  own  it  or not.    Resource                                                                    
     owners will pay  all the costs of  the pipeline, either                                                                    
     directly  or  indirectly  by reimbursing  the  pipeline                                                                    
     owner through the tariff for the costs they incur.                                                                         
                                                                                                                                
2:02:05 PM                                                                                                                    
                                                                                                                                
     It's  the RESOURCE  that drives  the construction  of a                                                                    
     basin-opening  pipeline  like  this  project,  NOT  the                                                                    
     PIPELINE that drives the  resource!  Therefore, solving                                                                    
     the resource issues  with clarity is key  to allowing a                                                                    
     project to move forward.                                                                                                   
                                                                                                                                
     Multi-billion dollar  commitments spanning  decades are                                                                    
     needed to financially underpin this project;                                                                               
                                                                                                                                
     Just like  Wall Street needs  to know the  rules before                                                                    
     lending money, resource owners need  to know the fiscal                                                                    
     rules  that  will  govern  the  project  before  making                                                                    
        commitments that will enable the pipeline to be                                                                         
     financed.                                                                                                                  
                                                                                                                                
2:02:44 PM                                                                                                                    
                                                                                                                                
     Although  this  is  widely known,  the  details  of  an                                                                    
     upstream framework  are complex and will  take time and                                                                    
     effort by both  the State and the producers  to agree -                                                                    
     but unless  they are addressed, a  project won't secure                                                                    
     financing; it won't advance.                                                                                               
                                                                                                                                
                                                                                                                                
MR.  VAN TUYL  clarified  that  the state  is  indeed a  resource                                                               
owner.                                                                                                                          
                                                                                                                                
2:03:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked about the benefit  of establishing a                                                               
gas production  tax rate  at the  time of  licensing, then  for a                                                               
three year period  to cover open season, and with  a guarantee in                                                               
the bill that  an initial shipper would get that  same rate for a                                                               
10 year period.                                                                                                                 
                                                                                                                                
MR. VAN  TUYL agreed  that certainty is  good and  that something                                                               
like the  aforementioned approach  would be a  step in  the right                                                               
direction.   He said that other  issues are the magnitude  of the                                                               
rate, and  the prospect  that the  rate will  change.   He opined                                                               
that it  is important  for an  applicant to  know that  the rules                                                               
will not change throughout the course of the project.                                                                           
                                                                                                                                
2:04:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  for clarification  regarding  BP's                                                               
concern  with the  royalty section,  particularly with  regard to                                                               
the state switching how it takes its royalty share.                                                                             
                                                                                                                                
MR.  VAN TUYL  explained that  BP's fundamental  concern is  that                                                               
"the rules are not yet established."   He agreed that the current                                                               
lease  terms with  regard to  switching between  RIK and  RIV are                                                               
incompatible  with a  gas pipeline.    He said  that seeing  this                                                               
issue recognized in AGIA is  encouraging, however BP has concerns                                                               
with  the  nature  of  the   solution.    He  explained  that  FT                                                               
commitments may  require BP  to commit  to capacity  for decades,                                                               
therefore the possibility that the  state will switch its royalty                                                               
between  in-value  and  in-kind  creates  the  risk  of  stranded                                                               
capacity.  He opined that it  is possible to negotiate a solution                                                               
to this issue that stabilizes the risk.                                                                                         
                                                                                                                                
REPRESENTATIVE SEATON asked for  more detail regarding acceptable                                                               
terms.                                                                                                                          
                                                                                                                                
MR. VAN TUYL  offered that there are a number  of ways to address                                                               
risk.   For instance, the  state could  be required to  choose to                                                               
take in-kind or in-value at the beginning of the project.                                                                       
                                                                                                                                
2:08:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked whether  the state's switching within                                                               
an expansion, and for a qualified  amount, would take care of the                                                               
risk factor.                                                                                                                    
                                                                                                                                
MR. VAN  TUYL opined  that "it  is actually  pretty complicated."                                                               
In  theory  the parties  can  agree  that  the state  would  take                                                               
responsibility for  any stranded downstream capacity,  however he                                                               
offered that in actuality, this  type of arrangement may actually                                                               
violate  FERC  regulations  since  capacity must  be  posted  for                                                               
competitive bidding.   He expressed  skepticism that  the parties                                                               
could  agree in  advance  that one  party  would receive  another                                                               
parties stranded capacity.  He set  forth that he does not have a                                                               
solution to this  issue regarding the royalty share  short of the                                                               
state setting forth  at the beginning of the  project a framework                                                               
for what it intends to do with regard to its royalty share.                                                                     
                                                                                                                                
2:10:34 PM                                                                                                                    
                                                                                                                                
MR.  VAN  TUYL  paraphrased   from  written  testimony  [original                                                               
punctuation modified slightly]:                                                                                                 
                                                                                                                                
     The  provisions  of  Sections  .310  and  .320  do  not                                                                    
     adequately  address these  upstream issues.   To  do so                                                                    
     requires robust interaction.                                                                                               
                                                                                                                                
     Thus far,  there have been some  high level discussions                                                                    
     between our  senior management and  the Governor.   But                                                                    
     we've  been disappointed  in the  level of  interaction                                                                    
     with the  Commissioners and their staff.   That's where                                                                    
     the problem will  ultimately be solved.   Over the last                                                                    
     three  weeks we've  had three  constructive discussions                                                                    
     with  one deputy  Commissioner.   That's a  start.   We                                                                    
     would   welcome  the   opportunity   to  increase   the                                                                    
     frequency    and   depth    of   dialogue    with   the                                                                    
     Administration.                                                                                                            
                                                                                                                                
2:11:31 PM                                                                                                                    
                                                                                                                                
     What Is So Important About FT?                                                                                             
     We've  heard  a  fair  amount, in  this  committee  and                                                                    
     others, about this term called  "FT" which is short for                                                                    
     firm transportation commitments.   In listening to many                                                                    
     of these  hearings it  seems to me  that the  nature of                                                                    
     these commitments is not fully understood                                                                                  
                                                                                                                                
     However, these commitments  are absolutely critical for                                                                    
     a gas pipeline to be  successful.  Therefore, I thought                                                                    
     I'd spend  a moment hopefully  adding a bit  of clarity                                                                    
     to the understanding of FT.                                                                                                
                                                                                                                                
     These  commitments, typically  obligations to  "ship or                                                                    
     pay"  made by  the resource  owners or  "shippers", are                                                                    
     needed  by  the  pipeline  company  to  get  financing.                                                                    
     Validating  just how  important they  are, we've  heard                                                                    
     some  very  simple  and straightforward  comments  from                                                                    
     pipeline  companies  who  have testified  in  the  past                                                                    
     couple of  weeks.  TransCanada has  said "No customers,                                                                    
     no credit, no pipeline"  (and in this context customers                                                                    
     means shippers)                                                                                                            
                                                                                                                                
     Enbridge  put  it  even  more   simply  by  saying  "No                                                                    
     producers,  no  pipeline".   Those  aren't  "political"                                                                    
     statements.    They  are statements  about  the  simple                                                                    
     financial truths of gas pipeline projects                                                                                  
                                                                                                                                
2:12:56 PM                                                                                                                    
                                                                                                                                
     FT is  a binding FINANCIAL obligation.   I've sometimes                                                                    
     heard FT  described as "committing gas  to a pipeline".                                                                    
     I've heard that quote from  industry as well as others,                                                                    
     so  I'm not  pointing any  fingers  here.   But I  just                                                                    
     wanted to make it clear  that FT is an actual financial                                                                    
     obligation.  Typically, FT is  known as a "ship or pay"                                                                    
     obligation.  That  means that a shipper  commits to pay                                                                    
     the pipeline company for use  of its service whether or                                                                    
     not the shipper actually delivers gas to the line                                                                          
                                                                                                                                
     And it's  also important  to note  that a  company does                                                                    
     not  need to  have ANY  gas resources  to enter  into a                                                                    
     firm transportation commitment.   Any company who meets                                                                    
     the  creditworthiness  standards  set by  the  pipeline                                                                    
     company is  free to  bid for  capacity.   Gas pipelines                                                                    
     are "open access".   Anyone is free  to obtain capacity                                                                    
     if they make the requisite commitments.                                                                                    
                                                                                                                                
     These  FT commitments  are real  financial obligations.                                                                    
     We  are  required  to  disclose  these  commitments  as                                                                    
     additional information with our filing with the SEC.                                                                       
     Clearly, an  FT of  this magnitude  will be  taken into                                                                    
     consideration  by financial  entities  like banks  when                                                                    
     evaluating  our company.   That's  because it's  a real                                                                    
     obligation.                                                                                                                
                                                                                                                                
     Once these  commitments are made to  the pipeline, they                                                                    
     are used by  the pipeline to obtain  financing from the                                                                    
     financial   markets,   provide    coverage   for   that                                                                    
     financing, and a return for the pipeline.                                                                                  
                                                                                                                                
2:14:46 PM                                                                                                                    
                                                                                                                                
     Maybe  an  example  to  explain  the  nature  of  these                                                                    
     commitments  would  help.     Let's  say  we've  had  a                                                                    
     successful  open  season,  the  pipeline  gets  project                                                                    
     financed,  is  built  and it's  in  operation.    Then,                                                                    
     heaven  forbid, for  some reason  the pipeline  company                                                                    
     goes bankrupt.   Not what  we're hoping for,  for sure.                                                                    
     But what would  the lenders do?  So they  would turn to                                                                    
     the FT  commitments made by  the shippers to  get their                                                                    
     repayment.   And these FT  commitments would  indeed be                                                                    
     paid to  the lenders.   That's because they are  a REAL                                                                    
     FINANCIAL COMMITMENT.   They have to  be properly taken                                                                    
     into consideration when evaluating project economics.                                                                      
                                                                                                                                
     The    scale   of    these    commitments   is    often                                                                    
     oversimplified.   It's not "just"  the capital  cost of                                                                    
     the project, if  that weren't in itself  a large enough                                                                    
     commitment.   The commitment  is for  what is  known as                                                                    
     the "demand  charge" which is  the cost of  service the                                                                    
     pipeline  will charge  through time.    Capital is  one                                                                    
     major component                                                                                                            
                                                                                                                                
     But   for  illustration,   I've  provided   some  broad                                                                    
     assumptions to  put the scale  of these  commitments in                                                                    
     perspective.   Assuming a 4.5  bcfd project, at  a unit                                                                    
     cost of  $3.50/mcf for 25  years results in a  total FT                                                                    
     commitment of $144 billion                                                                                                 
                                                                                                                                
2:16:57 PM                                                                                                                    
                                                                                                                                
MR. VAN TUYL noted that $144 billion is a huge sum, even for a                                                                  
company the size of BP.  He reminded the committee the FT costs                                                                 
can be  three to four times  more than the cost  of the pipeline.                                                               
He  responded to  a  question by  explaining  that FT  commitment                                                               
terms vary from project to project.   Sometimes in an open season                                                               
the term  can be used "as  a differentiation where that  is bid."                                                               
The rate may  vary depending on the terms of  the FT commitments,                                                               
with  a  higher  rate  for  shorter  terms,  he  explained.    He                                                               
indicated  that the  Alaska project  will  likely require  fairly                                                               
long  term  FT  commitments  of   25  or  more  years,  which  he                                                               
characterized  as fairly  long term.   He  indicated that  a more                                                               
usual FT commitment term is around 15 to 20 years.                                                                              
                                                                                                                                
2:18:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked whether FT  commitments are based  on time,                                                               
or other terms, such as volume.                                                                                                 
                                                                                                                                
MR. VAN TUYL responded that in  a typical FT commitment a company                                                               
reserves a specific  amount of pipeline capacity  for a specified                                                               
period.  He said it is  possible there are forms of FT commitment                                                               
that relate only to volume.                                                                                                     
                                                                                                                                
MR. VAN  TUYL responded to a  question regarding the size  of the                                                               
pipeline  project by  explaining  that this  project was  studied                                                               
several years ago.   At that time BP considered  the issue of the                                                               
size of  the pipe  and came  to the conclusion  that the  rate of                                                               
around 4.5 billion  cubic feet per day (Bcfd) was  a good balance                                                               
between  commercial viability  and expandability.   He  explained                                                               
that at  4.5 Bcfd, there would  be an opportunity with  a 52 inch                                                               
pipe to expand it at a rate not to exceed the initial rate.                                                                     
                                                                                                                                
2:21:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked whether  there is a  minimum pipe  size for                                                               
this project.                                                                                                                   
                                                                                                                                
MR.  VAN TUYL  replied that  a smaller  diameter simply  does not                                                               
have the through-put necessary to lower  the unit cost to a level                                                               
that makes it viable  to get gas off the slope.  He  said a 48 to                                                               
52 inch size is "sort of what we were looking at."                                                                              
                                                                                                                                
CO-CHAIR GATTO offered  that it may be difficult  to compare very                                                               
different proposals, which  is why AGIA has  some "sideboards" to                                                               
somewhat  limit the  proposals so  that they  can be  more easily                                                               
compared.                                                                                                                       
                                                                                                                                
2:22:58 PM                                                                                                                    
                                                                                                                                
MR. VAN TUYL  said he has some concerns about  requiring too much                                                               
specificity early on  because very often the  project details are                                                               
determined  based  on  the  outcome  of the  open  season.    For                                                               
example, if there  is more demand than  anticipated, the pipeline                                                               
size may have to be increased, he said.                                                                                         
                                                                                                                                
2:24:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES set  forth  that his  understanding of  the                                                               
aforementioned  discussion is  that  the project  license may  be                                                               
awarded  based  on a  proposal,  but  then  the open  season  may                                                               
dictate a larger  or smaller pipe than set forth  in the original                                                               
proposal.  He  queried as to how the state  could be assured that                                                               
the successful  proposal was  actually the best  one if  it later                                                               
has to  be re-designed based on  the results of the  open season.                                                               
He  offered that  perhaps  a different  applicant  may have  done                                                               
better  research to  more accurately  predict the  outcome of  on                                                               
open  season,  but  that  applicant   would  be  foreclosed  from                                                               
proceeding  once   the  license   was  awarded  to   a  different                                                               
applicant.                                                                                                                      
                                                                                                                                
MR. VAN  TUYL said  that the aforementioned  scenario is  also of                                                               
concern to BP.  He predicted  that the best pipeline project plan                                                               
will become  clear after open  season -  at that point  the state                                                               
will know what the best solution is, he opined.                                                                                 
                                                                                                                                
MR. VAN  TUYL responded to  a question  by explaining that  he is                                                               
unaware  of   the  shortest   and  longest   terms  of   BP's  FT                                                               
commitments, but he does know that the terms vary.                                                                              
                                                                                                                                
2:26:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked for  more clarity  regarding the                                                               
statement  that  the  market  will  determine  the  best  project                                                               
through actual performance.                                                                                                     
                                                                                                                                
MR. VAN TUYL replied that  an example of actual performance would                                                               
be  a  project  that  conducts  a successful  open  season.    He                                                               
indicated that  the open  season approach  is the  "mechanism for                                                               
gas pipeline  projects in the U.S."   He said that  projects come                                                               
together when customers and the  project sponsor come together to                                                               
demonstrate  their commitment  through the  open season  process.                                                               
He said he is not sure  how many open seasons BP has participated                                                               
in, however, he could get further information on this.                                                                          
                                                                                                                                
2:27:58 PM                                                                                                                    
                                                                                                                                
MR. VAN  TUYL responded to a  question by opining that  the state                                                               
is entitled  to pick a  project and to provide  financial support                                                               
to the  licensee.  He suggested  that a better approach  would be                                                               
to allow  multiple parties  to proceed to  open season  and allow                                                               
the result of  the open season itself to  determine which company                                                               
has  the  best project.    He  opined  that this  approach  would                                                               
provide a greater  likelihood that the pipeline  will actually be                                                               
built  because   the  project   will  have   demonstrated  market                                                               
viability through actual performance.                                                                                           
                                                                                                                                
2:29:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  noted that  sometimes open season  are not                                                               
successful.                                                                                                                     
                                                                                                                                
MR. VAN TUYL  agreed it is possible to have  an unsuccessful open                                                               
season.  He suggested that there  are a couple of key ingredients                                                               
for  a  successful  open  season.    First,  certainty  regarding                                                               
resource  terms   gives  the   resource  owners   the  confidence                                                               
necessary to  enter into FT commitments.   Furthermore, potential                                                               
customers must have  confidence that the sponsor  has the ability                                                               
to  deliver on  the  services  offered.   Another  factor is  the                                                               
nature of the commitments themselves, he explained.                                                                             
                                                                                                                                
2:31:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON  asked about  a  situation  where one  or  more                                                               
companies participated in  a competing open season,  and how much                                                               
it would likely cost to get to open season.                                                                                     
                                                                                                                                
MR.  VAN  TUYL replied  that  there  have been  situations  where                                                               
multiple  sponsors  have  advanced  their  projects  at  an  open                                                               
season.   The cost of  getting to an  open season depends  on the                                                               
nature of the  open season, he said.  He  estimated it would take                                                               
18 months  to 2 years  to get to open  season for the  Alaska gas                                                               
pipeline  project,  and  would cost  "hundreds  of  millions"  of                                                               
dollars.  He explained that the time  and high cost is due to the                                                               
need  to  obtain  environmental  information  and  to  conduct  a                                                               
"bottoms  up" cost  estimate.   He opined  that this  research is                                                               
necessary to allow for a  full understanding of the project prior                                                               
to open season.                                                                                                                 
                                                                                                                                
2:33:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON   asked  whether   it  would  help   or  hinder                                                               
competition  to  have  more  than one  company  prepare  for  and                                                               
participate in an  open season.  He expressed some  concern as to                                                               
whether  it would  be reasonable  to expect  companies to  invest                                                               
time  and money  despite  the risk  of not  being  chosen as  the                                                               
project sponsor.                                                                                                                
                                                                                                                                
MR.  VAN TUYL  responded  that  it would  be  preferable for  the                                                               
parties to  cooperate so as  to advance  the project.   He opined                                                               
that  this  is why  FERC  expedites  regulatory handling  of  any                                                               
project.                                                                                                                        
                                                                                                                                
CO-CHAIR GATTO asked  about the costs of open  season should each                                                               
company proceed separately.                                                                                                     
                                                                                                                                
MR.  VAN  TUYL opined  that  it  was  highly unlikely  that  each                                                               
company would individually  spend hundreds of millions  to get to                                                               
open season.   It  would be  more likely  that the  parties would                                                               
cooperate to find a way to advance the project.                                                                                 
                                                                                                                                
2:35:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether  anything has  prevented the                                                               
producers from  working together  to plan a  project and  hold an                                                               
open  season.    He  expressed some  skepticism  about  competing                                                               
bidders  for  open  season  since   to  date  no  companies  have                                                               
proceeded in this direction on their own.                                                                                       
                                                                                                                                
MR. VAN  TUYL agreed with  the aforementioned comment  and stated                                                               
that the  single most enabling  ingredient would be  to establish                                                               
"resource terms with clarity."  He opined that:                                                                                 
                                                                                                                                
     "if that  was done  then the  resource owners,  such as                                                                    
     BP, would clearly be motivated  to do just what you are                                                                    
     describing and advance  ... to open season.   It is the                                                                    
     resource  that will  pull the  pipeline project  along,                                                                    
     not the  other way around.   Once those  resource terms                                                                    
     are known, then  the framework is set  for a successful                                                                    
     open season.                                                                                                               
                                                                                                                                
2:36:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON observed that  work on oil production taxes                                                               
during  last year's  legislative session  was to  establish known                                                               
resource terms.   He suggested that now the terms  are known, but                                                               
apparently not  liked.  He  expressed continued concern  with why                                                               
the producers appear to be reluctant  to set forth an open season                                                               
proposal on their own.                                                                                                          
                                                                                                                                
MR. VAN TUYL  replied that the process that has  been laid out by                                                               
the administration  is AGIA,  which is why  BP is  working within                                                               
that framework.   He said if there was  another process proposed,                                                               
BP would work within that framework.                                                                                            
                                                                                                                                
2:37:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  summarized that BP wants  the pipeline and                                                               
is waiting  for the state  to "put  something forward so  that we                                                               
can address that."                                                                                                              
                                                                                                                                
MR.  VAN TUYL  agreed that  BP  would very  much like  to have  a                                                               
pipeline to  monetize its gas  resource.  He reiterated  that the                                                               
key  enabler  is an  understanding  of  the rules  governing  the                                                               
resource over  the long term.   He stated that since  the current                                                               
framework  to  establish the  enabling  factors  is AGIA,  BP  is                                                               
providing  comments   regarding  whether  AGIA   establishes  the                                                               
necessary enabling factors.                                                                                                     
                                                                                                                                
2:38:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON asked about the  benefits to BP of being an                                                               
owner or  part owner of  the pipeline, especially  since pipeline                                                               
returns are regulated.                                                                                                          
                                                                                                                                
MR. VAN TUYL responded that there  are a number of reasons why BP                                                               
would like to be an owner in the  pipeline.  First is that BP has                                                               
world-wide   experience  in   delivering  mega-projects   and  is                                                               
confident it  could manage the  risks associated with  this large                                                               
project.   Second,  as  a  resource owner,  it  is  in BP's  best                                                               
interest to  deliver the resource  for the lowest  cost possible.                                                               
He noted that although the pipeline  itself would be limited to a                                                               
regulated rate  of return, FT  commitments will have to  be made.                                                               
These  commitments represent  a "significant  sum of  money" when                                                               
made  to  a   third  party,  he  explained.     He  offered  that                                                               
information presented  by the administration showing  a potential                                                               
high rate  of return  on the pipeline  neglected to  consider the                                                               
cost  of FT  commitments.   He  responded to  a further  question                                                               
regarding BP's desire  to build the pipeline  by emphasizing that                                                               
BP has  the experience and  the commercial motivation  to deliver                                                               
it  at  the lowest  cost  possible.   A  company  that  is not  a                                                               
resource  owner  receives its  revenue  from  the project's  rate                                                               
base,  he opined.   He  explained  that any  developer will  want                                                               
customers,  but  indicated  that the  economic  motivations  vary                                                               
depending  on whether  the developer  is an  independent pipeline                                                               
company or  the resource  owner.   He opined  that in  the latter                                                               
case there  is more motivation to  deliver the gas at  the lowest                                                               
cost possible.                                                                                                                  
                                                                                                                                
2:43:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO referred  to  an issue  of  The Bernstein  Report                                                               
which  concluded  that  BP  and   other  producers  have  project                                                               
management problems  regarding pipeline  construction management.                                                               
Based on this,  he asked why the state should  want the producers                                                               
to oversee the pipeline project.                                                                                                
                                                                                                                                
MR. VAN TUYL  characterized the aforementioned comment  as a "bit                                                               
of a simplification" of what the report  says.  He went on to say                                                               
that  BP has  developed  some of  the  more challenging  projects                                                               
"across the  globe."  He noted  that BP has completed  a pipeline                                                               
in  the  Caspian  Sea  area  that  had  political  and  technical                                                               
challenges.   He  observed that  although  BP does  not have  the                                                               
market cornered  on good ideas  or project delivery,  it "clearly                                                               
has a unique  motivation as a resource owner "to  do the best job                                                               
possible to deliver the project at a low cost."                                                                                 
                                                                                                                                
2:46:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked  why  it would  cost  $400  to  $500                                                               
million  for BP  to get  to  an open  season for  the Alaska  gas                                                               
pipeline  project in  light of  its  significant experience  with                                                               
difficult projects worldwide.                                                                                                   
                                                                                                                                
MR.  VAN TUYL  agreed  that  it would  take  this  kind of  money                                                               
because  the   Alaska  project   does  not   necessarily  require                                                               
"learning  what we  already  know."   He  said  that  in 2001  BP                                                               
studied and  "literally walked" the possible  Alaska gas pipeline                                                               
route  to gather  information on  the environment.   This  effort                                                               
cost $125  million and will  likely need  to be repeated  in more                                                               
detail.   Additionally, BP will  have to  do a "bottoms  up" cost                                                               
study of the project, which is very costly.                                                                                     
                                                                                                                                
2:48:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   JOHNSON  asked   about   the  effect   of  the   state                                                               
contributing $500  million towards  preparation for  open season,                                                               
then providing information to potential pipeline sponsors.                                                                      
                                                                                                                                
MR.  VAN  TUYL said  that  would  be a  state  policy  call.   He                                                               
suggested that  industry participants, whether they  be producers                                                               
or others, are best suited  to plan and execute studies necessary                                                               
prior to  an open  season.   He responded  to further  inquiry by                                                               
stating  that BP  "would be  more than  happy" to  put forth  the                                                               
money  and  effort  necessary  to  prepare  for  an  open  season                                                               
provided it had  confidence in the resource terms.   He explained                                                               
that BP "would  place a high premium" on  needing confidence that                                                               
the  work and  engineering done  to  prepare for  an open  season                                                               
meets its needs and standards.                                                                                                  
                                                                                                                                
2:51:29 PM                                                                                                                    
                                                                                                                                
MR.  VAN  TUYL continued  to  discuss  FT commitments  and  other                                                               
aspects of  the pipeline by  paraphrasing from  written testimony                                                               
[original punctuation modified slightly]:                                                                                       
                                                                                                                                
     These   long  term   commitments   are   just  that   -                                                                    
     commitments.    Therefore,  they represent  real  risk.                                                                    
     And the  size of these commitments  magnifies the risk.                                                                    
     And   that  risk   is  borne   by   those  making   the                                                                    
     commitments.   This  next slide  [slide 9]  attempts to                                                                    
     show  how  risk  is  ultimately allocated  in  a  major                                                                    
     resource  development  project   like  the  Alaska  Gas                                                                    
     Pipeline Project.   I'm  going to  step through  it one                                                                    
     bit at a time.                                                                                                           
                                                                                                                                
     First, we  start with the  Resource Owners -  that's of                                                                    
     course  the  State  of  Alaska,  and  it  includes  the                                                                    
     lessees, like BP, CP, EM, Chevron, and others.                                                                             
                                                                                                                                
2:52:22 PM                                                                                                                    
                                                                                                                                
     There  are  certain  risks that  are  inherent  to  the                                                                    
     resource   itself.     There  is   always  price   risk                                                                    
     associated with selling a commodity like gas:                                                                              
                                                                                                                                
     That's the risk that the price  of gas will fall in the                                                                    
     future, possibly below the tariff.                                                                                         
                                                                                                                                
     There's also production risk                                                                                               
                                                                                                                                
     Keeping the pipeline full for project life                                                                                 
                                                                                                                                
     Being able to deliver the full volume every day                                                                            
                                                                                                                                
     These  risks   are  important  considerations   when  a                                                                    
     resource  owner has  to  make  the firm  transportation                                                                    
     commitments necessary to underpin the project                                                                              
                                                                                                                                
2:53:07 PM                                                                                                                    
                                                                                                                                
     Next,  there's fiscal  risk for  a  lessee; that's  the                                                                    
     risk  that the  fiscal terms  on the  upstream business                                                                    
     might change.   On  major infrastructure  projects like                                                                    
     this  around  the world,  it's  not  uncommon for  host                                                                    
     governments  to address  fiscal  risk  with a  mutually                                                                    
     agreed framework.                                                                                                          
                                                                                                                                
     There are  also a whole  host of risks  associated with                                                                    
     constructing the pipeline itself:                                                                                          
                                                                                                                                
     Regulatory process could change - schedule risk                                                                            
                                                                                                                                
     Material,  labor,  and  equipment costs  -  cost  risk,                                                                    
     which includes project management and execution                                                                            
                                                                                                                                
     Need for  finances from the  capital markets  - finance                                                                    
     risk                                                                                                                       
                                                                                                                                
2:54:21 PM                                                                                                                    
                                                                                                                                
     What  is  critical  to appreciate  is  that  all  these                                                                
     project-related risks  that are  taken by  the pipeline                                                                    
     company are  ultimately passed through to  the resource                                                                    
     owners  through   the  toll.    The   pipeline  company                                                                    
     receives  a  regulated  rate  of   return  and  gets  a                                                                    
     reasonable return  on investment commensurate  with the                                                                    
     risks.                                                                                                                     
                                                                                                                                
     In  exchange for  this regulated  rate  of return,  the                                                                    
     regulators ensure  that the pipeline  does not  take on                                                                    
     certain  risks.   These instead  are passed  through to                                                                    
     the resource  owners, provided that the  pipeline owner                                                                    
     delivers the project on  time and operated efficiently.                                                                    
     That's how the  risk / reward balance is  struck by the                                                                    
     pipeline regulators                                                                                                        
                                                                                                                                
     So ultimately,  ALL RISKS are either  borne directly by                                                                    
     the  resource  owners, or  are  passed  through to  the                                                                    
     resource  owners through  the toll.   To  ensure a  low                                                                    
     cost  project,  it's  important  that  those  that  are                                                                    
     bearing a risk are able to  manage that risk.  They are                                                                    
     commercially motivated to manage that risk downwards                                                                       
                                                                                                                                
     To reiterate,  it's critical that the  fiscal system is                                                                    
     established  in such  a way  that the  risks associated                                                                    
     with   the  resource   or  "upstream"   are  adequately                                                                    
     addressed  to  ensure  the risk  /  reward  balance  is                                                                    
     right.  That  will maximize the likelihood  of having a                                                                    
     successful open  season and a successful  project.  The                                                                    
     State is uniquely positioned to address this risk.                                                                         
                                                                                                                                
2:55:44 PM                                                                                                                    
                                                                                                                                
     So  in  summary,  I'd  like  to  leave  you  with  four                                                                    
     messages.   First, BP wants  and needs a  gas pipeline.                                                                    
     It's critical  to our vision  of the 50-year  future in                                                                    
     Alaska.   Second,  BP fully  supports  an open  process                                                                    
     that leads  to a mutually agreed  fiscal framework with                                                                    
     the State that allows a  project to advance and attract                                                                    
     financing.                                                                                                                 
                                                                                                                                
     We  think  there  should be  an  open  and  transparent                                                                    
     public  review   of  the  resulting  framework.     The                                                                    
     Governor has already committed  to keep the legislature                                                                    
     and  the public  apprised  - we  fully  support her  in                                                                    
     that.   It  is critical  that the  legislature supports                                                                    
     and  endorses  that  framework.   The  judicial  branch                                                                    
     should    review     that    framework     to    ensure                                                                    
     constitutionality.   The  people  of Alaska  and all  3                                                                    
     branches of government should and will be consulted.                                                                       
     We  think  that  the   resulting  framework  should  be                                                                    
     available to all investors to ensure competition.                                                                          
                                                                                                                                
     Third, we  believe that a  number of  midstream details                                                                    
     in AGIA  should be  fixed.  We  think the  best project                                                                    
     will come about  if the State allows  industry to offer                                                                    
     solutions, rather than prescribing  them up front.  The                                                                    
     provisions which result in rate  subsidies of one party                                                                    
     to  another  should  be  eliminated.    Any  notion  of                                                                    
     exclusivity or  the government 'picking a  winner' like                                                                    
     those  contained in  Sections .260  and .440  should be                                                                    
     avoided.   Any process should allow  competition in the                                                                    
     marketplace  to  work.   It  is  easy to  make  hopeful                                                                    
     promises but  it is harder,  and vitally  important, to                                                                  
     deliver  performance.   That  is  what  we believe  the                                                                    
     State should require -Delivery, not promises.                                                                              
                                                                                                                                
     And   finally,  mutually   agreeing   to  an   upstream                                                                  
     framework  is critical.   The  resource issues  must be                                                                  
     resolved for the  project to proceed and  to ensure the                                                                    
     resource owners have sufficient  confidence to make the                                                                    
     necessary long  term financial  commitments in  an open                                                                    
     season required to advance the project.  Section .310                                                                      
     and .320 of AGIA do not accomplish this objective.                                                                         
                                                                                                                                
MR. VAN TUYL  concluded by stating that BP is  ready to engage in                                                               
developing the necessary upstream framework.                                                                                    
                                                                                                                                
2:58:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked whether  it is  a fair  assessment to                                                               
conclude BP  would not bid on  the gas pipeline project  based on                                                               
the current terms of AGIA.                                                                                                      
                                                                                                                                
MR. VAN TUYL said that BP would  like to bid, but would not under                                                               
the current terms of AGIA.                                                                                                      
                                                                                                                                
2:58:58 PM                                                                                                                    
                                                                                                                                
MR. VAN TUYL responded to a  question about the FT commitments by                                                               
explaining  that  longer  term  transportation  commitments  have                                                               
lower risks  and tolls, which  results in  a higher netback.   He                                                               
suggested  that  it  would  increase the  risk  of  financing  to                                                               
shorten the  FT commitment terms.   He said that  BP's financiers                                                               
have indicated  that a FT commitment  terms of only 10  years for                                                               
this project will probably not qualify for financing.                                                                           
                                                                                                                                
3:00:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  asked  about  methods  to  accomplish  long-term                                                               
financial stability.                                                                                                            
                                                                                                                                
MR. VAN  TUYL responded that  there are  any number of  ways that                                                               
certainty can be  structured.  He noted that  project finance can                                                               
be complicated, but  that there are a number of  ways to approach                                                               
it.                                                                                                                             
                                                                                                                                
3:01:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  about   the  possible  effects  of                                                               
legislation regarding carbon dioxide emissions on the tariff.                                                                   
                                                                                                                                
MR. VAN TUYL replied that  it would increase the tariff, although                                                               
he is  unaware of the magnitude  of that increase.   He suggested                                                               
that  applicants  could be  required  to  address greenhouse  gas                                                               
issues and possible effects of carbon credit legislation.                                                                       
                                                                                                                                
3:04:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  asked exactly what  BP means when  it says                                                               
the resource terms must by clear.                                                                                               
                                                                                                                                
MR. VAN TUYL answered that "exactly  what I mean is the rules ...                                                               
that  define the  payments that  we  make to  the government"  be                                                               
specified "for a long period."   He explained that he meant taxes                                                               
and BP  would seek as much  certainty as possible with  regard to                                                               
all taxes.   He said  he cannot  offer a specific  ultimatum, but                                                               
indicated that there  could be any number  of potential solutions                                                               
to the issue of certainty of resource terms.                                                                                    
                                                                                                                                
3:06:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON offered her  understanding that the witness                                                               
said BP would  not be submitting an application.   Based on that,                                                               
she asked  what the  state needs  to do  to get  BP to  submit an                                                               
application.                                                                                                                    
                                                                                                                                
MR.  VAN  TUYL  replied  that  "if he  said  that"  he  may  have                                                               
misspoken.   He explained  that BP  would like to  be in  a place                                                               
where  it could  submit an  application  and he  offered that  if                                                               
changes  were  made to  AGIA,  BP  would  be  able to  submit  an                                                               
application.   He  indicated that  BP would  like to  propose its                                                               
resource  terms  in  the  application so  that  the  state  could                                                               
examine  BP's application  to determine  whether  the terms  were                                                               
acceptable.                                                                                                                     
                                                                                                                                
3:07:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked what BP  looks for in its rate of                                                               
return.   Second,  he asked  about the  value of  retaining basin                                                               
control.                                                                                                                        
                                                                                                                                
MR. VAN  TUYL replied  that basin is  actually controlled  by the                                                               
regulator  of  the  pipeline,  in  this  case  FERC  due  to  the                                                               
interstate nature of  the pipeline.  He said that  under FERC the                                                               
pipeline would have "open access"  to bidders during open season.                                                               
He suggested  that it is unclear  who will receive access  to the                                                               
pipe in  the course of  competitive bidding as required  by FERC.                                                               
As to the successful rate  of return, he explained that companies                                                               
look at  a "whole host  of economic indicators" to  determine the                                                               
pipeline's risk.                                                                                                                
                                                                                                                                
3:09:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked about  the factors that influence the                                                               
pipeline's rate  of return, such as  the amount of equity  in the                                                               
pipeline.  He noted that negotiated  rates could be 85 percent of                                                               
the  maximum recourse  rates  and queried  about  how this  could                                                               
affect the pipeline owner's rate of return.                                                                                     
                                                                                                                                
MR.  VAN  TUYL answered  that  the  shortest  answer is  that  it                                                               
depends on  the specific  structure of the  negotiated rate.   He                                                               
agreed that it  is possible that a negotiated rate  of 85 percent                                                               
could reduce the  rate that the pipeline  operator would receive.                                                               
He responded  to a question  by reminding members that  FERC will                                                               
establish a  maximum recourse rate  to insure that the  rates are                                                               
just and  reasonable.  He  explained that FERC allows  parties to                                                               
negotiate  rates that  could be  less than  the maximum  recourse                                                               
rates.                                                                                                                          
                                                                                                                                
The committee took an at ease from 3:15:11 PM to 3:31:03 PM.                                                                
                                                                                                                                
3:31:22 PM                                                                                                                    
                                                                                                                                
WILLIAM  M.  WALKER,  Project Manager,  General  Counsel,  Alaska                                                               
Gasline  Port  Authority (AGPA)  provided  the  committee with  a                                                               
PowerPoint  presentation.   He stated  that in  general the  AGPA                                                               
views the  open and  transparent process of  AGIA favorably.   He                                                               
opined  that  AGIA  "has  a  much better  feel"  than  the  prior                                                               
Stranded Gas Development Act (SGDA).                                                                                            
                                                                                                                                
PAUL FUHS,  Lobbyist, Alaska Gasline Port  Authority, opined that                                                               
prior testimony indicated a desire  by the producers to return to                                                               
a process more like the SGDA.                                                                                                   
                                                                                                                                
3:36:53 PM                                                                                                                    
                                                                                                                                
MR.  WALKER reminded  the  committee the  AGPA  was formed  under                                                               
state  statute to  encourage  development of  Alaska's  gas.   He                                                               
noted  that a  stable and  secure  energy source  is critical  to                                                               
Alaska  residents.    He  explained that  AGPA  would  share  its                                                               
revenue  as directed  by statute-  60  percent to  the state,  30                                                               
percent  to  municipalities, and  10  percent  to energy  related                                                               
benefits for rural Alaska.                                                                                                      
                                                                                                                                
MR.  FUHS noted  AGPA  is a  non-profit  organization created  to                                                               
create a public  service.  However, it must take  in some revenue                                                               
to  allow  it  to  take  on debt.    The  aforementioned  comment                                                               
concerns the revenue surplus over AGPA's debt service.                                                                          
                                                                                                                                
MR. WALKER  said that  AGPA considers supply  of gas  to in-state                                                               
markets a high priority.  He  said that AGPA supports use of some                                                               
gas liquids  for the in-state  market and market  optionality for                                                               
Alaska's gas.   He explained  it is important to  maximize market                                                               
options.                                                                                                                        
                                                                                                                                
3:43:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked  for further explanation of  whether debt is                                                               
deducted prior  to disbursement of the  direct net-profit revenue                                                               
sharing split.                                                                                                                  
                                                                                                                                
MR. WALKER  explained that  the debt comes  out prior  to revenue                                                               
sharing  payments.   In  response  to  a question  regarding  gas                                                               
liquids,  he  explained  that  there  would  be  a  fractionation                                                               
facility in  Valdez to  take the  propane and  liquids out  to be                                                               
shipped  separately from  the liquefied  natural gas  (LNG).   He                                                               
said the  volume shipped is  the product not needed  for in-state                                                               
use.  He  explained that the liquids would  be shipped separately                                                               
from the LNG.                                                                                                                   
                                                                                                                                
3:44:39 PM                                                                                                                    
                                                                                                                                
MR. WALKER  referred to  slide 4 and  emphasized that  AGPA would                                                               
act as  a facilitator for any  gas pipeline project.   He offered                                                               
that "world class"  companies would be doing  the actual pipeline                                                               
work.   He  explained that  AGPA  has been  working with  various                                                               
companies to obtain cost estimates.                                                                                             
                                                                                                                                
MR. FUHS offered that it is  not necessary for the resource owner                                                               
to take  the risk in  building a  pipeline.  Instead,  a customer                                                               
may make a long term commitment to buy the gas.                                                                                 
                                                                                                                                
MR. WALKER explained that AGPA plans  to build a 48 inch pipeline                                                               
from Prudhoe  Bay to Valdez,  with a pre-build to  Delta Junction                                                               
for  later tie-in  with the  Alaska/Canada highway  project.   In                                                               
response to a  question, he explained that  "gas conditioning" is                                                               
different from a gas treatment  plant (GTP).  In the conditioning                                                               
process,  the gas  is  cooled  to ready  it  for  input into  the                                                               
pipeline.                                                                                                                       
                                                                                                                                
3:50:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether the gas  conditioning aspect                                                               
of AGPA's project is the same  as the GTP considered in the other                                                               
proposed gas pipeline projects.                                                                                                 
                                                                                                                                
MR.  WALKER   answered  that  the  aforementioned   statement  is                                                               
correct.    He said  AGPA  is  prepared to  pay  a  toll for  gas                                                               
treatment costs, or to build a GTP.                                                                                             
                                                                                                                                
MR.  FUHS  responded  to  an  inquiry  regarding  the  difference                                                               
between a  GTP and gas  conditioning by explaining that  they are                                                               
very similar processes.  He  explained that construction requires                                                               
similar construction  techniques.  He said  the producers planned                                                               
project may be larger.                                                                                                          
                                                                                                                                
3:51:41 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked if  the treatment  was to  produce pipeline                                                               
grade gas.                                                                                                                      
                                                                                                                                
MR. WALKER  replied that  pipeline grade  product will  be coming                                                               
out  of the  LNG after  the propane  is removed.   He  said there                                                               
would be an LNG facility and storage capability at Valdez.                                                                      
                                                                                                                                
3:53:26 PM                                                                                                                    
                                                                                                                                
MR.  WALKER estimated  projects costs  for the  AGPA approach  as                                                               
around  $10  billion.   He  said  that  one  cannot have  a  loan                                                               
guarantee and  tax exempt financing  at the  same time.   He said                                                               
that  the  federal  government  loan  terms  would  guarantee  80                                                               
percent of the project amount  not to exceed $18 billion dollars.                                                               
He said  that the project  route is well-known, and  has received                                                               
numerous  permits,  including  an approved  environmental  impact                                                               
statement.                                                                                                                      
                                                                                                                                
3:55:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON asked  if AGPA  suggests building  an all-                                                               
Alaska route.                                                                                                                   
                                                                                                                                
MR. WALKER said that the AGPA  project is not to the exclusion of                                                               
the Canadian route and that the  project would allow a later line                                                               
to Canada.                                                                                                                      
                                                                                                                                
REPRESENTATIVE WILSON  asked whether construction of  the smaller                                                               
project proposed by AGPA would make  a larger line out of Prudhoe                                                               
Bay uneconomic.   She asked what would happened if  there was not                                                               
a Canadian line.                                                                                                                
                                                                                                                                
MR. WALKER opined that he does  not think the AGPA proposal would                                                               
have the  aforementioned effect.   He  explained that  the larger                                                               
projects  proposed  will  require  further  exploration  to  find                                                               
adequate gas  reserves.  He  opined that  the first 550  miles of                                                               
the line would be the most  expensive, and could help in a later,                                                               
larger project.   With respect  to a Canadian line,  he indicated                                                               
that  he  thinks  the  AGPA pre-build  to  Delta  Junction  would                                                               
improve the economics for a  Canadian line.  He characterized the                                                               
AGPA project as providing benefits  to both the producers and the                                                               
state if the pre-build aspect is built first.                                                                                   
                                                                                                                                
3:59:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  asked what size  of project and  pipe AGPA                                                               
was considering.                                                                                                                
                                                                                                                                
MR. WALKER  explained that "our base  case is a 1.2  Bcf [billion                                                               
cubic  feet] project."    He estimated  maximum  in-state use  as                                                               
"point five," which  adds up to a  project size of 1.7  to 2 Bcf.                                                               
Their project contemplates a pipe size of 48 inches, he said.                                                                   
                                                                                                                                
REPRESENTATIVE  WILSON  asked  about  the  possibility  that  the                                                               
producers would not  come to an open season due  to concerns that                                                               
the AGPA project would jeopardize a larger project.                                                                             
                                                                                                                                
MR. WALKER characterized the above  point as a good question, and                                                               
went on  to say that  AGPA would  continue to attempt  to acquire                                                               
gas from  them.   He said  that AGPA's reading  of the  leases is                                                               
that there is an obligation to sell  the gas.  He opined that the                                                               
producers  are  obligated  to  sell  their gas  "if  there  is  a                                                               
reasonable expectation of  profit" and that they  would "sell the                                                               
gas into a project."  He  reminded the committee "that the volume                                                               
of gas we are talking about" is  within the volume of gas that is                                                               
currently  being re-injected,  and that  there is  a cost  to re-                                                               
injecting gas.                                                                                                                  
                                                                                                                                
4:03:28 PM                                                                                                                    
                                                                                                                                
MR. FUHS  agreed that  one issue  is what is  the right  size for                                                               
this project.   He  noted that as  of yet, there  has not  been a                                                               
request  of  the  Alaska  Oil  and  Gas  Conservation  Commission                                                               
(AOGCC) as  to how much gas  can actually be taken  off the North                                                               
Slope.   He indicated that the  current estimate is that  2.7 Bcf                                                               
could  be   removed  from  the   North  Slope   without  creating                                                               
catastrophic oil loss.   He cautioned that a project  size of 4.3                                                               
Bcf  is  not  possible  absent discovery  of  additional  gas,  a                                                               
process that can cost tens of  billions of dollars.  He suggested                                                               
there  are  benefits to  looking  at  a  smaller project  with  a                                                               
quicker time line,  a lower risk profile, and  within the already                                                               
known reserves.                                                                                                                 
                                                                                                                                
4:05:50 PM                                                                                                                    
                                                                                                                                
MR. WALKER  responded to a  question about an  anti-trust lawsuit                                                               
filed by  AGPA by explaining  that AGPA dismissed  the litigation                                                               
shortly after  the current administration  came into office.   He                                                               
stated that the  AGPA is serious about doing a  project, and felt                                                               
that  the prior  administration's  approach to  the gas  pipeline                                                               
left it with little choice but to pursue an anti-trust claims.                                                                  
                                                                                                                                
MR.  WALKER  continued  by  explaining  that  AGPA  has  recently                                                               
updated its  cost estimates  for the project  and has  entered an                                                               
memorandum  of  understanding (MOU)  with  Mitisu  OSK lines  for                                                               
shipping.  He  emphasized the importance of  multiple markets and                                                               
indicated that  there have been  inquiries from Hawaii,  the West                                                               
Coast of the United States, and Pacific Rim countries.                                                                          
                                                                                                                                
MR.  WALKER explained  that there  are  a variety  of factors  to                                                               
consider  in financing  and reminded  the committee  that federal                                                               
loan  guarantees  now  apply  to  an LNG  project  and  are  very                                                               
helpful.  He said that  Yukon-Pacific Corporation has spent about                                                               
$100 million, while  AGPA has spent around $125  to $135 million,                                                               
including spending by contractors and other entities.                                                                           
                                                                                                                                
4:11:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  asked  where  the $100  million  came  from  and                                                               
whether it was covered by the loan guarantees.                                                                                  
                                                                                                                                
MR. WALKER  explained that was  from CSX corporation,  when "they                                                               
funded  they owned  Yukon-Pacific Corporation  for 20  years, and                                                               
that is what they put in  ... acquiring the route" and other work                                                               
done with  respect to the  project.  He  said this was  done long                                                               
before the loan guarantees were available.                                                                                      
                                                                                                                                
MR. FUHS noted that AGPA has  a significant time advantage in its                                                               
approach due to the work and permits already done.                                                                              
                                                                                                                                
4:12:09 PM                                                                                                                    
                                                                                                                                
MR. WALKER explained that this project  would likely be done on a                                                               
project  finance  basis.   Under  this  approach,  entities  come                                                               
together  and  obtain financing  based  on  the strength  of  the                                                               
project.  He explained that  non-recourse financing would "not be                                                               
tied to  the balance sheet"  of the companies.   He said  that FT                                                               
commitments are important  to the project, but that  they are not                                                               
the only  pieces, there are other  important pieces as well.   He                                                               
opined that the  biggest risk in project finance  is a completion                                                               
guarantee.  He emphasized that  this is an infrastructure project                                                               
that should allow for maximum use and expansion.                                                                                
                                                                                                                                
4:16:14 PM                                                                                                                    
                                                                                                                                
MR.  WALKER addressed  the issue  of risk  mitigation by  opining                                                               
that proximity  to the Trans-Alaska  Pipeline System  (TAPS) line                                                               
minimizes risk due to proximity  and existing infrastructure.  He                                                               
explained  that  the gas  pipeline  would  be thicker,  and  thus                                                               
heavier,  than that  of  TAPS.   He  was not  sure  of the  exact                                                               
thickness, or  whether infrastructure  would have to  be upgraded                                                               
to carry a heavier pipeline.                                                                                                    
                                                                                                                                
MR.  FUHS said  the  Department of  Transportation examined  this                                                               
issue based on  a 52 inch pipe, and concluded  some bridges would                                                               
have to be upgraded.                                                                                                            
                                                                                                                                
MR. WALKER offered  that Alaska's cold weather makes  a LNG plant                                                               
more efficient to  run and that the  marine transportation system                                                               
offers  a known  shipping  system.   He  said  that the  "highest                                                               
unknown" is the pipeline itself.                                                                                                
                                                                                                                                
4:19:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES asked about the  amount of product loss with                                                               
liquefaction and re-gasification.                                                                                               
                                                                                                                                
MR. WALKER answered that approximately  5.5 percent of the volume                                                               
is lost  due to these processes.   He indicated that  this is the                                                               
fuel cost, not the amount of leakage.                                                                                           
                                                                                                                                
MR. FUHS  stated that some product  is burned by the  LNG tankers                                                               
for fuel.                                                                                                                       
                                                                                                                                
REPRESENTATIVE ROSES asked  if the only gas lost is  the gas used                                                               
as an energy source when converting gas to liquid.                                                                              
                                                                                                                                
MR. WALKER  explained there is not  really a loss, but  some fuel                                                               
must be consumed to go through  the process of converting the gas                                                               
to liquid.                                                                                                                      
                                                                                                                                
REPRESENTATIVE ROSES  expressed some  skepticism with  the figure                                                               
of  5.5 percent  as it  is the  lowest percentage  he has  heard,                                                               
noting that  other companies have  estimated the product  loss as                                                               
around 11 to 14 percent.                                                                                                        
                                                                                                                                
MR. FUHS  indicated that he could  provide additional information                                                               
to confirm or clarify this figure.                                                                                              
                                                                                                                                
4:23:37 PM                                                                                                                    
                                                                                                                                
MR. WALKER  opined that the  greatest risk facing the  project is                                                               
that  Alaska  will lose  the  United  States  market for  LNG  to                                                               
projects  from  elsewhere.    He suggested  that  there  are  LNG                                                               
projects being designed worldwide and  that these projects may be                                                               
complete prior to the Alaska  project should the delays continue.                                                               
AGPA is  also concerned  about the  possibility that  the federal                                                               
government will  take away the  $18 million loan guarantee  if no                                                               
one  applies  for it.    He  noted  that construction  costs  are                                                               
constantly increasing.   This is why the AGPA is  pushing for the                                                               
right size project in a timely fashion, he explained.                                                                           
                                                                                                                                
MR. WALKER  relayed his  belief that an  LNG project  is economic                                                               
and projects  a rate  of return  in excess of  30 percent  to the                                                               
upstream producers.   He said it provides gas  to Alaskans sooner                                                               
and still  enhances the  possibility of  a later,  larger project                                                               
going through Canada.                                                                                                           
                                                                                                                                
4:28:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked about the  role of FERC  and the                                                               
RCA in this project.                                                                                                            
                                                                                                                                
MR. WALKER responded  that the AGPA has been advised  that if the                                                               
gas  is sold  at  Valdez, the  project may  be  exempt from  FERC                                                               
oversight.    However,  if  "we  held  on  to  the  gas"  through                                                               
liquefaction and  shipping, then  "clearly we would  be regulated                                                               
by FERC."   He opined that  one must consider various  factors to                                                               
determine whether  it is  better or  not to  be exempt  from FERC                                                               
oversight.                                                                                                                      
                                                                                                                                
4:31:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  noted that whoever  owns the gas for  shipping is                                                               
likely to come under the authority of FERC.                                                                                     
                                                                                                                                
MR. WALKER  agreed that once the  gas comes back into  the United                                                               
States it  would be regulated  by FERC.   He indicated  that AGPA                                                               
would determine the best approach  regardless of whether it would                                                               
involve FERC regulation.   In response to a question,  he said he                                                               
was not  sure whether the  volume of  LNG imported to  the United                                                               
States was down  last year.  He did indicate  that some other LNG                                                               
projects have been slowed down due to "other issues."                                                                           
                                                                                                                                
CO-CHAIR GATTO  asked whether  any re-gasification  terminals are                                                               
operating at full efficiency.                                                                                                   
                                                                                                                                
MR. WALKER  replied that AGPA  has not tracked the  efficiency of                                                               
existing facilities.   He said that the initial  market for their                                                               
project  is  the  West  Coast  and  currently  no  LNG  receiving                                                               
terminal  on the  West  Coast is  in operation.    He noted  that                                                               
recent  hurricanes show  the  need for  LNG  facilities in  areas                                                               
besides the Gulf Coast.                                                                                                         
                                                                                                                                
MR. FUHS reminded the committee the  AGPA is tax exempt, and that                                                               
can be  a benefit.   He noted that one  cannot be tax  exempt and                                                               
receive a federal loan guarantee.                                                                                               
                                                                                                                                
MR. WALKER  clarified that there  cannot be  tax-exempt financing                                                               
and a  loan guarantee,  and indicated that  there is  no conflict                                                               
between tax-exempt status and a federal loan guarantee.                                                                         
                                                                                                                                
4:36:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON asked  whether  there is  a  limit to  the                                                               
federal loan guarantees and if they  could be used for the Alaska                                                               
portion and a later Canadian portion of the gas pipeline.                                                                       
                                                                                                                                
MR. WALKER explained  that the federal loan  guarantees apply for                                                               
up to 80 percent of a project up  to $18 billion.  It would apply                                                               
to only one  project, and he is  not sure if it would  apply to a                                                               
subsequent Canadian line.                                                                                                       
                                                                                                                                
4:37:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  referred to information  dated January  2007 from                                                               
the Energy  Information Administration  which indicated  that the                                                               
volume of LNG imports has decreased the last two years.                                                                         
                                                                                                                                
MR.  WALKER  reminded the  committee  that  the AGPA  project  is                                                               
planned  to begin  around 2013  or 2014.   He  noted that  issues                                                               
regarding tanker costs are part of the entire project economics.                                                                
                                                                                                                                
MR.  WALKER summarized  that there  are many  benefits to  an LNG                                                               
project, referring to  slide 11.  He opined that  there is enough                                                               
gas  for the  planned  AGPA  LNG project  and  that this  smaller                                                               
project will allow Alaska's gas to reach the market sooner.                                                                     
                                                                                                                                
4:46:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  if  the AGPA  project  would "touch  Point                                                               
Thomson" and whether the amount  of known Prudhoe Bay reserves is                                                               
sufficient for this project.                                                                                                    
                                                                                                                                
MR.  WALKER  supplied that  "this  would  not necessarily  effect                                                               
Point Thompson,"  although the volume  of gas available  there is                                                               
enough for this project.  He  also said AGPA would not need Point                                                               
Thomson,  which  he  described as  having  "more  unknowns"  than                                                               
Prudhoe Bay.                                                                                                                    
                                                                                                                                
4:47:22 PM                                                                                                                    
                                                                                                                                
MR. WALKER suggested that there  be some amendments made to AGIA.                                                               
First,  he noted  that AGIA  requires an  applicant to  provide a                                                               
great amount  of detail  regarding any  proposed LNG  project and                                                               
suggested  that  a  similar  level of  detail  be  required  from                                                               
Canadian line applicants.  Second,  he offered that any applicant                                                               
should  provide details  regarding  any  additional gas  off-take                                                               
over what  is currently  authorized by  AOGCC.   Furthermore, any                                                               
applicants should  be required to  provide a budget  and timeline                                                               
for  future  exploration, an  analysis  of  anticipated oil  loss                                                               
should off-take  from Prudhoe Bay  be increased, and  an analysis                                                               
of how much  liquid would be available in Alaska  for value added                                                               
processing.                                                                                                                     
                                                                                                                                
4:49:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether  these suggested  amendments                                                               
are  related  to  the  fact  that  AGPA  proposes  an  all-Alaska                                                               
project.                                                                                                                        
                                                                                                                                
MR.  WALKER sought  to assure  the committee  that AGPA  does not                                                               
seek  to   stop  any  project,  however,   he  characterized  the                                                               
additional  information suggested  as very  helpful in  analyzing                                                               
the viability of  any project.  He opined  that absent additional                                                               
information,  it would  be possible  for  the state  to select  a                                                               
project that  requires more gas  off-take than authorized  by the                                                               
AOGCC.                                                                                                                          
                                                                                                                                
4:51:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES stated that there  are unknowns, such as how                                                               
much gas will  be committed at open season, and  opined that line                                                               
capacity is a similar issue.                                                                                                    
                                                                                                                                
MR. WALKER replied that the project  should be defined as to what                                                               
it takes to be economic before  the open season.  He offered that                                                               
prior to  open season, any applicant  should know if it  can take                                                               
the volume of gas required for its project from the North Slope.                                                                
                                                                                                                                
4:53:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked whether it would  be advantageous for                                                               
Alaska to  have an open season  prior to asking for  a design and                                                               
project bid.                                                                                                                    
                                                                                                                                
MR.  WALKER  said that  AGPA  is  suggesting that  applicants  be                                                               
required  to  submit  an  application   to  "start  the  process"                                                               
required to  increase off-take limits should  the planned project                                                               
require more gas off-take than is currently authorized.                                                                         
                                                                                                                                
MR.  WALKER  continued  by explaining  that  AGPA  also  suggests                                                               
inclusion of a  timeline for project start up  and completion and                                                               
current project  costs estimates.   He went  on to say  "we fully                                                               
support  rolled-in rates",  noting that  such a  system has  been                                                               
successful  in   Canada.    He   opined  that  AGIA   allows  for                                                               
independently owned infrastructure.                                                                                             
                                                                                                                                
4:58:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked how  much revenue  the state  would receive                                                               
under the AGPA proposal.                                                                                                        
                                                                                                                                
MR. WALKER replied that six percent  is "on top" of what would go                                                               
to  the  state under  "anybody's  project."    In response  to  a                                                               
further  question, he  said he  does  not have  an exact  revenue                                                               
amount, but could provide that information.                                                                                     
                                                                                                                                
CO-CHAIR  GATTO  noted that  all  the  projects seem  to  require                                                               
consideration of assumptions and that  since the state is looking                                                               
for revenue, additional information  on possible revenue would be                                                               
helpful.                                                                                                                        
                                                                                                                                
5:00:34 PM                                                                                                                    
                                                                                                                                
MR. WALKER  responded to  a question  regarding the  way revenues                                                               
are determined by  stating that the AGPA may be  willing to enter                                                               
a long-term  contract with the  state to  "lock that in"  so that                                                               
option  is not  available.   In  response to  a  query about  the                                                               
likelihood of  increased rates, he  offered that the AGPA  is not                                                               
looking  for a  certain  rate  of return,  rather  it "wants  the                                                               
project to happen" to provide energy and jobs to Alaska.                                                                        
                                                                                                                                
CO-CHAIR GATTO  asked about  the number  of permanent  jobs under                                                               
the  AGPA  proposal compared  to  the  number of  permanent  jobs                                                               
should the gas pipeline go through Canada.                                                                                      
                                                                                                                                
MR.  WALKER  replied  that  "it   would  be  greater  because  of                                                               
liquefaction," which he characterized as labor intensive.                                                                       
                                                                                                                                
5:02:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON   characterized  some  of   the  suggested                                                               
amendments  as  more  appropriately   included  as  part  of  the                                                               
commissioners'  evaluation criteria  rather than  as part  of the                                                               
state's initial "must haves."                                                                                                   
                                                                                                                                
MR. WALKER  replied "it  could be  used either  way."   He stated                                                               
that the  concerns brought up by  AGPA are to make  it clear that                                                               
there  should be  concern regarding  the  amount of  gas that  is                                                               
currently authorized for off-take from Prudhoe Bay.                                                                             
                                                                                                                                
REPRESENTATIVE  SEATON  stated  that his  understanding  is  that                                                               
proposals will be  evaluated to determine which  one provides the                                                               
greatest benefit  to the state.   He questioned whether  the AGPA                                                               
project  would provide  any corporate  or municipal  tax benefits                                                               
and if not,  how the AGPA project would compare  to one that pays                                                               
taxes.                                                                                                                          
                                                                                                                                
MR. WALKER  said that "the actual  model we run now  is a taxable                                                               
model,"   and  that   the  project   still  sets   forth  "robust                                                               
economics."    He  suggested  that  AGPA  could  provide  further                                                               
information on this.                                                                                                            
                                                                                                                                
5:06:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  characterized   this   issue  as   quite                                                               
important  because  the  commissioners   will  be  comparing  and                                                               
evaluating proposals  side-by-side.  He  asked if the  AGPA takes                                                               
issue with any of the "must have" criteria set forth in AGIA.                                                                   
                                                                                                                                
MR. WALKER  answered that AGPA  is pleased with the  "must haves"                                                               
and  that none  of  them cause  it any  particular  concern.   He                                                               
clarified that  AGPA proposes to pay  taxes of 20 mils,  which is                                                               
the same as TAPS pays.                                                                                                          
                                                                                                                                
5:09:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES   referred  to  AS   43.90.130(16)  whereby                                                               
applicants waive  their right to  appeal, and asked  whether that                                                               
provision gives AGPA any cause for concern.                                                                                     
                                                                                                                                
MR. WALKER  stated that AGPA  is comfortable with the  process of                                                               
AGIA and would  likely be comfortable with  the ultimate decision                                                               
made.                                                                                                                           
                                                                                                                                
5:10:08 PM                                                                                                                    
                                                                                                                                
MR.  FUHS  suggested  an  amendment  to  AS  43.90.210  regarding                                                               
amendments or  modification to the  project plans.  He  said that                                                               
an  applicant should  be allowed  to suggest  changes that  would                                                               
provide additional value or benefits to the state.                                                                              
                                                                                                                                
CO-CHAIR  GATTO  suggested that  the  language  as written  would                                                               
allow modifications to the plan.                                                                                                
                                                                                                                                
MR. FUHS  opined that the language  would need to be  modified to                                                               
allow an  applicant more flexibility to  suggest modifications to                                                               
add benefits to the project.                                                                                                    
                                                                                                                                
MR. WALKER  answered a question  regarding federal  income taxes,                                                               
by explaining  that there  could be a  scenario whereby  the AGPA                                                               
would be subject to federal taxes.                                                                                              
                                                                                                                                
MR. FUHS clarified that AGPA can  make revenue, but must spend it                                                               
for a public purpose.                                                                                                           
                                                                                                                                
5:14:35 PM                                                                                                                    
                                                                                                                                
MR.  WALKER  responded to  a  question  about  the Jones  Act  by                                                               
explaining  that it  requires that  shipments between  U.S. ports                                                               
must be  on vessels built and  flagged in the United  States.  He                                                               
suggested  that AGPA  does  not  need that  act  amended for  its                                                               
project because there  are eight qualified LNG  tankers that will                                                               
become available in 2013.  He  indicated that some ships may need                                                               
to  be re-flagged.   He  opined that  the AGPA  project does  not                                                               
"have a Jones Act problem."                                                                                                     
                                                                                                                                
CO-CHAIR  GATTO asked  about why  tankers would  be available  in                                                               
2013.                                                                                                                           
                                                                                                                                
MR. WALKER  replied that  they are  currently under  contract and                                                               
the contracts  come due in 2013,  so they could be  available for                                                               
other purposes.   He  said AGPA  is currently  in the  process of                                                               
working to secure shipping capacity.                                                                                            
                                                                                                                                
MR. FUHS threw  out that the AGIA process  will help negotiations                                                               
with other interested parties once the applications are out.                                                                    
                                                                                                                                
5:19:07 PM                                                                                                                    
                                                                                                                                
MR. WALKER responded  to a question by stating the  AGPA has been                                                               
advised that  the LNG tankers  referred to  "will be good  to go"                                                               
and will not require re-fitting.                                                                                                
                                                                                                                                
CO-CHAIR JOHNSON asked if LNG tankers are double-hulled.                                                                        
                                                                                                                                
MR. WALKER said  that LNG is different from oil  and AGPA has not                                                               
found any reason to need double hulled tankers for transport.                                                                   
                                                                                                                                
MR. FUHS opined that in a liquid form LNG is quite stable.                                                                      
                                                                                                                                
5:21:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked about  the amount of carbon emissions                                                               
from  the project,  the amount  of energy  needed to  operate the                                                               
pipeline and possible alternatives on how to run the pipeline.                                                                  
                                                                                                                                
MR.  WALKER  indicated  that those  issues  are  currently  being                                                               
reviewed.                                                                                                                       
                                                                                                                                
CO-CHAIR GATTO  expressed some skepticism  regarding the  ease of                                                               
re-flagging a tanker.                                                                                                           
                                                                                                                                
MR. WALKER said AGPA has been  advised that re-flagging may be an                                                               
easier process  if the ship was  built in the United  States.  He                                                               
said that the age of the  ships has been considered and that AGPA                                                               
can provide further  information on this.  He  offered that there                                                               
may be  a shipyard in San  Diego that could build  an LNG tanker.                                                               
He inferred  that a United States  shipyard has not built  an LNG                                                               
tanker since the 1970s.                                                                                                         
                                                                                                                                
[HB 177 was held in committee.]                                                                                                 
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources  Standing Committee  meeting was  adjourned at  5:28:34                                                             
PM.                                                                                                                           

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