Legislature(2007 - 2008)BARNES 124

04/14/2007 01:00 PM RESOURCES


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01:03:40 PM Start
01:04:04 PM HB177
04:09:03 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 14, 2007                                                                                         
                           1:03 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                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Bob Buch                                                                                                         
                                                                                                                                
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                                                                              
04/13/07       (H)       Bills Previously Heard/Scheduled                                                                       
04/14/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                              
MARK HANLEY, Manager, Public Affairs                                                                                            
Anadarko Petroleum Corporation (Anadarko)                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Testified in  favor of HB 177  and answered                                                               
questions.                                                                                                                      
                                                                                                                                
TONY PALMER, Vice-President, Alaska Development                                                                                 
TransCanada Corporation, Inc. (TransCanada)                                                                                     
Calgary, Alberta                                                                                                                
POSITION   STATEMENT:     Described  TransCanada's   interest  in                                                               
Alaska's pipeline  project, expressed  general agreement  with HB                                                               
177, and answered questions.                                                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  CARL   GATTO  called   the  House   Resources  Standing                                                             
Committee  meeting  to  order at  1:03:40  PM.    Representatives                                                             
Gatto,  Johnson, Kawasaki,  Edgmon,  Guttenberg, Seaton,  Wilson,                                                               
and Kohring  were present at  the call to order.   Representative                                                               
Roses arrived  as the  meeting was  in progress.   Representative                                                               
Buch was also in attendance.                                                                                                    
                                                                                                                                
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
                                                                                                                                
1:04:04 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                                                               
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).]                                                                  
                                                                                                                                
1:06:43 PM                                                                                                                    
                                                                                                                                
MARK   HANLEY,  Manager,   Public  Affairs,   Anadarko  Petroleum                                                               
Corporation  (Anadarko)  informed  the  committee  that  Anadarko                                                               
independently explores for  oil and gas, and  partners with other                                                               
companies in some  situations.  It currently has  an interest in,                                                               
or contributes to, operations on  approximately 5.4 million gross                                                               
acres in Alaska.   Its net acreage is about  1.8 million acres on                                                               
the North Slope.   He opined that the Foothills  area is somewhat                                                               
more  "gas  prone."    He offered  that  Anadarko  is  continuing                                                               
exploration  activities in  order  to keep  its  leases with  the                                                               
state.                                                                                                                          
                                                                                                                                
1:09:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked how a lessee  could lose its leases with the                                                               
state.                                                                                                                          
                                                                                                                                
MR. HANLEY  replied that a  lessee could turn  a lease in  at the                                                               
end of  the lease term.   One of the ways  to keep a lease  is to                                                               
drill a well and discover a  "commercial quantity" of oil or gas.                                                               
He noted  that sometimes a  lessee chooses to relinquish  a lease                                                               
if the exploration activities do  not indicate good prospects for                                                               
discovery.  He explained that it  can take a while to do research                                                               
and exploration  necessary to identify the  most likely prospects                                                               
for further  exploration.  He said  it takes a few  test wells to                                                               
determine how much resource may  be available.  He indicated that                                                               
Anadarko's exploration activities  may speed up if  it looks like                                                               
the  pipeline project  is progressing.   He  said that  under the                                                               
current timeline set  forth in the Alaska  Gasline Inducement Act                                                               
(AGIA) we  "probably are  not likely  to be  in the  initial open                                                               
season" if  the possible timeline  of 2011  holds true.   He said                                                               
that  Anadarko  could  be  offering  an  expansion  for  the  gas                                                               
pipeline two years after the  initial open season, which would be                                                               
"well before" construction will have started.                                                                                   
                                                                                                                                
1:14:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON asked  how long it takes to  provide gas to                                                               
an existing pipeline.                                                                                                           
                                                                                                                                
MR.  HANLEY replied  that it  depends  on the  situation, but  it                                                               
could be  anywhere from five  to ten  years after discovery.   He                                                               
said  that if  Anadarko makes  a  discovery, it  will proceed  as                                                               
quickly as  possible to be  ready to  provide gas for  a pipeline                                                               
project.   He  noted Anadarko  has already  done quite  a bit  of                                                               
exploration.                                                                                                                    
                                                                                                                                
1:17:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG noted that  Anadarko explores about 200                                                               
miles  south of  Prudhoe Bay  and asked  whether there  should be                                                               
some type of in-put point in the Gates of the Arctic area.                                                                      
                                                                                                                                
MR.  HANLEY  replied  yes.    He  suggested  that  there  may  be                                                               
conversations  with other  companies so  that they  are aware  of                                                               
where Anadarko is  working and how to best design  the project to                                                               
meet future needs.                                                                                                              
                                                                                                                                
1:19:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GUTTENBERG  noted   the   desire  for   distance                                                               
sensitive  rates  and asked  about  how  Anadarko views  distance                                                               
sensitive rate issues.                                                                                                          
                                                                                                                                
MR.  HANLEY   responded  that   the  Federal   Energy  Regulatory                                                               
Commission  (FERC) has  addressed distance  sensitive rates.   He                                                               
stated that Anadarko could argue to  FERC that it should not have                                                               
to pay the rate "if we come in  200 miles south."  He agreed with                                                               
an observation  that there may need  to be a gas  treatment plant                                                               
(GTP) to prepare the gas to enter a pipeline.                                                                                   
                                                                                                                                
1:20:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether as an  independent producer,                                                               
Anadarko  is covered  under  the expansion  criteria  of AGIA  as                                                               
currently drafted.                                                                                                              
                                                                                                                                
MR. HANLEY said  he believes so, but that he  will look at AGIA's                                                               
language  again to  make sure  it  should not  say "delivery  and                                                               
receipt points,"  a change he  indicated may make  Anadarko "feel                                                               
more comfortable."  He explained  that the issue of where in-take                                                               
points  should  be  will  likely depend  on  the  actual  project                                                               
design.                                                                                                                         
                                                                                                                                
1:21:58 PM                                                                                                                    
                                                                                                                                
MR. HANLEY said  that Anadarko supports the process  set forth in                                                               
AGIA and opined  that it provides three  opportunities for input:                                                               
the   initial   legislation,    public   comment   on   submitted                                                               
applications,  and final  legislative review  of the  recommended                                                               
application.                                                                                                                    
                                                                                                                                
1:23:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked how  the  witness  views the  final                                                               
legislative  review  and  whether  he  thinks  that  the  license                                                               
application could be modified at that point.                                                                                    
                                                                                                                                
MR. HANLEY  replied that  it appears that  the process  for final                                                               
legislative  review is  still being  developed.   He opined  that                                                               
whatever the  process, Anadarko  has the ability  for input.   He                                                               
said he  thinks AGIA creates  a competitive process,  noting that                                                               
over  90  percent  of  gas   reserves  are  controlled  by  three                                                               
companies.  He suggested that  if the producers own the pipeline,                                                               
the project deserves extra scrutiny,  a point he claimed is borne                                                               
out  by prior  FERC actions  in the  1970s whereby  the producers                                                               
were prohibited  from "owning this  pipe."  He opined  that there                                                               
are   different  motivators   between   pipeline  companies   and                                                               
producers.  He suggested that  pipeline companies have experience                                                               
working  to  consolidate interests  so  that  a project  can  get                                                               
started.  He  explained that pipelines are  risky financially and                                                               
that tensions between different  interests are considered by FERC                                                               
in the  regulatory process.   He suggested that a  producer owned                                                               
pipeline  may  not  be  developed   with  the  business  interest                                                               
tensions  that  typically help  establish  a  lower tariff.    He                                                               
reminded the committee  that a higher tariff means  a lower well-                                                               
head price.                                                                                                                     
                                                                                                                                
1:29:55 PM                                                                                                                    
                                                                                                                                
MR. HANLEY  went on to  say that  Anadarko approves of  the "must                                                               
haves"  set forth  in AGIA  such as  the mandatory  provisions on                                                               
access  and   rates.     Anadarko  supports   requiring  biennial                                                               
assessment  of  market  demand  for  expansions.    He  expressed                                                               
approval for requiring the pipeline  owner to commit to expand in                                                               
reasonable  increments  on  reasonable terms.    Furthermore,  he                                                               
indicated  approval of  rolled-in rates  up to  15 percent  above                                                               
initial rate  and of precluding  negotiated rate  agreements that                                                               
would preclude rolled-in  rates.  He said  these three provisions                                                               
increase the "comfort of explorers" to "get into the pipeline."                                                                 
                                                                                                                                
1:32:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked   whether  negotiated  rates  could                                                               
result  in a  rate of  return so  low that  the pipeline  becomes                                                               
uneconomic for the builder.                                                                                                     
                                                                                                                                
MR.  HANLEY  opined that  negotiated  rates  are common  business                                                               
practice and  are the subject  of at least  two FERC orders.   He                                                               
suggested that  there are  ways for the  owners to  structure the                                                               
rates so that the project  is economically advantageous.  He said                                                               
he was  not aware of whether  negotiated rates could be  used for                                                               
leverage, but  that Anadarko supports  the language in  AGIA that                                                               
negotiated rates cannot be used to preclude rolled-in rates.                                                                    
                                                                                                                                
1:35:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES noted  that  Anadarko  does not  anticipate                                                               
bidding to build the pipeline  or participating in the first open                                                               
season,  and  opined  that  therefore   only  the  provisions  in                                                               
proposed AS  43.90.130(5)-(7) would  apply to it.   He  stated he                                                               
understands why Anadarko would support  subsections five and six.                                                               
He opined  that subsection seven  on rolled-in rates  would limit                                                               
later rates  charged to additional  shippers.  He noted  that the                                                               
prior  testimony  by  the producers  indicated  disapproval  with                                                               
these three subsections and offered  that is because the pipeline                                                               
builder has  concerns over accepting  the risk at the  first part                                                               
of  the project.   He  asked whether  an expansion  process could                                                               
result in lower rates.                                                                                                          
                                                                                                                                
MR.  HANLEY   answered  that  yes,  an   expansion  could  "drive                                                               
everybody's tariffs down."                                                                                                      
                                                                                                                                
1:38:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES asked why an  entity with gas for sale would                                                               
commit all  its gas  during an  initial open  season if  it could                                                               
potentially  wait  and  get  a   better  price  during  a  future                                                               
expansion.                                                                                                                      
                                                                                                                                
MR. HANLEY  opined that  there is incentive  to participate  on a                                                               
large  scale  because  economies  of scale  help  to  reduce  the                                                               
tariffs.   He  offered that  during an  expansion gas  is offered                                                               
that  may  not  have  been identified  during  the  initial  open                                                               
season.                                                                                                                         
                                                                                                                                
REPRESENTATIVE   ROSES  noted   that   under  certain   expansion                                                               
circumstances initial  suppliers can opt  out of the  volume they                                                               
initially put in the pipeline.                                                                                                  
                                                                                                                                
1:41:14 PM                                                                                                                    
                                                                                                                                
MR.  HANLEY  referred to  a  graph  titled "Indicative  Expansion                                                               
Tariffs,"  [slide one  to a  PowerPoint presentation  provided to                                                               
the committee] which he explained  shows the result of expansions                                                               
on both  rolled-in and  incremental tariffs.   The  prediction is                                                               
that  rolled-in   tariffs  would   result  in  a   lower  tariff,                                                               
particularly  if  the  expansion  required  looping  rather  than                                                               
compression.   He  suggested  that shippers  would  want to  keep                                                               
their gas in the line and not pull any out.                                                                                     
                                                                                                                                
1:43:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  noted that the  samples shown on  the graph                                                               
predict a lower  tariff after the first  expansion and questioned                                                               
why  a shipper  would not  want to  adjust its  input to  capture                                                               
lower tariffs.                                                                                                                  
                                                                                                                                
MR. HANLEY indicated some  confusion regarding the aforementioned                                                               
scenario, and  stated he did not  know why a shipper  would "back                                                               
out" volume from a pipeline.                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether the  initial suppliers  also                                                               
benefit from later lowered rates.                                                                                               
                                                                                                                                
MR. Hanley answered yes.                                                                                                        
                                                                                                                                
REPRESENTATIVE ROSES  questioned why  there was dispute  over the                                                               
incremental 15  percent increase above the  maximum recourse rate                                                               
if everyone,  even initial shippers,  would benefit  from lowered                                                               
tariffs during an expansion.                                                                                                    
                                                                                                                                
MR. HANLEY  continued to describe expansion  possibilities, using                                                               
the examples  on slide 1.   He noted  that a second  expansion by                                                               
compression would  be more costly  than the first  expansion, but                                                               
that  the incremental  rate would  be higher  than the  rolled-in                                                               
rate  under  this  scenario.    He  said  that  constructing  new                                                               
pipeline  for  expansion  is  more   expensive,  and  raises  the                                                               
tariffs,  particularly  if  incremental  tariffs are  used.    He                                                               
explained that the  issue of what constitutes a  subsidy would be                                                               
considered by  FERC.  He  offered that under current  FERC rules,                                                               
the rate  is rolled-in  when it  goes down  for everyone,  but is                                                               
raised incrementally  "when it  goes up."   However,  he reminded                                                               
the committee that under FERC  there is a "presumption of rolled-                                                               
in rates."   He  pointed out that  prior testimony  claiming AGIA                                                               
can   result  in   one  party   subsidizing   another  could   be                                                               
characterized  as correct,  except that  AGIA does  not determine                                                               
the rate.   Instead, the pipeline owner is required  to ask for a                                                               
rolled-in rate  "up to  those certain levels."   He  offered that                                                               
FERC will  decide whether there is  a subsidy or not.   He opined                                                               
that AGIA as written requires the pipeline to "ask for a rolled-                                                                
in  rate" while  the initial  shippers are  free to  argue before                                                               
FERC  that the  rates not  go  up.   He characterized  this as  a                                                               
"natural  tension to  the  system."   He  indicated  that if  the                                                               
producers own the  pipeline, the tensions that  contribute to low                                                               
rates  may not  exist.   He concluded  that FERC  would make  any                                                               
actual  decision regarding  whether  the  future expansion  rates                                                               
result in any subsidy.                                                                                                          
                                                                                                                                
CO-CHAIR GATTO noted  that a looping expansion  could cause rates                                                               
to rise  for everyone; therefore  there may be some  incentive to                                                               
not expand to 7.5 billion cubic feet (Bcf) per day.                                                                             
                                                                                                                                
1:52:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked whether  the provisions in AGIA which                                                               
set  a  rolled-in  rate  up   to  15  percent  basically  sets  a                                                               
negotiated rate, and therefore avoids  "the problem of whether it                                                               
is a subsidy or not."                                                                                                           
                                                                                                                                
MR.  HANLEY opined  that AGIA  prohibits a  negotiated rate  that                                                               
would prohibit  roll-in and offered  that FERC will  still decide                                                               
the subsidy  question.  AGIA  requires the pipeline owner  to ask                                                               
for rolled-in rates  up to 15 percent above  the initial recourse                                                               
rates.    He  explained  that  all  providers  run  the  risk  of                                                               
increased rates,  but that  it is  important that  explorers have                                                               
access to  the pipeline.  He  offered that at least  one pipeline                                                               
company claims it is  possible to expand up to 7  Bcf per day and                                                               
still be below the initial tariff if rolled-in rates are used.                                                                  
                                                                                                                                
1:59:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON noted  that  rolled-in rates  are used  in                                                               
Canada,  and that  much of  the pipeline  may go  through Canada,                                                               
where it would  be subject to rolled-in rates.   She offered that                                                               
a  pipeline  owner  and  shipper  may  desire  a  different  rate                                                               
structure, but  that if  a shipper  was also  the owner  it would                                                               
still be able to be "able to  write off things and still come out                                                               
better."                                                                                                                        
                                                                                                                                
MR. HANLEY  opined that the  producers support  incremental rates                                                               
and do not like the rolled-in rates.                                                                                            
                                                                                                                                
REPRESENTATIVE WILSON offered that  incremental rates may benefit                                                               
the initial shippers.                                                                                                           
                                                                                                                                
MR.  HANLEY said  that current  FERC policy  "would roll-in  this                                                               
rate."                                                                                                                          
                                                                                                                                
2:02:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  said that she  has been told  by producers                                                               
that AGIA requires  use of rolled-in rates even  though there may                                                               
be a situation where they would not want rolled-in rates.                                                                       
                                                                                                                                
MR. HANLEY agreed  and opined that rolled-in  rates could require                                                               
the  producers  as shippers  to  pay  a  higher tariff  after  an                                                               
expansion.  However, a pipeline  company that would make money on                                                               
an expansion  would not mind rolling  the costs in as  it is "not                                                               
that much more."                                                                                                                
                                                                                                                                
2:04:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES clarified that  a rolled-in rate would apply                                                               
to all who ship gas in the pipeline.   He asked if the same holds                                                               
true for incremental  rates - does the  incremental cost increase                                                               
apply  only to  the new  gas being  shipped while  everybody else                                                               
"would stay at the old rate."                                                                                                   
                                                                                                                                
2:05:37 PM                                                                                                                    
                                                                                                                                
MR.  HANLEY agreed  that everyone  shares rolled-in  rates, while                                                               
incremental rates apply only to the new shippers.                                                                               
                                                                                                                                
2:05:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  clarified  that  the  AGIA  provisions  on                                                               
rolled-in  rates limits  the rates  to not  more than  15 percent                                                               
above the  initial rates.   If  the rate  increased more  than 15                                                               
percent, would any  excess "then fall back on the  person that is                                                               
adding the gas," he asked.                                                                                                      
                                                                                                                                
MR. HANLEY replied that the pipeline  owner will be free to argue                                                               
that any  increase over 15  percent be by incremental  rates, but                                                               
said that FERC will make the decision.                                                                                          
                                                                                                                                
2:06:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  if the  contract  provisions limiting  the                                                               
increase to  15 percent would  limit the ability of  the pipeline                                                               
owners to make this argument.                                                                                                   
                                                                                                                                
MR. HANLEY responded that under the  bill, the shipper is free to                                                               
argue against the rolled-in rate  limitation.  The pipeline owner                                                               
is  required to  support  rolled-in rates  up  to "those  levels"                                                               
before FERC,  while the shipper is  free to argue against  use of                                                               
rolled-in rates and in favor of incremental rates.                                                                              
                                                                                                                                
2:07:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  if the  initial  rate will  stay the  same                                                               
should the pipeline not be expanded.                                                                                            
                                                                                                                                
MR. HANLEY  stated he believed  the rates can change  even absent                                                               
expansion.                                                                                                                      
                                                                                                                                
CO-CHAIR  GATTO  noted  that inflation  alone  could  potentially                                                               
raise rates and questioned how  that would affect an expansion if                                                               
the 15 percent rate increase  is already reached due to inflation                                                               
at the time of a proposed expansion.                                                                                            
                                                                                                                                
MR. HANLEY  responded that AGIA  addresses that by putting  a cap                                                               
on the rate increases.   He suggested that the language regarding                                                               
the  terminus  of  expansion  be   clarified  so  that  the  rate                                                               
increases  apply  only to  the  sections  of the  pipeline  being                                                               
expanded.                                                                                                                       
                                                                                                                                
2:09:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON requested clarification  as to whether AGIA                                                               
requires a shipper to argue  for rolled-in rates before FERC even                                                               
if it prefers incremental rates.                                                                                                
                                                                                                                                
REPRESENTATIVE  GUTTENBERG noted  that the  owner will  receive a                                                               
return  on  its investment  regardless  of  whether rolled-in  or                                                               
incremental rates  are used.   However,  if the  owner is  also a                                                               
shipper,  "you would  argue the  other way."   He  suggested that                                                               
there may be  a benefit to "separating those out,"  and to either                                                               
not allow a  shipper to be an  owner, or to require  a shipper to                                                               
be an independent subsidiary of its owner-parent company.                                                                       
                                                                                                                                
MR.  HANLEY stated  that his  understanding of  AGIA is  that the                                                               
pipeline owner  is required to  request rolled-in rates,  but the                                                               
shipper is not.  He opined  that the bill tries to separate owner                                                               
and shipper  interests to maintain some  competitive tension that                                                               
would not exist were the shipper and owner combined.                                                                            
                                                                                                                                
CO-CHAIR GATTO  noted that this  is a monopoly pipeline  as there                                                               
are  no competing  projects in  the vicinity.   He  said that  he                                                               
believes  FERC  is aware  of  this  and  will  move in  the  best                                                               
interest of the public.                                                                                                         
                                                                                                                                
REPRESENTATIVE  GUTTENBERG noted  that prior  testimony was  that                                                               
the percentage  of ownership of  the gas  should be equal  to the                                                               
percentage  of ownership  of the  pipe; therefore  "we only  have                                                               
that problem if the producers build this line."                                                                                 
                                                                                                                                
2:14:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  the witness'  opinion of  requiring                                                               
expansion to be  substantially similar to the  original pipe size                                                               
[AS 43.90.130(6)(B)].                                                                                                           
                                                                                                                                
MR. HANLEY replied he did not  know why this requirement would be                                                               
in the bill, although he has asked others for this information.                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  asked whether there should  be a provision                                                               
in AGIA  about places  for future in-put  points and  where those                                                               
should be.                                                                                                                      
                                                                                                                                
MR. HANLEY  agreed this  was a  valid point,  and could  use some                                                               
additional discussion and clarification.                                                                                        
                                                                                                                                
2:17:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  asked   whether  applicants   should  be                                                               
required  to specify  where  their  gas will  come  from and  the                                                               
amounts thereof.   He noted there may be a  risk of authorizing a                                                               
project that  cannot supply the  amount of gas necessary  to make                                                               
the planned project work.                                                                                                       
                                                                                                                                
2:19:10 PM                                                                                                                    
                                                                                                                                
MR. HANLEY  opined that the  shippers or  others need to  ask the                                                               
Alaska  Oil and  Gas  Conservation Commission  (AOGCC) about  the                                                               
amount  of gas  available.   As  to whether  a  project could  be                                                               
designed  absent  this knowledge,  he  noted  that the  state  is                                                               
"asking folks to come up with  some rough idea of what they would                                                               
do  in an  application process."    He offered  that whether  the                                                               
amount  of  volume  needed  for a  particular  project  would  be                                                               
available is a question that needs to be answered at some point.                                                                
                                                                                                                                
REPRESENTATIVE   SEATON  asked   about  possible   future  carbon                                                               
emissions  tax  issues  and whether  funds  from  carbon  trading                                                               
should go into reducing the tariff.                                                                                             
                                                                                                                                
MR. HANLEY  replied "we like  anything that reduces  the tariff,"                                                               
and noted  this is a potential  issue that could be  addressed by                                                               
applicants in their proposal.                                                                                                   
                                                                                                                                
2:22:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked how carbon  emission issues, such  as taxes                                                               
and caps are handled by his company.                                                                                            
                                                                                                                                
MR. HANLEY  answered that  his company is  aware of  these issues                                                               
and has  done work  so as  to recover  more oil  in at  least one                                                               
situation.                                                                                                                      
                                                                                                                                
CO-CHAIR GATTO noted  that the gas is rich in  carbon dioxide and                                                               
the issue of where to put it will come up.                                                                                      
                                                                                                                                
MR. HANLEY replied that in Prudhoe  Bay the gas is re-injected to                                                               
help  recover  more oil  and  noted  there are  some  engineering                                                               
issues involved  regarding what to  do with gas that  "comes back                                                               
up"  after re-injection.   He  offered to  provide the  committee                                                               
with more information on this issue.                                                                                            
                                                                                                                                
The committee took an at ease from 2:25:26 PM to 2:41:39 PM.                                                                
                                                                                                                                
2:42:03 PM                                                                                                                    
                                                                                                                                
TONY  PALMER,  Vice-President,  Alaska  Development,  TransCanada                                                               
Corporation,  Inc.,   (TransCanada)  referred  to   a  PowerPoint                                                               
presentation  that was  provided to  the committee  and explained                                                               
that  the company  has been  in business  for 50  years and  owns                                                               
36,500 miles  of regulated  natural gas  pipeline which  moves 15                                                               
Bcf of  gas per day.   The company owns  approximately two-thirds                                                               
of the take-away  capacity from the Alberta  Energy Company Ltd.,                                                               
(AEC) hub  to North American  markets.   He offered that  the AEC                                                               
hub is  the most liquid  trading hub  in North America,  which he                                                               
opined  would be  beneficial  for  Alaska's gas.    He said  that                                                               
TransCanada  also owns  significant storage  capacity, which  can                                                               
allow for  storage of gas during  the summer for sale  during the                                                               
winter when the price may be  higher.  He noted that one-third of                                                               
Alaska  Highway  pipeline,  called the  Foothills  pre-build,  is                                                               
currently  in  the  ground  and  transports 3  Bcf  a  day.    He                                                               
mentioned that in 2006 TransCanada's  cash flow was $2.4 billion,                                                               
which he  claimed was  sufficient to cover  the entire  equity of                                                               
the Canadian  section of  the Alaska  project for  one year.   He                                                               
explained   that   TransCanada   recently   successfully   raised                                                               
approximately  $1.7   billion  in   equity.    He   relayed  that                                                               
successful pipeline projects require  more than engineering; they                                                               
also  require   the  ability   to  obtain   necessary  regulatory                                                               
approval.   He emphasized that  TransCanada has operated  with an                                                               
independent  pipeline  model  and   rolled-in  tolls  [rates]  to                                                               
develop its  Canadian resources.   He referred to slide  5, which                                                               
shows the  proposed Alaska  Highway Project  and how  its current                                                               
infrastructure  is integrated  into the  planned Alaska  project.                                                               
He  characterized  TransCanada as  being  a  lead player  in  the                                                               
Alaska gas  pipeline project  since its  inception.   The company                                                               
has  invested over  $2 billion  over the  last 30  years in  this                                                               
project.   He explained that TransCanada's  subsidiary, Foothills                                                               
Pipe Lines Ltd., (Foothills),  holds exclusive certificates under                                                               
the Northern Pipeline  Act (NPA) for the Canadian  section of the                                                               
Alaska  project  and  that  these certificates  do  not  have  an                                                               
expiration  date.   He told  members that  Canada and  the United                                                               
States  have  entered  a  treaty  regarding  this  project  which                                                               
identifies Foothills  as the  Canadian sponsor  and sets  out the                                                               
rights  and  responsibilities  of  each nation.    He  said  that                                                               
TransCanada  holds an  easement for  the proposed  right that  is                                                               
recognized  by the  Canadian  government,  the Yukon  Territorial                                                               
government, and Yukon First Nations.                                                                                            
                                                                                                                                
2:53:20 PM                                                                                                                    
                                                                                                                                
MR. PALMER  explained that  30 years  ago, the  Canadian National                                                               
Energy  Board  (NEB)  held competitive  hearings  to  select  the                                                               
Canadian  project  sponsor  and  Foothills was  selected  as  the                                                               
Canadian  sponsor.   Subsequently, Canada  and the  United States                                                               
negotiated a  treaty for  the Alaska  gas project  whereby Canada                                                               
obtained  benefits  in  exchange  for access  across  Canada  for                                                               
Alaska  gas.    This  treaty  also  established  a  single-window                                                               
regulator to  complement the  NEB.  TransCanada  has used  NPA to                                                               
construct and expand the pre-build  sections of the pipeline.  He                                                               
emphasized  that  Foothills  was granted  exclusive  rights  with                                                               
regard to the  Alaska project and that no party  would invest the                                                               
huge sums necessary without that exclusivity.                                                                                   
                                                                                                                                
                                                                                                                                
MR.  PALMER  referred to  slide  8  and  explained that  in  1976                                                               
TransCanada  received  a  conditional  FERC  certificate  granted                                                               
under  the   Alaska  Natural  Gas  Transportation   Act  of  1976                                                               
(ANGTA).   He  said  that in  2004  further enabling  legislation                                                               
updated these  provisions to give TransCanada  further options as                                                               
to  how  to  proceed  under  AGIA.    He  reminded  members  that                                                               
TransCanada has  applied to Alaska  for a state  right-of-way and                                                               
is still awaiting  a decision on this matter.   He mentioned that                                                               
TransCanada  has openly  offered  to vend  its  Alaska assets  to                                                               
whoever successfully  commercializes the Alaska portion  with one                                                               
caveat - to  connect to TransCanada's system  at the Alaska-Yukon                                                               
border.   He  described the  route  of the  Canadian section  and                                                               
noted it follows highway routes fairly closely in many sections.                                                                
                                                                                                                                
2:58:09 PM                                                                                                                    
                                                                                                                                
MR. PALMER referred  to slide 10 and  emphasized that TransCanada                                                               
has a federal  easement for the pipeline route  through the Yukon                                                               
Territory.   He indicated that work  is still being done  for the                                                               
route through  British Columbia and  Alberta, but  mentioned that                                                               
the route passes through very  little private land and through no                                                               
First  Nations' reserves  in British  Columbia and  Alberta.   He                                                               
offered that  six of eight  First Nations groups  have recognized                                                               
the pipeline  route and  settled for their  land claims  with the                                                               
Canadian  federal government.   He  characterized the  project as                                                               
providing significant  benefits to First Nations'  people such as                                                               
employment,  local natural  gas  availability, representation  on                                                               
the  Foothills  Board  of Directors,  environmental  protections,                                                               
equity participation, and zonal tolls.                                                                                          
                                                                                                                                
3:07:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON asked  about the  process of  working with                                                               
First  Nations groups  in British  Columbia and  how long  it may                                                               
take to settle some claims.                                                                                                     
                                                                                                                                
MR. PALMER  clarified that within  the Yukon Territory  the Kaska                                                               
and White  River groups are  the only parties without  final land                                                               
claims  settlement at  this  point.   There  are  some groups  in                                                               
British  Columbia   that  do  not   have  a  final   land  claims                                                               
settlement,  however the  proposed  pipeline route  would not  go                                                               
through  any First  Nations' reserve  land in  that province,  he                                                               
explained.   He  said that  now is  not the  appropriate time  to                                                               
secure  those  right-of-ways  needed  in  British  Columbia,  but                                                               
opined that  obtainment of the  necessary right-of-ways  could be                                                               
done  expeditiously  once the  Alaska  gas  pipeline project  was                                                               
underway.                                                                                                                       
                                                                                                                                
3:08:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON asked  about whether the tax  rates were "locked                                                               
in with regard to  Canada."  He asked what the  rate was, and for                                                               
how long it was guaranteed.                                                                                                     
                                                                                                                                
MR. PALMER  explained that the  treaty between the  United States                                                               
and Canada  established the structure of  Canadian property taxes                                                               
within Canada for  this project.  Under the terms  of the treaty,                                                               
the  parties agreed  that the  Canadian  provinces with  existing                                                               
pipelines will charge  the Alaska pipeline the  same property tax                                                               
rate applied  to domestic projects.   At the time of  the treaty,                                                               
there was no  pipeline within the Yukon Territory,  so the treaty                                                               
established some  specific numbers  regarding what rate  could be                                                               
charged.   He said that  the rates in  Canada do change,  and are                                                               
not uniform  between provinces, but  opined they  are competitive                                                               
with  Lower  48   rates.    He  explained  that   the  rates  are                                                               
established  for  the duration  of  the  treaty, which  continues                                                               
through  2012  and  beyond, unless  either  country  revokes  the                                                               
treaty.   He  clarified that  those parties  agreed that  the tax                                                               
rates for  the Alaska project would  be the same as  for domestic                                                               
Canadian pipelines.   The  parties did  not establish  a specific                                                               
rate within the  Canadian provinces but they agreed  to apply the                                                               
Canadian rate to Alaska gas, he explained.                                                                                      
                                                                                                                                
3:13:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked about the term "greenfield project."                                                                       
                                                                                                                                
MR. PALMER explained that a  greenfield project would not use the                                                               
NPA  or the  treaty and  that TransCanada  and Foothills  are not                                                               
proposing a greenfield project.                                                                                                 
                                                                                                                                
CO-CHAIR GATTO  asked about project labor  agreements and whether                                                               
TransCanada would want to participate in such an agreement.                                                                     
                                                                                                                                
MR.  PALMER suggested  that for  Alaska sections  of the  project                                                               
TransCanada would look  to Alaska standards and  for the Canadian                                                               
sections  would   look  to  Canadian   standards.     He  offered                                                               
TransCanada  will  do whatever  is  appropriate  at the  time  to                                                               
insure the project can be completed economically.                                                                               
                                                                                                                                
3:14:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  whether under  AGIA, TransCanada  would be                                                               
willing to submit an offer,  or whether there are some parameters                                                               
in AGIA "that aren't livable."                                                                                                  
                                                                                                                                
MR.  PALMER  responded  that  he would  like  amendments  to  the                                                               
provision that  requires the  chosen applicant  to pursue  a FERC                                                               
certificate  through an  unsuccessful  open season.   He  offered                                                               
that TransCanada  would like  that provision  amended so  that an                                                               
applicant could continue to pursue  customers and alternate forms                                                               
of  credit,  but   would  not  be  required  to   pursue  a  FERC                                                               
certificate  if insufficient  volumes  had been  tendered at  the                                                               
initial open  season.   He offered that  he understands  that the                                                               
state  has many  potential  benefits from  the  project, such  as                                                               
royalties and taxes.  However,  the pipeline company only has one                                                               
form of reimbursement - the return  on the investment it makes in                                                               
the equity  component of the  project.  He  indicated TransCanada                                                               
would like  to hold  off from  pursuit of  a FERC  certificate if                                                               
there was not sufficient credit or an adequate customer base.                                                                   
                                                                                                                                
3:16:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO   characterized  the  provision   regarding  FERC                                                               
certification  [AS  43.90.130(3)]  as  one of  the  twenty  "must                                                               
haves."                                                                                                                         
                                                                                                                                
CO-CHAIR  JOHNSON asked  if the  treaty  required TransCanada  to                                                               
provide off-take points to the  Yukon communities of Beaver Creek                                                               
and Whitehorse.                                                                                                                 
                                                                                                                                
MR. PALMER  clarified that TransCanada has  an obligation through                                                               
the treaty  and NPA to install  an off-take valve to  allow those                                                               
communities to  take gas from  the system.  He  characterized the                                                               
volume that would go to  these communities as minimal compared to                                                               
the whole volume  of gas in the pipeline, but  important to those                                                               
customers.                                                                                                                      
                                                                                                                                
CO-CHAIR JOHNSON  asked if AGIA's distance-sensitive  rates would                                                               
be  taken  into  consideration  in providing  access  to  gas  to                                                               
Canadian communities.                                                                                                           
                                                                                                                                
MR.  PALMER explained  that  the pipeline  in  Canada would  have                                                               
"zonal tolls"  in which customers  pay only the  upstream portion                                                               
of  pipeline tolls.   For  example,  a customer  in Beaver  Creek                                                               
would  only pay  tolls for  the section  of pipeline  from Beaver                                                               
Creek to Whitehorse.                                                                                                            
                                                                                                                                
                                                                                                                                
3:19:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON   asked  if  rolled-in  rates   in  Canada  are                                                               
calculated the same as rolled-in rates in the United States.                                                                    
                                                                                                                                
MR. PALMER replied  no.  He explained that  within Canada rolled-                                                               
in  tolls  [rates] are  the  norm.    When  there is  a  pipeline                                                               
expansion  the new  rate is  charged on  an "average,  rolled-in"                                                               
basis to all  customers regardless of whether  the rate increases                                                               
or decreases.   However in the United States, FERC  has tended to                                                               
allow  rolled-in rates  when tariffs  decline as  a result  of an                                                               
expansion, but  not when  they increase.   Furthermore,  when the                                                               
volume  of gas  decreases,  the  rate would  increase  on a  unit                                                               
basis.                                                                                                                          
                                                                                                                                
3:21:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON asked  if the  toll to  Canadian shippers  will                                                               
decrease when  Alaska gas reaches  Alberta due to  the additional                                                               
volume of gas.                                                                                                                  
                                                                                                                                
MR.  PALMER responded  that TransCanada  expects  that the  total                                                               
pipeline  system  leaving  Alberta  will  have  sufficient  spare                                                               
capacity in 10 years' time to  move Alaska's entire volume of gas                                                               
to market  without incremental facilities.   He opined  that this                                                               
would benefit  Alaska by providing  market diversity  to Alaska's                                                               
gas.  Second,  it should reduce the risk of  capital cost overrun                                                               
by abbreviating  the project.   However,  under the  current toll                                                               
mechanism  in Canada,  Canadian customers  would benefit  because                                                               
the  toll rates  would decrease  due to  the volumes  of Alaska's                                                               
gas.   He offered  that there  would also  be benefits  to Alaska                                                               
because  the toll  would  be  lower than  would  apply  to a  new                                                               
pipeline.                                                                                                                       
                                                                                                                                
CO-CHAIR JOHNSON asked if there  is anything in Canadian law that                                                               
prohibits Alaska from sharing in the tariff reduction.                                                                          
                                                                                                                                
MR.  PALMER replied  that  the "tolling  mechanism"  in place  in                                                               
Canada would result in a  lower tariff for all pipeline shippers;                                                               
however  it  would not  specifically  designate  value solely  to                                                               
Alaska gas.                                                                                                                     
                                                                                                                                
3:23:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES asked if increased  in rates in Canada would                                                               
also apply to  Alaska gas since under the  Canadian system, rates                                                               
are "rolled-in" for both increases and decreases.                                                                               
                                                                                                                                
MR. PALMER answered yes-each shipper would pay the average rate.                                                                
                                                                                                                                
3:24:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked  whether it is unusual for gas  to move from                                                               
one country to a second country and back to the first country.                                                                  
                                                                                                                                
MR. PALMER  replied that  such a  situation is  "very rare".   He                                                               
noted that  gas is moved  from Canada, through the  northern mid-                                                               
western United  States and back  into Canada.  He  indicated that                                                               
United State's  markets are served  from the segment of  the line                                                               
in the United States.                                                                                                           
                                                                                                                                
3:25:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES   asked  if  there  is   a  minimum  volume                                                               
necessary  for TransCanada  to be  interested in  the Alaska  gas                                                               
pipeline project.                                                                                                               
                                                                                                                                
MR. PALMER replied  that is a difficult prediction to  make as it                                                               
depends  upon natural  gas  prices and  markets  over the  coming                                                               
years.    However,  if the  design  were  to  be  for a  48  inch                                                               
pipeline,  it  would  be appropriate  that  volume  be  somewhere                                                               
between 4 and 4.5 Bcf a day to  start.  He opined that the volume                                                               
could  be slightly  less  and "still  make  the economics  work,"                                                               
although the  tariffs would  increase.  He  observed that  if the                                                               
volume was estimated  to be significantly lower than 4  Bcf a day                                                               
for  some time,  then  the  parties should  "look  clearly" at  a                                                               
smaller diameter pipeline, and noted  that with this approach, if                                                               
volumes increased, one  "would see higher costs."   He said these                                                               
decisions  would need  to be  made based  on the  expectations of                                                               
initial  and  predicted  future  gas   flow.    He  reminded  the                                                               
committee that TransCanada's  system started at less  than .5 Bcf                                                               
a  day but  it  now has  a  series of  six  pipelines that  carry                                                               
approximately 7 Bcf a day.   He concluded that much of the design                                                               
is based  on available  gas, expected  market prices,  and market                                                               
demands.    TransCanada has  estimated  that  the Alaska  project                                                               
would have 4 to 4.5 Bcf of  gas available at the beginning of the                                                               
project  and be  expandable  "quite  readily" up  to  6 Bcf  with                                                               
compression alone.                                                                                                              
                                                                                                                                
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether a  volume of  2.5 Bcf  would                                                               
still allow for a viable project,  and noted that if there was an                                                               
in-state line to Valdez it  would reduce capacity available for a                                                               
pipeline through Canada.                                                                                                        
                                                                                                                                
                                                                                                                                
MR. PALMER replied that under  the aforementioned scenario, tolls                                                               
[tariffs] in Canada would be higher.   The project could still be                                                               
economic if  customers were prepared to  sign shipping agreements                                                               
based  on the  higher prices.   He  offered his  belief that  the                                                               
potential  buyers "would  look very  carefully"  at the  pipeline                                                               
tariff and that "would be significant factor" in their decision.                                                                
                                                                                                                                
                                                                                                                                
3:29:46 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked whether in  approximately 10 years, "Alberta                                                               
would need 1 Bcf to operate the Tar Sands."                                                                                     
                                                                                                                                
MR. PALMER replied that there  are different forecasts for demand                                                               
and  observed that  "oil sands  and heavy  oil" developments  are                                                               
significant factors that are expected  to drive demand in Western                                                               
Canada.   He said that  he has  seen differing estimates  for the                                                               
amount of future demand  for gas.  He said that  there has been a                                                               
very  large growth  in Western  Canada's  demand for  gas, but  a                                                               
relatively  low  production  profile.     He  expected  that  gas                                                               
production  in Western  Canada is  expected to  decline over  the                                                               
next  10 years  which will  open up  more gas  pipeline capacity.                                                               
Some estimates are  that within 10 years' time there  will be 4.5                                                               
Bcf of  spare capacity in  the gas pipelines leaving  Alberta, he                                                               
said.                                                                                                                           
                                                                                                                                
CO-CHAIR  GATTO  observed  that  if Alaska  shipped  6.5  Bcf  to                                                               
Alberta, Alberta  could take off  1 to 1.5  Bcf and leave  gas in                                                               
the pipeline for transport to other  markets.  He asked about the                                                               
estimated future demands for gas.                                                                                               
                                                                                                                                
                                                                                                                                
MR. PALMER  reiterated that he  expects that Alaska's  gas volume                                                               
would start at around 4 to 4.5 Bcf  a day.  If the gas started at                                                               
6 to 6.5 Bcf  a day, then there may be a  need to construct other                                                               
facilities  away  from  Alberta  to  ship  Alaska  gas  to  other                                                               
markets.    He explained  that  TransCanada  expects a  continued                                                               
increase in the market's need for  gas.  He also expects that gas                                                               
production  in Western  Canada will  continue to  decline in  the                                                               
future.                                                                                                                         
                                                                                                                                
3:33:04 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
CO-CHAIR  GATTO  asked whether  the  future  demand for  gas  may                                                               
decrease  due to  other  energy sources  and  whether the  future                                                               
price of gas  "may be somewhat reliable over the  long term."  He                                                               
relayed that gas is currently priced at "around $7.90."                                                                         
                                                                                                                                
MR.  PALMER recalled  that energy  forecasts predict  natural gas                                                               
prices in 10 years to be  around $6.60 (in future dollars), which                                                               
is  lower  than   today's  prices.    The   expectation  is  that                                                               
additional supplies will  moderate the price of gas.   He offered                                                               
his belief  that higher gas  prices have a "dampening"  effect on                                                               
demand.  However, if the  estimates for lower prices are correct,                                                               
he  predicted one  would "see  a modest  increase in  natural gas                                                               
demand over the next decade."                                                                                                   
                                                                                                                                
                                                                                                                                
3:35:50 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked about the future  development of coal-fired                                                               
power plants in Canada.                                                                                                         
                                                                                                                                
MR. PALMER  explained that Alberta  has historically had  a great                                                               
number of "mine mouth" coal-fired  power plants.  He expects coal                                                               
plants  to  continue, although  there  may  be future  carbon  or                                                               
climate change taxes  imposed that would change  the economics of                                                               
coal  plants.    In  eastern  Canada,  energy  comes  from  coal,                                                               
nuclear, and  hydropower plants.   He explained that  the current                                                               
Canadian federal government  plans to phase out  coal plants over                                                               
the course of  several years.  In further  response, he explained                                                               
that  Ontario has  had a  significant nuclear  presence for  many                                                               
years  and TransCanada  is an  investor in  at least  one nuclear                                                               
power  plant.   The  aforementioned change  to  nuclear power  is                                                               
related to environmental  concerns as well as  to the fundamental                                                               
economics of power generation in certain areas of the country.                                                                  
                                                                                                                                
3:39:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked about the possible  future effect on                                                               
pipeline  tariffs   due  to  changes  in   regulations  based  on                                                               
greenhouse  gas  concerns.    He offered  that  a  three  percent                                                               
through-put for  compression and operation of  the pipeline could                                                               
double the carbon dioxide emissions for Alaska.                                                                                 
                                                                                                                                
                                                                                                                                
MR.  PALMER  replied that  although  TransCanada  will be  facing                                                               
those  issues, it  does not  expect there  will be  a significant                                                               
impact  on  pipeline tariffs.    He  offered  that  it is  up  to                                                               
legislators to decide  what laws will actually be  passed in this                                                               
area.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  SEATON  asked   about  TransCanada's  efforts  to                                                               
comply with voluntary emissions' reduction standards.                                                                           
                                                                                                                                
MR.  PALMER  responded  that TransCanada  follows  the  voluntary                                                               
requirements in Canada  and the United States.  He  said it has a                                                               
high   quality    performance   record   for    compliance   with                                                               
environmental standards.                                                                                                        
                                                                                                                                
REPRESENTATIVE   SEATON  asked   whether   AGIA  should   require                                                               
applicants to  address whether they  are in  voluntary compliance                                                               
with environmental standards.                                                                                                   
                                                                                                                                
MR. PALMER  opined that  inclusion of such  a requirement  is not                                                               
necessary because any  party that is responsible and  has a track                                                               
record will follow voluntary environmental standards.                                                                           
                                                                                                                                
3:42:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  if AGIA's  provision  regarding  a                                                               
commitment to  rolled-in rates  up to 15  percent is  unusual [AS                                                               
43.90.130(7)].                                                                                                                  
                                                                                                                                
MR.  PALMER  explained   that  within  Canada  there   is  not  a                                                               
numerically capped  limit to  rates.   Toll [rate]  increases and                                                               
decreases are generically rolled-in  and applied to all shippers.                                                               
Due  to the  large pipeline  base in  Canada, even  a significant                                                               
expansion to the pipeline does not  have much of an effect on the                                                               
rates,  he  explained.   He  told  members that  TransCanada  has                                                               
analyzed the  Alaska project assuming  an initial  project volume                                                               
of 4.5  Bcf a day.   Under its estimated scenario,  if expansions                                                               
were made  through compression in  year one, the  rolled-in rates                                                               
would  decline from  4.5  Bcf a  day to  a  lower number,  "right                                                               
through 5.9  Bcf.  Even  if future expansions up  to 7 Bcf  a day                                                               
require  looping  [construction   of  additional  pipeline],  the                                                               
rolled in rate would still be  below the initial 4.5 Bcf rate, he                                                               
opined.    He  emphasized  that  TransCanada  generally  supports                                                               
rolled-in tariffs and would do so for this project.                                                                             
                                                                                                                                
3:45:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON referred  to  proposed AS  43.90.130(6)(B)                                                               
which requires  that an applicant  commit to looping with  a pipe                                                               
size that  is substantially  similar to  the original  pipe size.                                                               
He asked  whether it is  usual to use the  same pipe size  as the                                                               
original pipe  for looping and  whether this provision  should be                                                               
included in AGIA.                                                                                                               
                                                                                                                                
                                                                                                                                
MR.  PALMER  replied that  normally  an  expansion that  required                                                               
looping "would see a pipe  diameter of equivalent size," although                                                               
sometimes larger  pipe is used.   He went on to  say the decision                                                               
of  how to  proceed is  based upon  the expectation  of long-term                                                               
supply  and   demand.    He   opined  that  it   would  introduce                                                               
significant  system  inefficiencies  if  looping  was  done  with                                                               
differing pipe  sizes or  with different  sized compressors.   He                                                               
offered  that  the  language  in   AGIA  regarding  expansion  is                                                               
appropriate  as   it  would  increase  future   efficiencies  for                                                               
pipeline expansion.                                                                                                             
                                                                                                                                
3:48:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether  there are  situations where                                                               
the initial shippers  pay a negotiated rate of 85  percent of the                                                               
initial maximum recourse rates.                                                                                                 
                                                                                                                                
MR.  PALMER noted  that  he has  not seen  an  analysis in  which                                                               
shippers  pay 85  percent  of  the initial  recourse  rates.   He                                                               
explained  that  aforementioned  situation  could  occur  in  the                                                               
following scenario:  If the project  were to proceed with 4.5 Bcf                                                               
a  day initial  volume with  25 year  contracts, he  would expect                                                               
that  pipeline "would  establish  tolls" that  would collect  the                                                               
depreciation  on the  project over  the course  of the  25 years.                                                               
For the purposes of the example,  the toll [rate] would be $2.00.                                                               
However if  the recourse  rates were  established to  collect the                                                               
entire  depreciation of  the  pipeline over  15  years, the  toll                                                               
[rate] would be  significantly higher, such as $2.50.   He opined                                                               
that in that circumstance, negotiated  rates could be established                                                               
for  25 years  that  are significantly  below  the recourse  rate                                                               
using  a 15  year  depreciation  period.   However,  if both  the                                                               
recourse and  negotiated rates had  similar recovery  periods for                                                               
depreciation,  then  there  would  not be  "anything  like  a  15                                                               
percent difference" between the  recourse rate and the negotiated                                                               
rates, he offered.                                                                                                              
                                                                                                                                
3:51:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  recalled   TransCanada's  desire  for  an                                                               
amendment  to the  requirement that  an applicant  pursue a  FERC                                                               
certificate after  open season.   He asked for an  explanation of                                                               
this issue.                                                                                                                     
                                                                                                                                
MR.  PALMER replied  that he  understands that  prior to  an open                                                               
season the state would pay costs  up to 50 percent, and would pay                                                               
costs up  to 80 percent  after open season.   Based on  this, the                                                               
pipeline sponsor  would pay 50  percent prior to open  season and                                                               
20  percent after  open season.    TransCanada believes  it is  a                                                               
positive  development  that  the  state share  costs  after  open                                                               
season, as such  an arrangement would have the  state sharing the                                                               
risks as  well as the benefits  of the project.   However, in the                                                               
event  of an  unsuccessful  open season,  TransCanada would  very                                                               
much  prefer  to  focus  its   efforts  on  obtaining  additional                                                               
customers or  credit rather  than to  pursue a  FERC certificate.                                                               
He told members  pursuit of a FERC certificate  is a "significant                                                               
initiative"  that   requires  much   effort  and   a  substantial                                                               
expenditure  of  funds that  could  be  used instead  to  attract                                                               
additional customers.                                                                                                           
                                                                                                                                
REPRESENTATIVE  SEATON  asked  how   a  pipeline  licensee  would                                                               
proceed  to  obtain   gas  for  the  pipeline  if   there  is  an                                                               
unsuccessful  open season.   He  noted that  if there  is a  FERC                                                               
certificate, the  holders of  the gas would  be required  to sell                                                               
the gas if it is economic, but  would not be so required absent a                                                               
FERC certificate.                                                                                                               
                                                                                                                                
MR. PALMER related  that TransCanada has held  a conditional FERC                                                               
certificate  on this  project for  some 30  years.   The lack  of                                                               
customers and credit  has caused the project not to  proceed.  He                                                               
stated  that  he  understands  the  state's  desire  for  a  FERC                                                               
certificate and  its willingness to pay  up to 80 percent  of the                                                               
costs  to  obtain  the  certificate.     However,  obtainment  of                                                               
customers and  credit are the  critical factors for  a successful                                                               
project,  he   explained.    Although   a  FERC   certificate  is                                                               
important, he  reiterated that an  amendment to  this requirement                                                               
would increase TransCanada's ability to bid on this project.                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  inquired as  to what TransCanada  could do                                                               
to secure gas if there is a failed open season.                                                                                 
                                                                                                                                
MR. PALMER  responded that TransCanada would  review the proposal                                                               
made during  initial open season  and would review  comments from                                                               
customers who  signed as those  who did  not to determine  how to                                                               
improve the  proposal and attract  more customers.   He suggested                                                               
they may  propose a "follow-up"  open season.   TransCanada would                                                               
look  to  the state  to  see  if  it  would take  any  additional                                                               
actions.  Additionally, it would look  to the producers to see if                                                               
they were increasing exploration activities.                                                                                    
                                                                                                                                
The committee took an at-ease from 4:00:08 PM to 4:01:36 PM.                                                                
                                                                                                                                
4:01:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked if it  would make more sense  to hold                                                               
open season prior to issuing a license.                                                                                         
                                                                                                                                
MR. PALMER answered  that he is not sure how  that would work and                                                               
expressed uncertainty as to who  would conduct the open season in                                                               
such  a case.   He  opined that  the state  would be  required to                                                               
perform  a significant  amount  of  pipeline work  to  be in  the                                                               
position  to  put  forth  a credible  proposal.    He  questioned                                                               
whether  the  state could  choose  a  party  outside of  AGIA  to                                                               
prepare for an open season.                                                                                                     
                                                                                                                                
4:02:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  about  AS  43.90.130(5) regarding  a                                                               
commitment to review market demand  for additional capacity every                                                               
two years.                                                                                                                      
                                                                                                                                
MR. PALMER replied  that the aforementioned subsection  is not of                                                               
concern as TransCanada will seek to expand this project.                                                                        
                                                                                                                                
REPRESENTATIVE  ROSES  asked  whether  TransCanada  has  concerns                                                               
about AS  43.90.130(10) regarding commitment to  any proposed GTP                                                               
based on  "a capital structure  for rate-making that  consists of                                                               
not less than 70 percent debt."                                                                                                 
                                                                                                                                
MR. PALMER replied that it is  not uncommon for large projects to                                                               
be highly  leveraged with 70 to  75 percent debt.   He noted that                                                               
the  United States  federal government  is willing  to provide  a                                                               
loan guarantee of  up to 80 percent.  He  opined that the project                                                               
will  require long-term  transportation contracts  to be  able to                                                               
reduce the business  risk on the project so that  it can bear the                                                               
substantial  financial risk  of  70  percent or  more  debt.   He                                                               
concluded that  the debt ratio  is not of concern  to TransCanada                                                               
if  it   can  obtain  properly  structured   firm  transportation                                                               
agreements.     In  further  response,  he   indicated  that  the                                                               
requirement  in  subsection  14  that  an  applicant  have  local                                                               
headquarters in  Alaska is not  of concern and  TransCanada would                                                               
look to have a local headquarters.                                                                                              
                                                                                                                                
REPRESENTATIVE  ROSES  asked  whether  TransCanada  has  concerns                                                               
about AS 43.90.130(16)  which requires an applicant  to waive its                                                               
right to appeal the award of the project to another applicant.                                                                  
                                                                                                                                
MR.  PALMER replied  that TransCanada  has  participated in  many                                                               
projects that  require responses to  requests for proposals.   He                                                               
opined  that  if  the  process   for  decision-making  is  fairly                                                               
established, "we take our chances as  to whether we win or lose."                                                               
If the  government of  Alaska establishes a  fair process  and if                                                               
TransCanada is not chosen, it "will live with the consequences."                                                                
                                                                                                                                
REPRESENTATIVE  ROSES  set  forth  that  AGIA  is  basically  the                                                               
structure for  the upcoming proposal  and asked whether  based on                                                               
that, TransCanada "can live with the lack of appeal process."                                                                   
                                                                                                                                
MR.  PALMER reminded  members that  there  is not  yet an  actual                                                               
request for  proposal [request for application],  but assured the                                                               
committee that if  the application comes out on a  fair basis and                                                               
establishes a process that is  equitable to the parties, we "will                                                               
live with the consequences."                                                                                                    
                                                                                                                                
[HB 177 was held in committee.]                                                                                                 
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 4:09:03                                                                 
PM.                                                                                                                           

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