Legislature(2011 - 2012)BARNES 124

02/27/2012 01:00 PM RESOURCES

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Moved CSHB 9(RES) Out of Committee
Moved CSHB 289(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 27, 2012                                                                                        
                           1:07 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Eric Feige, Co-Chair                                                                                             
Representative Paul Seaton, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Alan Dick                                                                                                        
Representative Neal Foster                                                                                                      
Representative Bob Herron                                                                                                       
Representative Cathy Engstrom Munoz                                                                                             
Representative Berta Gardner                                                                                                    
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 289                                                                                                              
"An Act relating  to a gas storage facility; relating  to the tax                                                               
credit for  a gas  storage facility; relating  to the  powers and                                                               
duties  of  the  Alaska  Oil  and  Gas  Conservation  Commission;                                                               
relating to the  regulation of natural gas storage  as a utility;                                                               
relating  to  the  powers  and  duties of  the  director  of  the                                                               
division of  lands and to lease  fees for a gas  storage facility                                                               
on state land; and providing for an effective date."                                                                            
     - MOVED CSHB 289(RES) OUT OF COMMITTEE                                                                                     
HOUSE BILL NO. 9                                                                                                                
"An Act requiring the Joint  In-State Gasline Development Team to                                                               
report to the  legislature recommended changes to  state law that                                                               
are required to  enable or facilitate the  design, financing, and                                                               
construction of an in-state natural  gas pipeline so that the in-                                                               
state  natural  gas  pipeline is  operational  before  2016;  and                                                               
providing for an effective date."                                                                                               
     - MOVED CSHB   9(RES) OUT OF COMMITTE                                                                                      
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 289                                                                                                                  
SHORT TITLE: NATURAL GAS STORAGE TAX CREDIT/REGULATION                                                                          
SPONSOR(s): REPRESENTATIVE(s) THOMPSON                                                                                          
01/17/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/17/12       (H)       RES, FIN                                                                                               
02/24/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/24/12       (H)       Heard & Held                                                                                           
02/24/12       (H)       MINUTE(RES)                                                                                            
02/27/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
BILL: HB   9                                                                                                                  
SHORT TITLE: IN-STATE GASLINE DEVELOPMENT CORP                                                                                  
SPONSOR(s): REPRESENTATIVE(s) CHENAULT                                                                                          
01/18/11       (H)       PREFILE RELEASED 1/7/11                                                                                
01/18/11       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/18/11       (H)       RES, FIN                                                                                               
02/06/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/06/12       (H)       Heard & Held                                                                                           
02/06/12       (H)       MINUTE(RES)                                                                                            
02/08/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/08/12       (H)       Heard & Held                                                                                           
02/08/12       (H)       MINUTE(RES)                                                                                            
02/10/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/10/12       (H)       Heard & Held                                                                                           
02/10/12       (H)       MINUTE(RES)                                                                                            
02/13/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/13/12       (H)       <Bill Hearing Canceled>                                                                                
02/24/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/24/12       (H)       Heard & Held                                                                                           
02/24/12       (H)       MINUTE(RES)                                                                                            
02/27/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
JANE PIERSON, Staff                                                                                                             
Representative Steve Thompson                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Reviewed the provisions of HB 289 on behalf                                                              
of Representative Thompson, prime sponsor.                                                                                      
GENE THERRIAULT, Vice President, Natural Resource Development                                                                   
Golden Valley Electric Association (GVEA)                                                                                       
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions related to HB 289.                                                                    
RENA DELBRIDGE, Staff                                                                                                           
Representative Mike Hawker                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions related to HB 9 on                                                                    
behalf of Representative Hawker, sponsor.                                                                                       
JOE DUBLER, Vice President                                                                                                      
Alaska Gasline Development Corporation (AGDC)                                                                                   
Director of Finance, Alaska Housing Finance Corporation (AHFC)                                                                  
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions related to HB 9.                                                                      
TINA GROVIER, Attorney, Natural Resources and Energy Law                                                                        
Birch Horton Bittner & Cherot                                                                                                   
Counsel to Alaska Gasline Development Corporation (AGDC)                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions regarding HB 9.                                                                       
TOM WRIGHT, Staff                                                                                                               
Representative Mike Chenault                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions related to HB 9 on                                                                    
behalf of Representative Chenault, prime sponsor.                                                                               
ALAN LEMASTER, Businessman                                                                                                      
Gakona, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 9.                                                                         
PARK KRINER, President                                                                                                          
American Village of Alaska; Caribou Hotel, Restaurant, Gift Shop                                                                
Glennallen, Alaska                                                                                                              
POSITION STATEMENT:  Testified in opposition to HB 9.                                                                         
MERRICK PEIRCE                                                                                                                  
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 9.                                                                         
REPRESENTATIVE MIKE CHENAULT                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as the prime sponsor of HB 9.                                                                  
REPRESENTATIVE MIKE HAWKER                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as a sponsor of HB 9.                                                                          
ACTION NARRATIVE                                                                                                              
1:07:06 PM                                                                                                                    
CO-CHAIR  PAUL   SEATON  called  the  House   Resources  Standing                                                             
Committee meeting to order at  1:07 p.m.  Representatives Herron,                                                               
Dick,  Gardner, Foster,  Feige, and  Seaton were  present at  the                                                               
call to  order.  Representatives  Munoz, Kawasaki, and  P. Wilson                                                               
arrived as the meeting was in progress.                                                                                         
        HB 289-NATURAL GAS STORAGE TAX CREDIT/REGULATION                                                                    
1:07:29 PM                                                                                                                    
CO-CHAIR SEATON announced that the  first order of business would                                                               
be  HOUSE  BILL NO.  289,  "An  Act  relating  to a  gas  storage                                                               
facility; relating to the tax  credit for a gas storage facility;                                                               
relating  to the  powers and  duties of  the Alaska  Oil and  Gas                                                               
Conservation Commission;  relating to  the regulation  of natural                                                               
gas storage  as a utility; relating  to the powers and  duties of                                                               
the director  of the division  of lands and  to lease fees  for a                                                               
gas  storage  facility  on  state  land;  and  providing  for  an                                                               
effective  date."    [Before  the   committee  was  the  proposed                                                               
committee  substitute  (CS),   Version  I,  labeled  27-LS1216\I,                                                               
Bullock, 2/20/12, adopted as the working document on 2/24/12.]                                                                  
1:07:54 PM                                                                                                                    
JANE PIERSON, Staff, Representative  Steve Thompson, Alaska State                                                               
Legislature,   on  behalf   of  Representative   Thompson,  prime                                                               
sponsor, reviewed  the provisions of  Version I  of HB 289.   She                                                               
explained  that Section  1 would  create a  new section  under AS                                                               
38.05 to provide that above-ground  liquefied natural gas storage                                                               
tank facilities  sited on  state lands  can request  an exemption                                                               
from rental payments.  Section 2  would amend the definition of a                                                               
natural gas  storage facility under  AS 42.05.990(3).   Section 3                                                               
would add a  new section to AS  43.20 to create a credit  for:  a                                                               
liquefied natural  gas storage facility  of 1 million  gallons or                                                               
more; expansion of  an existing facility of 1  million gallons or                                                               
more; and capping  of the credit at $15 million  or 50 percent of                                                               
the  development cost,  whichever  is  less.   This  would be  in                                                               
addition to any  other credits in this chapter.   Section 3 would                                                               
also provide that  the storage facility must be  regulated by the                                                               
Regulatory  Commission of  Alaska (RCA)  and would  establish how                                                               
credit payment  shall be  dispersed.   It would  set forth  how a                                                               
person who  has received a credit  shall repay the credit  if the                                                               
facility  ceases  commercial  operations  within  nine  calendars                                                               
years  immediately  following  the  calendar year  in  which  the                                                               
facility  commenced  commercial  operations.   Additionally,  the                                                               
terms liquefied  natural gas storage facility,  ceases commercial                                                               
operation,  and commences  commercial  operation  are defined  in                                                               
Section 3.                                                                                                                      
1:09:24 PM                                                                                                                    
CO-CHAIR SEATON  closed public testimony after  ascertaining that                                                               
no one from the public wished to speak.                                                                                         
CO-CHAIR SEATON  moved to adopt  Conceptual Amendment 1  which on                                                               
page  3, lines  29 and  31, would  delete "1,000,000"  and insert                                                               
CO-CHAIR FEIGE objected for discussion purposes.                                                                                
1:10:24 PM                                                                                                                    
CO-CHAIR  SEATON  drew  attention   to  two  photographs  in  the                                                               
committee  packet  of  small-scale liquefied  natural  gas  (LNG)                                                               
receiving  terminals  in  Norway,  where  small  coastal  vessels                                                               
deliver LNG to communities.  He  explained that one photo is of a                                                               
site that has  three small storage tanks, each  holding 200 cubic                                                               
meters, and  the other photo is  of an LNG tank  that holds 2,000                                                               
cubic meters.   For  further reference, he  noted that  an e-mail                                                               
[from Hans R. Tveitaskog] accompanies the two pictures.                                                                         
CO-CHAIR  SEATON  said  he is  offering  Conceptual  Amendment  1                                                               
because the legislature is trying  to make competitive energy and                                                               
lower-cost natural  gas available to more  communities, but while                                                               
a  one million  gallon tank  might  work for  the state's  second                                                               
largest community  it does  not work  for the  other communities.                                                               
He  explained  that 200  cubic  meters  translates to  just  over                                                               
50,000  gallons,  which would  be  more  appropriate for  serving                                                               
small  communities.    Whether  LNG is  delivered  by  vessel  to                                                               
coastal towns or by truck, there  needs to be enough capacity for                                                               
the community,  and the aforementioned  amounts have  been proven                                                               
adequate for the situation in Norway.                                                                                           
1:13:09 PM                                                                                                                    
CO-CHAIR FEIGE said  his objection is related to why  not more or                                                               
why  not less  than  50,000  gallons.   He  recalled that  Golden                                                               
Valley  Electric Association  testified  that  1 million  gallons                                                               
would be two  weeks supply for that utility.   The purpose of the                                                               
tank is  to provide a  quantity that buffers any  fluctuations in                                                               
either demand or delivery of the  supply to the community.  While                                                               
he  allowed that  50,000 gallons  may  be adequate,  he said  the                                                               
smaller  the  number that  can  legitimately  be made,  the  more                                                               
communities would be  able to qualify for the tax  credit and the                                                               
more distribution there could be  throughout interior and coastal                                                               
Alaska.   He  recollected that  Mr. Therriault  of Golden  Valley                                                               
Electric Association said 12.1 gallons  of LNG equaled 1 thousand                                                               
cubic feet  (MCF) of gas.   He  asked whether there  is something                                                               
more  regarding why  50,000  gallons was  chosen,  other than  it                                                               
being the way Norway does it.                                                                                                   
1:15:11 PM                                                                                                                    
CO-CHAIR SEATON responded  that if 50,000 gallons  was not enough                                                               
for  a particular  community  that community  could  plan for  an                                                               
appropriate size.  The bill would  allow for both initial as well                                                               
as expansion,  so the communities  themselves would have to  do a                                                               
cost-benefit  analysis  to determine  the  appropriate  size.   A                                                               
consideration  is  that  it  must be  a  regulated  utility  that                                                               
applies for  this because it  is supposed to be  for distribution                                                               
systems  for communities,  which ensures  that a  project is  not                                                               
done for an individual building or  entity.  For a comparison, he                                                               
related that the Talkeetna Lodge  has two 5,000 gallon tanks that                                                               
are serviced by  truck at regular intervals  by Fairbanks Natural                                                               
Gas.   He said the  50,000 was the best  number he could  come up                                                               
with, given there  are small communities in Norway  that have the                                                               
flexibility for tanks of 200 cubic meters to 2,000 cubic meters.                                                                
1:17:16 PM                                                                                                                    
CO-CHAIR  FEIGE  asked  what  size truck  is  used  by  Fairbanks                                                               
Natural Gas.                                                                                                                    
MS. PIERSON deferred to Mr. Therriault.                                                                                         
REPRESENTATIVE P. WILSON  stated she does not know  if the amount                                                               
is right,  but it needs to  be dealt with to  ensure that smaller                                                               
communities can be taken care of.                                                                                               
MS. PIERSON  replied that  if the  bill moves  on, she  will work                                                               
with committee members  to determine what that  "magic number" is                                                               
for communities.                                                                                                                
CO-CHAIR SEATON  reiterated Co-Chair  Feige's question  about the                                                               
capacity  of  LNG  tankers  currently  being  used  by  Fairbanks                                                               
Natural Gas.                                                                                                                    
GENE  THERRIAULT, Vice  President, Natural  Resource Development,                                                               
Golden Valley  Electric Association (GVEA), said  he believes the                                                               
current tankers used  by Fairbanks Natural Gas  are either 10,000                                                               
or  11,000  gallons.    He   added  that  the  tanker  size  GVEA                                                               
anticipates using for running LNG  from the North Slope is 13,500                                                               
1:19:41 PM                                                                                                                    
REPRESENTATIVE  HERRON requested  Mr.  Therriault  to comment  on                                                               
Conceptual Amendment 1.                                                                                                         
MR.  THERRIAULT  replied  GVEA  would not  have  a  problem  with                                                               
[50,000 gallons,  given it  is a  policy call  on how  to balance                                                               
this.  He explained that GVEA  has reached out to potential users                                                               
around  the  highway  system  that  it would  like  to  serve  as                                                               
customers under the premise that  if the overall volume is raised                                                               
then everybody's  per unit cost  comes down.  Therefore,  if that                                                               
volume is the  right size for those users on  the highway then it                                                               
would be fine with GVEA.                                                                                                        
1:21:05 PM                                                                                                                    
CO-CHAIR FEIGE  suggested a  tank size  of 25,000  gallons, given                                                               
that  the planned  truck size  is roughly  13,000 gallons.   This                                                               
way,  when half  the volume  in the  storage tank  is used  there                                                               
would be enough room to receive the next truck.                                                                                 
CO-CHAIR  SEATON responded  that he  has no  basis for  community                                                               
utilities using less than 200 cubic meters.                                                                                     
REPRESENTATIVE  P.  WILSON  stated that  [25,000  gallons]  makes                                                               
sense to her.                                                                                                                   
REPRESENTATIVE GARDNER pointed  out that if a smaller  size is in                                                               
statute  a  community needing  a  larger  volume would  still  be                                                               
covered,  but not  so  with  the reverse.    She  added that,  in                                                               
practice, the key  is the standard tank size so  that the statute                                                               
is  not  for  a  volume  that  would  require  customized  tanks,                                                               
although she did  not personally know what a  standard size would                                                               
1:22:54 PM                                                                                                                    
REPRESENTATIVE HERRON related  that the standard size  for LNG or                                                               
propane tanks is rail cars  of about 30,000 [gallons] and further                                                               
noted that  a larger tank  size currently available  for purchase                                                               
is 18,000  [gallons].   He therefore  maintained that  30,000 and                                                               
18,000 [gallons] are common sizes.                                                                                              
CO-CHAIR SEATON  said these would  not be propane tanks,  so they                                                               
are  not currently  manufactured.    He did  not  think that  the                                                               
committee's consideration  should be  for an  off-the-shelf size.                                                               
In response to Co-Chair Feige,  he pointed out that propane tanks                                                               
are low pressure tanks.                                                                                                         
REPRESENTATIVE  HERRON  asserted  that  those  are  common  sizes                                                               
because an  odd size  or very large  size cannot  be transported.                                                               
He agreed that  the storage tanks would be custom  made, but said                                                               
they would be built according to limitations of the road system.                                                                
1:24:48 PM                                                                                                                    
CO-CHAIR SEATON stated he would be amenable to 25,000 gallons.                                                                  
CO-CHAIR FEIGE said  he would like more  information because some                                                               
of these  communities are relatively constrained  and these tanks                                                               
all have a  blast radius.  The smaller the  tank, the smaller the                                                               
blast  radius, therefore  the easier  it would  be to  site these                                                               
tanks in  the limited land  available to villages.   For example,                                                               
the  coastlines limit  where  the  tanks could  be  put and  some                                                               
villages might not have enough  land available to them should the                                                               
tank need to be sited well outside of town.                                                                                     
1:26:24 PM                                                                                                                    
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   1  to  Conceptual                                                               
Amendment 1 which would delete "50,000" and insert "25,000".                                                                    
CO-CHAIR SEATON  accepted the conceptual amendment  as a friendly                                                               
amendment.  There  being no objection, Amendment  1 to Conceptual                                                               
Amendment 1 was  adopted.  Therefore, Conceptual  Amendment 1, as                                                               
amended, would  on page  3, lines 29  and 31,  delete "1,000,000"                                                               
and insert "25,000".                                                                                                            
There  being no  objection, Conceptual  Amendment 1,  as amended,                                                               
was adopted.                                                                                                                    
1:27:39 PM                                                                                                                    
REPRESENTATIVE P.  WILSON moved to report  the proposed committee                                                               
substitute  (CS)  for  HB   289,  labeled  27-LS1216\I,  Bullock,                                                               
2/21/12,   as  amended,   out   of   committee  with   individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no  objection,   CSHB  289(RES)  was  reported   from  the  House                                                               
Resources Standing Committee.                                                                                                   
The committee took an at-ease from 1:28 p.m. to 1:31 p.m.                                                                       
            HB   9-IN-STATE GASLINE DEVELOPMENT CORP                                                                        
1:31:43 PM                                                                                                                    
CO-CHAIR SEATON announced  that the next order  of business would                                                               
be  HOUSE  BILL NO.  9,  "An  Act  requiring the  Joint  In-State                                                               
Gasline   Development  Team   to   report   to  the   legislature                                                               
recommended changes to  state law that are required  to enable or                                                               
facilitate  the design,  financing,  and construction  of an  in-                                                               
state  natural gas  pipeline so  that the  in- state  natural gas                                                               
pipeline  is  operational  before  2016;  and  providing  for  an                                                               
effective  date."    [Before  the   committee  was  the  proposed                                                               
committee  substitute  (CS),   Version  U,  labeled  27-LS0075\U,                                                               
Bullock, 1/19/12, adopted as the working document on 2/6/12.]                                                                   
1:32:00 PM                                                                                                                    
REPRESENTATIVE P.  WILSON moved  to adopt the  proposed committee                                                               
substitute (CS)  for HB  9, version  27-LS0075\S, Nauman/Bullock,                                                               
2/25/12, as  the working  document.   [There being  no objection,                                                               
Version S was before the committee.]                                                                                            
CO-CHAIR SEATON  explained that Version  S is Version U  with all                                                               
of  the   amendments  adopted  at  previous   committee  meetings                                                               
incorporated into the bill.                                                                                                     
RENA DELBRIDGE,  Staff, Representative Mike Hawker,  Alaska State                                                               
Legislature, on  behalf of  Representative Hawker,  sponsor, drew                                                               
attention to  the committee  packet which  included a  summary of                                                               
changes made by  the House Resources Standing  Committee that are                                                               
reflected in Version S.                                                                                                         
CO-CHAIR  SEATON,  in  response   to  Representative  P.  Wilson,                                                               
reiterated that the only changes  incorporated into Version S are                                                               
the  amendments  that  were  adopted by  the  committee  so  that                                                               
members could read them in context.                                                                                             
1:33:44 PM                                                                                                                    
REPRESENTATIVE  GARDNER requested  an  explanation regarding  why                                                               
the sponsor believes a pipeline  controlled by the Alaska Gasline                                                               
Development Corporation  (AGDC) should be exempt  from regulation                                                               
as  a  public utility  by  the  Regulatory Commission  of  Alaska                                                               
(RCA).  She understood  that the purpose of HB 9  is to bring gas                                                               
to  Alaska residents;  that being  the  case, she  asked why  the                                                               
pipeline should be exempt from RCA regulation.                                                                                  
MS. DELBRIDGE replied the intent  is that if AGDC has controlling                                                               
interest in a pipeline and  has some decision-making authorities,                                                               
it  can carry  out its  mission to  provide in-state  gas at  the                                                               
lowest possible rates  for in-state use.  The  exemption would be                                                               
as  a public  utility under  AS 42.05.   This  proposed exemption                                                               
would  alleviate   the  risk  on   this  project   of  regulatory                                                               
uncertainty in the  sense that this is  a state-supported project                                                               
that  already  inherently conveys  that  it  is in  the  public's                                                               
interest and  is necessary.   That  is a  big component  of being                                                               
regulated as a public utility under  AS 42.05.  Because the state                                                               
is approving this  as it goes forward through  empowering AGDC to                                                               
move along,  it would be  redundant and potentially  highly risky                                                               
financially and time-wise  for the project to also  be subject to                                                               
regulation under that component.                                                                                                
1:35:16 PM                                                                                                                    
REPRESENTATIVE  GARDNER  noted it  is  anticipated  that at  some                                                               
point  in  the  future  the  pipeline  will  not  necessarily  be                                                               
controlled  by AGDC  because  it  could be  sold  or the  control                                                               
transferred  to another  entity.   If  that were  to happen,  she                                                               
asked whether the entity would then  be regulated by the RCA as a                                                               
MS. DELBRIDGE responded  she would presently say  it is uncertain                                                               
at  what  point  a  project  may be  transferred  out  of  AGDC's                                                               
control,  but that  there are  several  options.   A project  not                                                               
controlled by AGDC  would not be exempt from  regulation under AS                                                               
42.05; therefore  that protection is in  place.  When debt  is no                                                               
longer  outstanding  on  the  project,   it  can  go  to  private                                                               
ownership.   Hypothetically, if  after 10-15  years from  now the                                                               
project  is transferred  to private  ownership with  no longer  a                                                               
degree of  AGDC control,  there would be  in place  the contracts                                                               
already  developed with  AGDC as  a controlling  interest looking                                                               
out for the interests of in-state  gas.  Those contracts with all                                                               
those individual  shippers would likely  be for a long  period to                                                               
support the financing  required for the gas  commitments over the                                                               
life of a pipeline.                                                                                                             
1:37:07 PM                                                                                                                    
REPRESENTATIVE  GARDNER  inquired  whether  anyone  would  review                                                               
those contracts during  that process in which the  AGDC sells off                                                               
or makes a contract with a  private entity.  She further inquired                                                               
whether, at any  point along the way, the  contract details would                                                               
become  public  information  or  would  they  be  held  privately                                                               
between AGDC and the potential buyer.                                                                                           
MS.  DELBRIDGE answered  that in  this situation  those contracts                                                               
would  be  made  for  the   length  of  duration  of  a  shipping                                                               
commitment, which should  be 10-20 years, and there  is no intent                                                               
to make those  publicly available.  The intent is  to ensure that                                                               
commercial processes  can work in developing  those contracts and                                                               
therefore  keep those  as confidential  information.   Version  S                                                               
would provide another  degree of evaluation -  the contracts that                                                               
are specifically with public utilities  for in-state gas would be                                                               
overseen by  the RCA through  the ability of public  utilities to                                                               
seek pre-approval  of the RCA  to allow the utilities  to recover                                                               
the costs  of involvement  in this project  or any  large project                                                               
through  the  rates  that  they  later  charge  their  customers.                                                               
Version S  would also provide that  the rate of return  on equity                                                               
to the pipeline owners be looked at by the RCA.                                                                                 
1:38:58 PM                                                                                                                    
REPRESENTATIVE  GARDNER  clarified  she is  not  inquiring  about                                                               
shipping contracts, but  rather the transfer from  AGDC such that                                                               
AGDC no  longer controls the  line at  some point in  the future.                                                               
She  asked whether  that agreement  would be  made public  if the                                                               
line is  transferred to an entity  that is not a  public utility,                                                               
and whether  there would be any  kind of oversight of  the tariff                                                               
for consumers.                                                                                                                  
MS. DELBRIDGE  replied that the  tariffs would have  already been                                                               
set  through the  contracts negotiated  at the  beginning of  the                                                               
life of that pipeline.                                                                                                          
1:39:34 PM                                                                                                                    
CO-CHAIR SEATON  explained that the utilities  forming a contract                                                               
have the ability to submit that  contract to the RCA to make sure                                                               
that the rates are just and  reasonable.  The presumption is that                                                               
the utility purchasing gas is going  to want to submit to the RCA                                                               
to be  assured it  has looked  out for its  consumers and  is not                                                               
being overcharged.   Version S  states "may" because  there could                                                               
be circumstances  where it  would not be  efficient to  submit to                                                               
the RCA  and the utility  is willing to take  the risk.   He said                                                               
his  perspective  is   that  the  chance  of   a  public  utility                                                               
contracting for a  supply and then not  protecting itself through                                                               
oversight by the RCA would be  pretty small.  He related that the                                                               
committee also looked  at the problem of a  contract carrier line                                                               
controlled  by AGDC  to ensure  the rate  of return  by different                                                               
owners; he  added that this will  be brought up by  an amendment.                                                               
The  concern was  that if  the RCA  or Federal  Energy Regulatory                                                               
Commission (FERC) was  not verifying that the rate  of return was                                                               
just and  reasonable, then  who would?   Therefore,  a conceptual                                                               
amendment  was  passed [on  2/24/12]  that  said those  would  be                                                               
REPRESENTATIVE GARDNER thanked Co-Chair  Seaton and said that was                                                               
the heart of her question.                                                                                                      
CO-CHAIR SEATON  added that  the concern was  to balance  the two                                                               
missions  of AGDC  for  getting  gas to  consumers  in Alaska  as                                                               
cheaply as  possible as well  as getting  a gasline, so  that was                                                               
why there was discussion about the rate of return.                                                                              
1:42:13 PM                                                                                                                    
CO-CHAIR SEATON moved to adopt  Amendment 1 to Version S, labeled                                                               
27-LS0075\S.2,  Nauman/Bullock,  2/27/12,  which  read  [original                                                               
punctuation provided]:                                                                                                          
     Page 18, line 23:                                                                                                          
          Delete "the rate of return for"                                                                                       
          Insert "rates of return accepted by the Federal                                                                       
     Energy Regulatory Commission for rate making purposes                                                                      
     for interstate"                                                                                                            
The committee took a brief at-ease.                                                                                             
1:44:05 PM                                                                                                                    
CO-CHAIR SEATON tabled  Amendment 1 and moved  to adopt Amendment                                                               
2 to  Version S, labeled  27-LS0075\S.1, Bullock,  2/27/12, which                                                               
read [original punctuation provided]:                                                                                           
     Page 1, line 10:                                                                                                           
          Delete "projects"                                                                                                   
          Insert "contracts"                                                                                                  
     Page 5, lines 14 - 25:                                                                                                     
          Delete all material.                                                                                                  
     Reletter the following subsection accordingly.                                                                             
     Page 18, lines 18 - 25:                                                                                                    
          Delete all material.                                                                                                  
     Renumber the following bill sections accordingly.                                                                          
     Page 18, line 30:                                                                                                          
          Delete "may"                                                                                                          
          Insert "shall"                                                                                                        
     Page 19, line 3:                                                                                                           
          Delete "may"                                                                                                          
          Insert "shall"                                                                                                        
     Page 19, line 6:                                                                                                           
          Delete "may"                                                                                                          
          Insert "shall"                                                                                                        
     Page 19, line 8, following "shall":                                                                                        
          Insert "review and may"                                                                                               
     Page 19, following line 15:                                                                                                
          Insert new subsections to read:                                                                                       
          "(e)  Before the start of construction of a                                                                           
     natural gas pipeline by  the Alaska Gasline Development                                                                    
     Corporation  or  an  entity controlled  by  the  Alaska                                                                    
     Gasline  Development  Corporation, the  Alaska  Gasline                                                                    
     Development Corporation shall  submit to the commission                                                                    
     under seal any  firm transportation precedent agreement                                                                    
     it has negotiated  with an entity that is  not a public                                                                    
     utility.      Notwithstanding     AS 40.25.110      and                                                                    
     AS 42.05.671(a),   the   commission   shall   keep   an                                                                    
     agreement     submitted    under     this    subsection                                                                    
          (f)  The commission shall review each agreement                                                                       
     submitted  under (e)  of this  section and  compare the                                                                    
     firm  transportation  rates  in the  agreement  to  the                                                                    
     weighted-average  of  the   firm  transportation  rates                                                                    
     contained   in   the  firm   transportation   contracts                                                                    
     submitted under (a) of this  section that were approved                                                                    
     under (d) of this  section. The transportation rates in                                                                    
     the  contracts  submitted  under (a)  of  this  section                                                                    
     shall  be  weighted  by  volume  for  purposes  of  the                                                                    
     comparison. The  commission shall  approve by  order an                                                                    
     agreement submitted  under (e)  of this section  if the                                                                    
     firm  transportation rates  are equal  to or  less than                                                                    
     the  weighted-average  firm   transportation  rates  in                                                                    
     contracts  submitted  under  (a) of  this  section  and                                                                    
     approved  under (d)  of  this  section. The  commission                                                                    
     shall disapprove by order  an agreement submitted under                                                                    
     (e) of  this section  if the firm  transportation rates                                                                    
     are    greater   than    the   weighted-average    firm                                                                    
     transportation  rate in  contracts submitted  under (a)                                                                    
     of  this  section  and  approved   under  (d)  of  this                                                                    
     section.  If  the  commission has  not  disapproved  an                                                                    
     agreement submitted  under (e)  of this  section within                                                                    
     30  days after  the  submission of  the agreement,  the                                                                    
     agreement shall  be considered approved and  shall take                                                                    
     effect  immediately.  A firm  transportation  precedent                                                                    
     agreement  that is  approved under  this subsection  is                                                                    
     not subject to further review by the commission."                                                                          
     Page 19, line 18:                                                                                                          
          Delete "AS 42.05.141(e)"                                                                                              
          Insert "AS 42.05.433"                                                                                                 
The committee took an at-ease from 1:44 p.m. to 1:45 p.m.                                                                       
1:45:27 PM                                                                                                                    
REPRESENTATIVE P. WILSON objected for purposes of discussion.                                                                   
CO-CHAIR  SEATON,  pointing out  that  Amendment  2 is  from  the                                                               
sponsor, requested  Ms. Delbridge  to explain what  the amendment                                                               
would do and provide details of the amendment.                                                                                  
MS. DELBRIDGE explained that Amendment  2 reflects to [Conceptual                                                               
Amendment 2  to Amendment 15] that  was made by the  committee on                                                               
2/24/12.    The  Department  of Law  (DOL)  expressed  a  concern                                                               
related to  that amendment's provision  for an evaluation  of the                                                               
rate of  return.   Amendment 2  [to Version  S] would  change the                                                               
concept of regulation  of this pipeline so  that public utilities                                                               
entering  contracts "shall"  submit these  contracts to  the RCA,                                                               
rather than "may".  This would  provide the RCA with the absolute                                                               
paperwork  in  hand that  shows  the  tariffs the  utilities  are                                                               
paying for gas  on that line.  Amendment 2  would further provide                                                               
that  contracts with  non-utility  shippers be  submitted to  RCA                                                               
under confidentiality as commercial  agreements, and that the RCA                                                               
will  compare the  tariffs charged  to the  non-utility customers                                                               
with the weighted  average of the tariffs charged  to the utility                                                               
customers; the  tariffs charged  to non-utility  customers cannot                                                               
be higher than  those charged to utility customers.   The purpose                                                               
in doing  this is  to give  some assurance that  a shipper  - for                                                               
example, a  large commercial shipper  that is also part  owner of                                                               
this pipeline -  is not increasing tariffs to  where that shipper                                                               
can  reduce the  netback value  of its  gas on  the North  Slope,                                                               
which is  where the gas  is valued for  state tax purposes.   The                                                               
sponsors understood  this to  be a concern  of the  committee and                                                               
wanted to  address it.   The  RCA would have  a 30-day  window to                                                               
conduct the comparison;  this short time period is  because it is                                                               
a  simple  mathematical comparison  of  the  average tariffs  for                                                               
utilities and non-utilities.                                                                                                    
1:48:33 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  surmised  that  there  would  not  be                                                               
utility  customers right  away  to which  a  comparison could  be                                                               
made.  She  therefore asked whether the comparison  would be made                                                               
after the pipeline is built and the contracts are in place.                                                                     
MS.  DELBRIDGE  replied  that  a public  utility  in  Alaska  has                                                               
several  options,  should a  project  go  to  open season:    the                                                               
utility could commit to capacity,  the utility could buy space on                                                               
the pipeline  and ship the  gas itself  that is purchased  from a                                                               
producer  before that  gas goes  into  the line,  or the  utility                                                               
could arrange  for a middleman  to ship  the gas and  the utility                                                               
would buy the  gas at the end.  That  middleman might consolidate                                                               
several small  contracts and arrange  for shipping and  buy space                                                               
in  the  line.    Whichever  the option,  it  would  need  to  be                                                               
determined  in  large  part  at  the  time  of  making  precedent                                                               
agreements, because  either the public  utility is going  to have                                                               
to sign  an agreement for  space in  the line or  another shipper                                                               
will have  to sign on the  utility's behalf.  If  another shipper                                                               
signs, it  would want  those utility agreements  in place  to buy                                                               
the  gas that  the  shipper  is going  to  ship  to support  that                                                               
commitment to buy space in the line.                                                                                            
JOE   DUBLER,   Vice   President,  Alaska   Gasline   Development                                                               
Corporation (AGDC),  Director of Finance, Alaska  Housing Finance                                                               
Corporation  (AHFC), Department  of  Revenue  (DOR), offered  his                                                               
belief  that  Representative  Wilson  is  talking  about  utility                                                               
customer contracts between the utility  and the users of the gas.                                                               
However,  the  contracts being  discussed  here  are between  the                                                               
pipeline  and the  utilities, which  are done  very early  in the                                                               
process  before construction  even begins.   Therefore,  it would                                                               
definitely be  known very early  in the process who  the shippers                                                               
will be and how much they will be paying.                                                                                       
1:51:03 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  surmised  that  the  non-utility  and                                                               
utility customers could be the same customers.                                                                                  
MS.  DELBRIDGE responded  not necessarily,  the public  utilities                                                               
can ship  gas in a  pipeline as can other  users such as  a large                                                               
industrial user.  A public utility  does not have to buy pipeline                                                               
space, it  could arrange  for a  middleman to  buy the  space and                                                               
ship the gas  to the utility.   Either way, there has  to be some                                                               
sort of a contract in place  early that says there is an end-user                                                               
for the gas  that is going to be shipped.   The pre-approval that                                                               
utilities have  to take to the  RCA is simply the  public utility                                                               
saying,  "RCA  we want  to  participate  in this  project,  we're                                                               
investing a lot  of money in this,  we need to know  that you are                                                               
going to  approve our rates  later when we charge  our customers,                                                               
our ratepayers, for this gas."                                                                                                  
1:52:28 PM                                                                                                                    
REPRESENTATIVE P. WILSON said she  was meaning that the owners or                                                               
partial owners  of the pipeline  could be the producers  and they                                                               
could be shipping gas down the line.                                                                                            
MS.  DELBRIDGE explained  that a  producing company  could create                                                               
another  component  of  its  business  that  buys  part  of  this                                                               
pipeline and ships gas on behalf  of that producer entity.  As is                                                               
similar with  other pipelines, there  would be real  firewalls in                                                               
place  so that  there is  a  separation between  the entity  that                                                               
produces and the entity that ships.                                                                                             
MR.  DUBLER added  that  Amendment  2 would  create  a system  to                                                               
prevent  a producer  that  is  also an  owner  in  the line  from                                                               
raising the tariff so high that  there is no netback on the North                                                               
Slope and  therefore no  tax owed to  the state on  the gas.   He                                                               
noted that Co-Chair Seaton worked  closely with [the sponsors] to                                                               
come up with this amendment to prevent that from happening.                                                                     
CO-CHAIR SEATON understood that the  rate would not be higher for                                                               
the  commercial customer  than for  the weighted  average of  the                                                               
utilities,  weighted being  the  volume.   This  would prevent  a                                                               
producer that has  high costs from writing off  the costs against                                                               
its  gas,  thereby  lowering  the production  tax  value  at  the                                                               
wellhead, which  would lower the  royalty and the  production tax                                                               
value on which state tax is collected.                                                                                          
1:55:17 PM                                                                                                                    
CO-CHAIR SEATON requested Ms. Delbridge  to address whether there                                                               
could  be a  circumstance in  which a  commercial customer  would                                                               
have a much lower tariff than would the utilities.                                                                              
MS. DELBRIDGE answered  there is a good chance  that a commercial                                                               
customer tariff  will be lower  if that customer is  arranging to                                                               
ship a quantity of gas that  is substantially higher than that of                                                               
a utility.   Alaska's utilities  do not use an  excessively large                                                               
volume of gas  compared to what a gasline would  be able to ship.                                                               
A single industrial  user could theoretically use as  much gas as                                                               
would  a whole  region  of utilities.    Generally in  commercial                                                               
negotiations, committing to ship a  larger amount of gas will get                                                               
a better rate  for the gas.  When looking  at just and reasonable                                                               
rates,  part of  what  the RCA  looks for  is  that large  volume                                                               
shippers generally are due a lower tariff.                                                                                      
1:56:49 PM                                                                                                                    
CO-CHAIR SEATON  presumed that just  and reasonable would  not be                                                               
such a  low tariff  that it  would mean  the tariff  to utilities                                                               
would have to be substantially higher than the weighted average.                                                                
MS. DELBRIDGE replied that  within those commercial negotiations,                                                               
whoever owns the  pipeline will make sure that  those tariffs are                                                               
competitive for any shipper so that  the owner can in fact have a                                                               
pipeline project that is commercial.                                                                                            
1:57:28 PM                                                                                                                    
REPRESENTATIVE  GARDNER  described  a hypothetical  situation  in                                                               
which  a relatively  small pipeline  is built  and the  utilities                                                               
have  purchased 40  percent of  the  capacity and  60 percent  is                                                               
going elsewhere.   If  somewhere down the  road this  pipeline is                                                               
doubled in size  for one shipper, she surmised  that that shipper                                                               
could  get a  tariff rate  that is  a great  deal less  than that                                                               
which the utilities are locked into already.                                                                                    
MS. DELBRIDGE  confirmed that potentially this  is a possibility.                                                               
She explained that  expansion at some future time would  be up to                                                               
the  pipeline owners  because under  HB 9  the pipeline  would be                                                               
exempted from  common carrier and  would have no  requirement for                                                               
mandatory  expansion.   The rate  structure on  how an  expansion                                                               
would be handled would tend  to benefit every shipper because the                                                               
more volume being shipped the lower  the rates generally go.  How                                                               
future expansions might be reflected  would be written into those                                                               
initial commercial contracts with the shippers.                                                                                 
1:58:36 PM                                                                                                                    
CO-CHAIR  SEATON  understood  that  if  a  shipper  came  in  for                                                               
expansion and  had a very  low tariff  rate, that would  mean the                                                               
production tax  value and the  royalty value would be  higher, so                                                               
higher  royalty and  taxes would  be paid  than if  there was  an                                                               
offset of the weighted tariff paid by the utilities.                                                                            
MS. DELBRIDGE  concurred and noted  that the  state has a  lot of                                                               
competing interest  when it  comes to  developing a  resource for                                                               
commercialization versus  supporting the concept of  in-state use                                                               
of natural gas by customers in Alaska or industry.                                                                              
1:59:40 PM                                                                                                                    
REPRESENTATIVE P.  WILSON understood  that royalties are  paid to                                                               
the state.   She asked whether the state would  be paying for all                                                               
or  part of  the pipeline  with state  money, or  would bonds  be                                                               
issued to pay for the pipeline so that state money is not used.                                                                 
MS.  DELBRIDGE confirmed  the  state collects  a  royalty on  gas                                                               
produced and  said that that  gas would  likely be fed  into this                                                               
gasline.  The state could be an  owner of this line, but does not                                                               
necessarily have to; that is  part of the ownership and operating                                                               
agreements yet  to be determined  as AGDC is allowed  to progress                                                               
the commercial process.                                                                                                         
2:00:43 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  said   she  is  concerned  about  the                                                               
royalties for the  state and asked how this would  work out if at                                                               
the same time the state is going to be paying for some of this.                                                                 
MS. DELBRIDGE replied that HB  9 would provide AGDC the authority                                                               
to  issue revenue  bonds, which  would be  an instance  where the                                                               
state would not  directly write a check to the  company or entity                                                               
building the pipeline.   However, AGDC may ask the  state for the                                                               
equity portion  of that  debt that  it is  issuing, but  then the                                                               
state would  be expecting that  return on its  equity investment.                                                               
She deferred to Mr. Dubler for further explanation.                                                                             
MR. DUBLER  explained that  pipelines like  this can  be financed                                                               
two different ways.   One way is through  equity contributions of                                                               
the  owners, which  is where  the owners  actually put  their own                                                               
money into  the pipeline.  The  second way is that  the owners go                                                               
to the debt  market and borrow money to  finish the construction.                                                               
The  two different  financing sources  are important  because, in                                                               
this  case, debt  is  a  lot cheaper  than  equity.   The  equity                                                               
portion generally returns about 12  percent to the equity owners,                                                               
but debt is about half of  that.  Therefore, the state would want                                                               
to have  as much debt  in the project  as possible, which  is why                                                               
AGDC has  proposed a structure of  70 percent debt to  30 percent                                                               
equity.  If the  state chose to put money into  this as an equity                                                               
partner, it would  get a return on its investment.   If the state                                                               
wanted to get the same return  as other partners or other typical                                                               
pipeline owners,  it would get a  12 percent return.   He pointed                                                               
out that it will be a policy call  at that time as to whether the                                                               
state wants to receive 12 percent  equity return or wants to keep                                                               
the tariff  low.  The remainder  would be debt and  that would be                                                               
roughly half of the 12 percent.                                                                                                 
2:02:51 PM                                                                                                                    
REPRESENTATIVE P. WILSON asked how  much is possibly being talked                                                               
about for the equity portion.                                                                                                   
MR.  DUBLER answered  that at  a  70:30 debt-equity  ratio for  a                                                               
project  of $8  billion, the  30 percent  portion would  be about                                                               
$2.4 billion.  The state or  some equity partner would put up the                                                               
$2.4 billion.   The equity partner would likely  be a combination                                                               
of the  producer or  the pipeline company  that owns  and manages                                                               
the  gasline.   The remaining  $5.6 billion  would come  from the                                                               
debt market.                                                                                                                    
2:03:37 PM                                                                                                                    
REPRESENTATIVE P. WILSON  inquired who makes the  decision on how                                                               
that will play out.                                                                                                             
MR. DUBLER replied that the decision  would be made by AGDC.  The                                                               
AGDC  staff would  recommend to  the board  what should  be done,                                                               
based upon the economic conditions at  the time.  For example, in                                                               
five  years  when  AGDC  begins construction  and  looks  to  the                                                               
markets for  capital, circumstances could  be that a  70:30 debt-                                                               
equity  ratio  is  not  beneficial.   The  companies  that  would                                                               
typically partner in  an arrangement like this could  be short of                                                               
capital and might require a much  higher return, in which case it                                                               
could  be a  ratio of  80:20 or  90:10.   However, he  thought it                                                               
unlikely  that  the  beneficial ratio  would  be  different  than                                                               
2:04:45 PM                                                                                                                    
REPRESENTATIVE P. WILSON asked whether  the money would come from                                                               
the board's  own organization or  would AGDC ask  the legislature                                                               
for the money and the legislature would decide.                                                                                 
MR. DUBLER  responded that, to the  extent that AGDC was  to look                                                               
to  the  state   to  participate  as  an  equity   owner  in  any                                                               
percentage, it  would be  subject to  appropriation and  would go                                                               
through  the   legislative  process  and  to   the  governor  for                                                               
approval.   Any  state  contributions, any  state  money that  is                                                               
spent  on  this project,  is  subject  to appropriation.    Every                                                               
contract  AGDC signs  is subject  to  appropriation.   Everything                                                               
comes back to the legislature.                                                                                                  
2:05:37 PM                                                                                                                    
CO-CHAIR SEATON,  in regard  to the  debt-to-equity relationship,                                                               
noted  that AGDC  is  required  to get  a  pipeline  at the  best                                                               
possible deal  to the state.   Given the current  bill structure,                                                               
he  asked  whether AGDC  understands  that  it must  arrange  the                                                               
financing  in  a  way  that  will provide  the  cheapest  gas  to                                                               
MR. DUBLER  confirmed this is correct  and said that is  why AGDC                                                               
pointed  out  in  its  report  that 100  percent  debt  would  be                                                               
cheapest and recommended  that.  Since then, however,  he has met                                                               
with several  pipeline companies  and none wanted  to participate                                                               
in  a pipeline  in which  they  did not  have some  equity.   The                                                               
companies  make money  utilizing their  capital in  projects like                                                               
this and  therefore they like the  12 percent return.   While the                                                               
100 percent  would yield the  absolute best tariff  for Alaskans,                                                               
AGDC does not currently think  that that is a commercially viable                                                               
option for this pipeline.                                                                                                       
2:07:05 PM                                                                                                                    
MR. DUBLER, in  response to Co-Chair Seaton, confirmed  that HB 9                                                               
requires a minimum of 70 percent debt.                                                                                          
CO-CHAIR SEATON pointed out that  in other contracts, such as the                                                               
Alaska Gasline Inducement Act (AGIA),  the state has used a 70:30                                                               
debt-equity ratio to maintain low tariffs.                                                                                      
2:07:59 PM                                                                                                                    
REPRESENTATIVE MUNOZ understood that HB  9 limits the shipment of                                                               
gas to 500 million cubic feet [per day] because of AGIA.                                                                        
MS. DELBRIDGE nodded yes.                                                                                                       
REPRESENTATIVE MUNOZ,  continuing, noted  that Alaskans  may want                                                               
to  reconsider the  size and  scope  of this  project should  the                                                               
state not get  a larger pipeline through AGIA,  the provisions of                                                               
which  end  in  2016.    She inquired  whether  there  is  enough                                                               
flexibility in HB 9 to reconsider  size and market demands if the                                                               
AGIA project fails.                                                                                                             
MS. DELBRIDGE  prefaced that  the sponsors  have been  very, very                                                               
careful through HB  9 to absolutely acknowledge that  AGIA is the                                                               
law  of the  land and  that there  is nothing  that the  sponsors                                                               
intend to do to violate the  500 million cubic feet per day limit                                                               
that is inherent in that.                                                                                                       
MR. DUBLER  explained that AGDC  did a preliminary  expression of                                                               
interest  in 2011  and the  interest expressed  was at  about 500                                                               
million cubic  feet a day,  so that looks  like that is  what the                                                               
market for  this pipeline is.   It is important to  keep in mind,                                                               
he stressed,  that Alaskans cannot  decide how big  this pipeline                                                               
is going to  be, the market will decide how  big this pipeline is                                                               
going  to  be -  unless  the  state contributes  the  difference.                                                               
While  the  main purpose  of  this  pipeline  is  to get  gas  to                                                               
Alaskans, there must still be a  market at the other side to take                                                               
all the gas that is shipped.   He said AGDC has not seen interest                                                               
expressed to  exceed the 500 million  cubic feet per day;  to the                                                               
extent  AGDC did,  and the  restrictions  were not  in place,  it                                                               
would behoove everybody for AGDC to upsize the pipe.                                                                            
2:10:22 PM                                                                                                                    
CO-CHAIR  SEATON interjected  that  two factors  are being  dealt                                                               
with, one being  pipe size and one being compression.   While the                                                               
pipeline design is for 500 million  cubic feet per day, HB 9 does                                                               
not  have  any  restrictions  for  coming  back  with  additional                                                               
compression to carry  more or to go to looping,  if in the future                                                               
the AGIA standards are no longer there.                                                                                         
MR. DUBLER added  that if there was a desire  for shippers beyond                                                               
the half billion  cubic feet per day, those  interests would come                                                               
out  via  the  governor's  realignment of  the  AGIA  process  to                                                               
tidewater, and that  line would produce a  much larger throughput                                                               
than would  this project.   As it is  currently set up,  the AGIA                                                               
process with the realignment would  take advantage of that market                                                               
if it is there.                                                                                                                 
CO-CHAIR SEATON  further pointed  out that  if a  larger pipeline                                                               
went to  Valdez, AGDC  would then probably  function on  the spur                                                               
line  coming to  Southcentral or  that Cook  Inlet gas  was going                                                               
into that pipeline.  If the  AGIA pipeline goes ahead, HB 9 would                                                               
still have  functionality in the  future because there  are other                                                               
places that gas needs to be delivered besides Valdez.                                                                           
MR. DUBLER nodded in agreement.                                                                                                 
2:13:04 PM                                                                                                                    
CO-CHAIR  FEIGE  said  the  discussion  here  is  the  difference                                                               
between the  intention of what the  line will be operated  at and                                                               
what  the line's  design limit  is.   He asked  whether the  AGIA                                                               
people would  file suit if a  plan was put into  place that would                                                               
operate the  pipeline at half a  billion cubic feet per  day, but                                                               
the line was designed to transmit more gas per day.                                                                             
MR. DUBLER  replied that  a suit could  be brought  for anything.                                                               
As AGDC is  designing it, this line could  have compression added                                                               
to move a  higher volume.  As currently designed,  the line would                                                               
have two compressor  stations and would be  24-inches in diameter                                                               
at 2,500  pounds per square inch.   The limit for  this design is                                                               
half a billion  cubic feet per day, which AGDC  believes does not                                                               
conflict with the restrictions set forth in the AGIA statutes.                                                                  
CO-CHAIR FEIGE  inquired whether  TransCanada has given  AGDC its                                                               
blessing on this design.                                                                                                        
MR.  DUBLER   responded  that  AGDC  has   had  discussions  with                                                               
TransCanada and to his knowledge that  subject has not come up in                                                               
those discussions.                                                                                                              
2:15:06 PM                                                                                                                    
MS.  DELBRIDGE  returned  to  her  explanation  of  Amendment  2,                                                               
directing  attention to  page  2, lines  4-5,  of the  amendment,                                                               
which reflect to page  19 of HB 9, Version S.   She noted that on                                                               
2/24/12  there was  committee discussion  as to  whether the  RCA                                                               
"shall" or "may" require hearings  and investigations if a public                                                               
utility  brings  a  pre-application  request  to  the  RCA.    In                                                               
speaking with the RCA attorney in  the Department of Law, as well                                                               
as others, the  sponsors realized that requiring the  RCA to hold                                                               
investigations and hearings was not  the committee's intent.  She                                                               
offered her  belief that  the committee's  intent was  to require                                                               
the  RCA to  act on  an  application and,  in doing  so, to  hold                                                               
hearings and investigations if the  RCA sees fit.  Therefore, the                                                               
sponsors wanted  to put  on the  table this  part of  Amendment 2                                                               
that requires RCA to act on  these applications and that it "may"                                                               
hold hearings and investigations in doing so.                                                                                   
CO-CHAIR SEATON thanked Ms. Delbridge for that clarification.                                                                   
2:16:34 PM                                                                                                                    
CO-CHAIR SEATON recalled that RCA  has 180 days for the precedent                                                               
agreements.    He observed  that  page  2  of Amendment  2  would                                                               
provide   the  RCA   with  a   30-day  timeline   for  making   a                                                               
determination on submitted agreements.    Commenting that 30 days                                                               
seems very short, he asked  what the conversation was between the                                                               
sponsors and RCA attorneys in this regard.                                                                                      
MS. DELBRIDGE explained that 180 days  is the time period the RCA                                                               
would  have  to respond  to  a  public  utility asking  for  pre-                                                               
approval.   Pre-approval could  be a  complex matter  because the                                                               
RCA  would need  to  open a  docket, get  into  the details,  and                                                               
figure  out what  goes into  the tariff.   It  is a  process that                                                               
takes a  little while, but the  sponsors wanted to limit  that to                                                               
180 days  so it  would not be  so ongoing that  it could  hold up                                                               
this project.   The  sponsors believe that  180 days  is adequate                                                               
time.   The 30 days  is specifically, and  only, for when  a non-                                                               
utility  customer  submits  a  contract   and  asks  the  RCA  to                                                               
benchmark that tariff against the  weighted tariff of these other                                                               
utility  contracts.   That is  simply weighing  math and  30 days                                                               
seemed  quite  reasonable.   She  deferred  to Tina  Grovier,  an                                                               
attorney  working for  AGDC, to  provide  further information  in                                                               
this regard.                                                                                                                    
2:18:27 PM                                                                                                                    
CO-CHAIR SEATON requested Ms. Grovier  to address whether 30 days                                                               
would be adequate for the RCA.                                                                                                  
TINA GROVIER,  Attorney, Natural Resources and  Energy Law, Birch                                                               
Horton Bittner  & Cherot, Counsel  to Alaska  Gasline Development                                                               
Corporation  (AGDC),  stated  she  represents  AGDC  and  in  her                                                               
discussions with  the Department of  Law the particular  topic of                                                               
the number of days did not  come up.  She therefore presumed that                                                               
it was acceptable to "them".                                                                                                    
CO-CHAIR  SEATON  asked  whether   that  was  Department  of  Law                                                               
attorneys or RCA attorneys.                                                                                                     
MS. GROVIER replied  that the attorney is the  RCA's counsel, but                                                               
in this  context he is  providing advice, as she  understands it,                                                               
of the Department of Law consulting with the legislature.                                                                       
CO-CHAIR  SEATON inquired  whether the  Department of  Law had  a                                                               
copy  of  Amendment 2  when  Ms.  Grovier  was talking  with  the                                                               
MS. GROVIER confirmed that the department did.                                                                                  
CO-CHAIR SEATON, noting  that he was seeing  people shaking their                                                               
heads [in the  committee room], said he wanted to  make sure that                                                               
the Department of Law had the  30 days before it when Ms. Grovier                                                               
was having that discussion and  that the department did not raise                                                               
MS. GROVIER  stated that when  she discussed this  provision with                                                               
Mr. Goering he had the language  before him and it had the 30-day                                                               
provision in  it and that was  not a topic of  discussion between                                                               
2:20:48 PM                                                                                                                    
REPRESENTATIVE   GARDNER  understood   that  the   RCA  did   not                                                               
participate  last week  and inquired  whether the  commission has                                                               
any problem with the 180-day time limit.                                                                                        
MS. DELBRIDGE offered  her understanding that the RCA,  as a body                                                               
with five commissioners obligated to  carry out the state's laws,                                                               
is not always inclined to weigh in  on a policy level when a bill                                                               
is underway.  However, the sponsors  could request that it do so.                                                               
She related that  in the sponsors' and  Ms. Grovier's experience,                                                               
it is believed that these are reasonable timeframes.                                                                            
MS. GROVIER  pointed out that  the timeline  of 6 months,  or 180                                                               
days,  is a  standard provision  in RCA  timeline statutes.   She                                                               
said   the  RCA   generally  only   exceeds   that  timeline   in                                                               
particularly complex  matters, such  as rate redesign  or complex                                                               
tariff matters.                                                                                                                 
2:22:25 PM                                                                                                                    
CO-CHAIR SEATON  said he  still has  concern on  the 30  days and                                                               
would like  to get AGDC's  understanding as  to whether 30  or 60                                                               
days makes  a difference in  the operation and function  of these                                                               
kinds of  things.  He presumed  things do not move  fast in these                                                               
negotiations and he did not know how often the RCA meets.                                                                       
MR. DUBLER  answered that his  initial thought was five  days was                                                               
adequate because  it is a  simple mathematical comparison  of one                                                               
number to another.  While 30  days is a reasonable time period to                                                               
AGDC, he thought a time period of  45 days would not cause AGDC a                                                               
MS. DELBRIDGE  added the  RCA is a  very engaged  commission that                                                               
meets  regularly through  every week,  so protection  is provided                                                               
there.   She suggested if  the committee  wants to change  the 30                                                               
days, that  a very tight timeline  be kept because these  will be                                                               
coming before the  RCA very close to the point  at which AGDC and                                                               
its commercial  team need to  resolve these kinds  of conditions,                                                               
such as RCA approval, to sign  the firm commitments that AGDC can                                                               
then take to  the bank for financing to build  the line.  Because                                                               
things will be  moving quickly for AGDC, the  sponsors would like                                                               
to ensure that state regulatory things are not lingering.                                                                       
2:24:41 PM                                                                                                                    
REPRESENTATIVE  P. WILSON  surmised that  if the  RCA was  in the                                                               
middle of something  else, this would force it to  set that aside                                                               
and deal with this first.                                                                                                       
MS. DELBRIDGE  answered Amendment  2 directs  that the  RCA shall                                                               
approve by  order.   She understood  this to  mean the  RCA would                                                               
simply need  to issue  an order  that says  the rates  are either                                                               
equal to,  less than, or  higher than [the  weighted-average firm                                                               
transportation  rate].   An order  would not  necessarily require                                                               
public hearings or a lengthy investigation.                                                                                     
MR. DUBLER  added that if  the RCA was  so wrapped up  in another                                                               
case  that  it could  not  absolutely  write anything  down,  the                                                               
default would be  that the RCA could look at  the numbers without                                                               
writing up  an order and after  30 days it would  become accepted                                                               
by default.  If  the RCA looked at the number  and it was higher,                                                               
the RCA could issue  an order that it did not  comply and then it                                                               
could be  fixed.  This provision  does not require the  RCA to do                                                               
anything except look at it.                                                                                                     
CO-CHAIR SEATON said the committee  has flagged this issue, so if                                                               
the 30 days is a problem the RCA  is being put on notice to bring                                                               
up the issue.                                                                                                                   
2:26:44 PM                                                                                                                    
CO-CHAIR SEATON stated  that [Amendment 2] addresses  much of the                                                               
problems foreseen by the committee  that protection is built into                                                               
the bill that  AGDC not only exercise its authority  to get cheap                                                               
gas,  but   that  there  be   review  of  this   under  statutory                                                               
requirement.   He offered his  thanks to the sponsors  for coming                                                               
forward with a mechanism to do this.                                                                                            
REPRESENTATIVE  P.  WILSON  inquired  whether in  Version  S  the                                                               
utilities and  non-utilities are handled under  different statute                                                               
numbers, or where Version S actually states that both the non-                                                                  
utility and the utility will be dealt with.                                                                                     
MS. DELBRIDGE replied  that the language in Amendment  2 would be                                                               
inserted into  Version S after  the sections that  were discussed                                                               
on  2/24/12 that  require  utilities  negotiating contracts  with                                                               
AGDC to  submit those  [to the  RCA].   In further  response, she                                                               
said that this  is stated in Section  25 of Version S.   The non-                                                               
utility is addressed under Amendment 2,  page 2, line 13, and the                                                               
actual term  on line 13 for  a non-utility is "an  entity that is                                                               
not a public utility".                                                                                                          
2:29:46 PM                                                                                                                    
REPRESENTATIVE P.  WILSON removed  her objection to  Amendment 2.                                                               
There being no further objection, Amendment 2 was adopted.                                                                      
The committee took a brief at-ease.                                                                                             
2:31:23 PM                                                                                                                    
CO-CHAIR  SEATON withdrew  Amendment 1,  saying it  would not  be                                                               
offered at this time.                                                                                                           
The committee took another brief at-ease.                                                                                       
2:32:42 PM                                                                                                                    
CO-CHAIR SEATON  moved to adopt  the Letter  of Intent for  HB 9,                                                               
dated February 27, 2012.                                                                                                        
REPRESENTATIVE P. WILSON objected for purposes of discussion.                                                                   
CO-CHAIR  SEATON read  aloud  the Letter  of  Intent, written  as                                                               
follows [original punctuation provided]:                                                                                        
     It is  the Intent  of the  Legislature that  a pipeline                                                                    
     operating  agreement negotiated  by the  Alaska Gasline                                                                    
     Development   Corporation   and  shippers   under   the                                                                    
     authority of HB 9 will  to the greatest extent possible                                                                    
     not  be held  as confidential  except to  protect trade                                                                    
     secrets or direct competitive advantage.                                                                                   
2:33:26 PM                                                                                                                    
CO-CHAIR SEATON  explained that AGDC  has been told to  build the                                                               
cheapest  line possible,  or the  cheapest gas  to Alaskans,  but                                                               
AGDC must  come back to the  legislature if there is  going to be                                                               
any state  investment in a pipeline.   He recalled that  when the                                                               
legislature was  considering the Alaska Stranded  Gas Development                                                               
Act, it found that the  operating agreement for that pipeline was                                                               
confidential and  the legislature  and the  public could  see the                                                               
terms.   Thus,  there  was great  reluctance  to approve  putting                                                               
money  into something  so confidential  that the  legislature did                                                               
not know  what it  was approving.   He said  the purpose  of this                                                               
Letter of  Intent is to say  that unless there are  trade secrets                                                               
or  direct competitive  advantage, AGDC  will negotiate  from the                                                               
position  of  having the  information  available  to the  public.                                                               
Presuming  the pipeline  goes forward  and the  pipeline contract                                                               
comes back  to the legislature  for a  decision to put  in money,                                                               
this Letter of  Intent states that the legislature  will have the                                                               
information  publicly  available  to   discuss  and  can  make  a                                                               
decision that  all constituents will understand  because they can                                                               
see the information too.                                                                                                        
2:35:15 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  pointed  out there  have  been  other                                                               
Letters  of  Intent  that  were  not thought  about  in  the  way                                                               
intended.   She  asked whether  a conceptual  amendment could  be                                                               
proposed that would do the same thing.                                                                                          
CO-CHAIR SEATON  shared that  in working  with the  sponsors, the                                                               
sponsors would like  to have the intent language  drafted into an                                                               
amendment.   However, the  sponsors would like  to do  this going                                                               
forward  because an  amendment has  not been  drawn up  now.   He                                                               
understood  that it  is the  sponsors  full intention  to have  a                                                               
"disclose  section"  and that  this  will  be  done in  the  next                                                               
committee or  somewhere along the  line of process.   This Letter                                                               
of Intent is the committee's way  of encouraging that in the next                                                               
REPRESENTATIVE P. WILSON asked whether  the sponsor will put that                                                               
on the record so the committee knows it is going to happen.                                                                     
TOM  WRIGHT, Staff,  Representative Mike  Chenault, Alaska  State                                                               
Legislature,   on  behalf   of  Representative   Chenault,  prime                                                               
sponsor, confirmed  that the  sponsors are  looking at  an intent                                                               
section  and this  intent will  be evaluated  along with  all the                                                               
other  intent  disclosures  as  the bill  is  moved  through  the                                                               
2:37:06 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI  inquired  whether  the  confidentiality                                                               
exceptions extend only to the discussion on  HB 9 or to AGDC as a                                                               
CO-CHAIR SEATON  replied that  AGDC is  getting the  authority to                                                               
negotiate the pipeline  deal through HB 9, so the  intent of this                                                               
would  be  that  those  operating  agreements  for  any  pipeline                                                               
proposed by AGDC  would, to the maximum extent  possible, be open                                                               
to the public and would not be confidential documents.                                                                          
REPRESENTATIVE P. WILSON  removed her objection to  the Letter of                                                               
Intent.  There  being no further objection, the  Letter of Intent                                                               
was adopted to be sent with the bill.                                                                                           
CO-CHAIR SEATON moved to public testimony.                                                                                      
2:39:47 PM                                                                                                                    
ALAN  LEMASTER,   Businessman,  stated   he  has  been   a  small                                                               
businessman in  the Copper Valley for  about 30 years and  it has                                                               
been a  struggle.  He said  that struggle is shared  with many of                                                               
his good friends  and neighbors, some of whom have  come and gone                                                               
and  some who,  like  him,  have managed  to  stay  on but  still                                                               
struggle.  The primary reason for  this struggle is the high cost                                                               
of  energy caused  by electricity  generated from  diesel engines                                                               
the majority  of the year.   With no contribution from  the state                                                               
to equalize those high costs,  Gakona residents pay 2-4 times the                                                               
rate  applicable in  other  sectors of  the state.    He said  he                                                               
opposes  HB 9  because,  in his  view, it  threatens  at so  many                                                               
levels the  responsibility in charge  of the very people  who are                                                               
attempting to obey the state  mandate approved by voters.  Ballot                                                               
Measure 3  was passed in  November 2002  by 138,353 voters,  a 62                                                               
percent  majority of  the voters  in  that election.   That  vote                                                               
established the Alaska Natural  Gas Development Authority (ANGDA)                                                               
to provide the  following services:  acquire  and condition North                                                               
Slope gas;  design and construct  a pipeline system;  operate and                                                               
maintain  the pipeline  system;  design,  construct, and  operate                                                               
other facilities  necessary for delivering  gas to market  and to                                                               
Southcentral  Alaska;  and  acquire   natural  gas  market  share                                                               
sufficient to  ensure the long-term  feasibility of  the pipeline                                                               
2:41:41 PM                                                                                                                    
MR. LEMASTER  said another  important provision  in that  act was                                                               
that ANGDA may not be terminated  as long as it has bonds, notes,                                                               
or other obligations  outstanding.  He submitted  that unless and                                                               
until  the line  is built  and providing  the greatest  number of                                                               
Alaskans  with   the  lowest   cost  energy   available,  ANGDA's                                                               
obligations  continue  and are  outstanding.    The statute  also                                                               
states that  ANGDA has  the authority  and the  responsibility to                                                               
study,  develop,  construct,  and  maintain  the  pipeline.    In                                                               
ANGDA's wisdom, it  calls for the pipeline to be  built along the                                                               
Trans-Alaska Pipeline  System (TAPS)/Richardson  Highway corridor                                                               
from the  North Slope to  Valdez with  a spur line  to Anchorage.                                                               
Such a pipeline would provide  natural gas to the greatest number                                                               
of Alaskans,  export as  much gas  as reasonable  after Alaskans'                                                               
needs are met, and would  provide Alaska with significant profits                                                               
from the  sale of  that gas  to Pacific  Rim countries  or anyone                                                               
else interested in this resource.                                                                                               
2:42:43 PM                                                                                                                    
MR. LEMASTER said  he also believes that it is  the authority and                                                               
responsibility  of  the  legislature and  the  administration  to                                                               
support  this effort  by  providing ANGDA  with  a fully  staffed                                                               
board of  directors and  the necessary  funding to  continue this                                                               
work to fruition.  He therefore  asked what gives the sponsors of                                                               
HB  9 the  authority to,  in  essence, sunset  ANGDA without  the                                                               
permission  of  the voters  of  the  state  and in  that  process                                                               
appropriate  ANGDA's   work  into  the  Alaska   Housing  Finance                                                               
Corporation with  a bill that  seemingly is to be  the foundation                                                               
of a  smaller, more expensive,  less effective  pipeline commonly                                                               
known  as the  "bullet line",  designed  to be  routed along  the                                                               
Railbelt to serve primarily Anchorage?   In his view, it would be                                                               
better  for Alaskans  if the  sponsors  would withdraw  HB 9  and                                                               
redirect  their  efforts  towards  bringing natural  gas  to  the                                                               
greatest number  of Alaskans at  the lowest cost  available under                                                               
ANGDA's model.  The democratic  system of government was designed                                                               
not to be run  from the top down, but rather  from the bottom up.                                                               
In 2002 the  people at the bottom directed the  people at the top                                                               
to build a  gasline under the auspices  of ANGDA.  It  is now the                                                               
legislature's turn to act.                                                                                                      
2:44:30 PM                                                                                                                    
PARK  KRINER,  President,  American Village  of  Alaska;  Caribou                                                               
Hotel, Restaurant,  and Gift Shop,  testified that he also  has a                                                               
gas station  and grocery  store and employs  50-60 people  in the                                                               
summer  and about  30 in  the winter.   He  said he  has been  in                                                               
Glennallen for  41 years  and, like  Mr. LeMaster,  has struggled                                                               
and struggled  because of the high  energy cost.  Last  year, the                                                               
electric bill  for his company,  consisting of  several different                                                               
entities,  amounted to  about  $240,000.   He  said  he has  been                                                               
assured by  Mr. Wilkemson (ph) that  if the state gets  a gasline                                                               
and  the generator  engines are  switched over  to gas,  which is                                                               
easy  to  do,  his  company's  light bill  would  be  reduced  to                                                               
$40,000-$50,000 a  year.  The  $200,000 in savings would  then be                                                               
used for expansion and hiring,  and the trickle down would affect                                                               
every business in the Glennallen community.   He noted that he is                                                               
one business  along the  pipeline route from  the North  Slope to                                                               
Valdez,  the route  that he  is supports.   He  urged members  to                                                               
consider  the dozens  of schools,  hospitals, and  businesses all                                                               
along that  route that would be  helped by the lowering  of light                                                               
bills by  4-5 times from  current costs.  Those  businesses would                                                               
also be more  successful in hiring, building,  and expanding, not                                                               
to mention  the shipping to markets  all over the globe  from the                                                               
Valdez deep water port.                                                                                                         
2:46:46 PM                                                                                                                    
MR. KRINER  reminded members that 138,000  Alaskans supported the                                                               
all-Alaska  gasline from  the  North Slope  to  Valdez when  they                                                               
lobbied at  the ballot box years  ago.  Attention should  also be                                                               
paid to people  like former governors Egan,  Hickel, and Hammond,                                                               
as well  as U.S. Senator Ted  Stevens, all of whom  supported the                                                               
all-Alaska gasline after  years of study.   Common sense dictates                                                               
that  the North  Slope to  Valdez route  is far  superior to  any                                                               
other alternative in  every aspect that has been  considered.  He                                                               
urged getting rid of HB 9 and  moving ahead with a line to Valdez                                                               
that is supported by respected people.   He added that the recent                                                               
Cook Inlet find is one more  reason for supporting a gasline from                                                               
the North  Slope to Valdez  because Cook Inlet would  support the                                                               
Matanuska-Susitna Valley.                                                                                                       
2:48:43 PM                                                                                                                    
MERRICK  PEIRCE  noted that  he  is  speaking  today on  his  own                                                               
behalf, but  he is a board  member and CFO of  the Alaska Gasline                                                               
Port Authority (AGPA).   The questions he posed  to the committee                                                               
in  February remain  the same  and remain  unanswered.   He asked                                                               
when  the committee  is  going to  address  the most  fundamental                                                               
question,  which  is that  HB  9  seeks  to  build a  gasline  at                                                               
enormous cost  to Cook Inlet,  in which  there is a  200-250 year                                                               
supply of  gas.  He  further asked  when the committee  will hear                                                               
from those  who believe  that 20 trillion  cubic feet  of natural                                                               
gas may  lie under Cook  Inlet.  If  the estimates of  Cook Inlet                                                               
gas reserves  are only  half right,  there are  100 years  of gas                                                               
supply at current  Railbelt usage.  There is  zero credibility to                                                               
this  process  of  vetting  HB 9  if  this  fundamental  question                                                               
continues to be ignored.  The  excessive rate of return on equity                                                               
that would be  allowed under HB 9  is a tragic mistake.   He said                                                               
FERC  typically allows  returns on  equity of  up to  14 percent,                                                               
which means  that for  every $1 billion  of invested  equity, the                                                               
investors would earn  $140 million per year.  At  a typical 70:30                                                               
debt-equity ratio  and a  $10 billion price  tag, the  $3 billion                                                               
equity investment  would cost Alaska  gas users $420  million per                                                               
year,   plus  the   cost   of  the   gas,   the  other   pipeline                                                               
transportation costs, and DNR costs.                                                                                            
2:50:38 PM                                                                                                                    
MR. PEIRCE  maintained that applying  this approach of  high rate                                                               
of return on  invested equity to the  state's highways, airports,                                                               
and other  infrastructure is  not done  because it  would destroy                                                               
the state's  economy.  Alaska  asks for  no return on  equity for                                                               
public infrastructure.   For example, if the  methodology used in                                                               
HB 9 was used to build  the Parks Highway, the highway would have                                                               
to be turned into a toll  road and almost $400,000 in tolls would                                                               
have to  be raised per  day every day  forever.  How  many people                                                               
could  afford  to  drive  the Parks  Highway  if  something  that                                                               
foolish was  done?   To make  matters worse,  that toll  would be                                                               
collected in  Alaska and  transferred to  whatever multi-national                                                               
company had made this equity investment.   So the question is why                                                               
the state would want to apply  this approach to this or any other                                                               
gas  pipeline.   Affordable energy  is every  bit as  critical to                                                               
Alaskans  as  are  the state's  highways,  airports,  and  ports.                                                               
Alaska will always have the  longest, coldest winters in the U.S.                                                               
and  Alaska   would  place  itself  at   a  profound  competitive                                                               
disadvantage if  everything possible is  not done to  ensure that                                                               
Alaskans have the most affordable  energy.  Paying for a pipeline                                                               
with double digit  rates of return in invested equity  is akin to                                                               
buying a house and  charging the house to a credit  card.  A high                                                               
rate  of return  on equity  reduces the  value of  Alaska's North                                                               
Slope  gas, and  with trillions  of  dollars in  North Slope  gas                                                               
value  the state  has a  compelling interest  in protecting  that                                                               
value.   It even raises the  question that HB 9  violates Article                                                               
VIII of  the Alaska State  Constitution by  avoidably diminishing                                                               
the value of the state's  resources and denying Alaskan's maximum                                                               
CO-CHAIR SEATON  closed public testimony after  ascertaining that                                                               
no one else wished  to testify on HB 9.   He invited the sponsors                                                               
to speak on the bill.                                                                                                           
2:53:10 PM                                                                                                                    
REPRESENTATIVE MIKE  CHENAULT, Alaska State  Legislature, refuted                                                               
the earlier  assertion that  there is an  estimated 250  years of                                                               
gas  supply in  Cook  Inlet at  20 trillion  cubic  feet of  gas,                                                               
saying that that gas has not  been found.  He understood that the                                                               
current Cook  Inlet gas infrastructure  has used between 7  and 8                                                               
trillion cubic feet of gas in  the last 40 years; therefore if 10                                                               
trillion cubic  feet was found  there could be a  40-year supply.                                                               
The real  issue is  how many billions  of dollars  in exploration                                                               
costs  it will  take to  find  that gas  and whether  it will  be                                                               
economical  at that  time.   He said  HB 9  is a  continuation of                                                               
House  Bill 369,  which was  introduced because  it was  the only                                                               
option that Alaska had available  to move in-state gas forward in                                                               
regard to the AGIA process.   He asserted that people are getting                                                               
lost  in  the minutia  when  talking  about  the size  and  other                                                               
details, although he is not adverse  to a lot of the changes made                                                               
by the committee in the past few days.                                                                                          
2:55:21 PM                                                                                                                    
REPRESENTATIVE CHENAULT  acknowledged that he cannot  say whether                                                               
this project will go forward, but that  he can say it is the only                                                               
project he sees  that is moving right now that  could provide gas                                                               
to Alaskans.   While  it may not  be the size  or route  or price                                                               
that is wanted,  it would bring Alaska 100-200  years supply from                                                               
a confirmed gas source that  would bring cheaper gas to Fairbanks                                                               
and other  areas.  He  allowed that it will  not affect a  lot of                                                               
areas  in the  state  tomorrow even  if the  gas  were turned  on                                                               
tomorrow, but  said that  if nothing is  ever started  there will                                                               
never be  a result.  As  long as this project  is moving forward,                                                               
Alaska has an  opportunity to get gas.  Economics  will drive the                                                               
size of  the gasline and  its route, whether legislators  like it                                                               
or not.   While  not all  the questions  have been  answered, the                                                               
majority has,  and the  bill will likely  change again  before it                                                               
gets to the  floor.  The AGIA process is  already investigating a                                                               
route to Valdez, so why duplicate  that project?  If that project                                                               
becomes economically viable,  that is the project  that will move                                                               
forward.  However,  if that project does  not become economically                                                               
viable, this is another option that will bring gas to Alaskans.                                                                 
CO-CHAIR SEATON  thanked the prime  sponsor for  bringing forward                                                               
HB 9 and invited Representative Hawker to speak.                                                                                
2:58:04 PM                                                                                                                    
REPRESENTATIVE MIKE HAWKER, Alaska  State Legislature, noted that                                                               
getting Alaska's  North Slope  natural gas to  market has  been a                                                               
vision of  this state  since the day  construction ceased  on the                                                               
Trans-Alaska  Pipeline System  about  35 years  ago.   There  are                                                               
reasons this  has not been  done, he  allowed, such as  using the                                                               
gas on  the North Slope for  important purposes.  However,  it is                                                               
now time  for legislators to  take the actions necessary  to make                                                               
that  dream   a  reality.     He  offered  his   appreciation  to                                                               
Representative Chenault  for having  the vision to  bring forward                                                               
HB 9  and said he  has been working with  Representative Chenault                                                               
since the  start of House  Bill 369.   He urged Alaskans  to stop                                                               
struggling against each  other on this issue and that  there be a                                                               
converging  of  the  different views.    He  said  Representative                                                               
Chenault is the  visionary and his office is  doing the technical                                                               
work on  the issues for a  viable opportunity to build  a natural                                                               
gas  pipeline from  the North  Slope to  Alaska.   The vision  in                                                               
House  Bill 369,  now  manifested in  HB 9,  has  been all  about                                                               
getting  politics out  of  the way  and  empowering engineers  to                                                               
design  the  best  project  on  the best  route  using  the  best                                                               
management  practices  possible  to   bring  the  best  technical                                                               
outcome,  rather than  for politicians  to be  serving their  own                                                               
best special  interests.   He said AGDC  has brought  forward the                                                               
project  plan using  the management  science for  megaprojects of                                                               
the [Independent  Project Analysis  Institute].   It is  the only                                                               
project he  has seen  in his  35 years living  in Alaska  where a                                                               
project has been  brought forward with a true  plan to accomplish                                                               
its mission, a  plan that uses formal  best management practices.                                                               
That is something that is very  important and is why this project                                                               
is postured for success.                                                                                                        
3:01:31 PM                                                                                                                    
REPRESENTATIVE HAWKER stated that  knowing how to measure success                                                               
is a  very important part  of the vision behind  HB 9.   The bill                                                               
does not constrain ideas  or vision or the future.   It is a bill                                                               
that allows the  people that have to make  the right engineering,                                                               
financial, and other  decisions.  The bill would  provide a state                                                               
agency around  which all these  interests can converge to  move a                                                               
project forward.   This bill  is all about  eliminating competing                                                               
objectives and  divergent ideas and providing  the opportunity to                                                               
come together  with a  state agency  that is  postured in  a very                                                               
powerful position and a very powerful  seat at the table with the                                                               
producers  and  others  interested  in delivering  gas  into  the                                                               
state.  Through the marketing  end that is brought together there                                                               
are potential customers  overseas.  He related  that according to                                                               
the    senior   marketing    representative   from    "ExxonMobil                                                               
Corporation," who  made a presentation  at last week's  Lunch and                                                               
Learn, there is a niche in  the world market for Alaska's natural                                                               
gas.   Thus,  HB  9 is  not  about  saying no,  it  is about  the                                                               
legislature  finally having  the chance  to say  yes to  Alaska's                                                               
future.  He  complimented the committee for its  work and offered                                                               
his appreciation  for the committee's consideration  of the bill,                                                               
which he hoped the committee would report today.                                                                                
3:04:18 PM                                                                                                                    
REPRESENTATIVE P.  WILSON expressed  her concern that  the Alaska                                                               
Housing Finance Corporation (AHFC)  is already a big organization                                                               
and HB 9 would require its  board of directors to now oversee two                                                               
big organizations.   She added  she is pleased that  the sponsors                                                               
have agreed  to work on  an amendment  regarding confidentiality,                                                               
excepting the  protection of trade secrets  or direct competitive                                                               
advantage,  which  would  protect everybody  without  keeping  it                                                               
totally confidential.                                                                                                           
REPRESENTATIVE HAWKER allowed he has  the same concern about this                                                               
entity sharing common  management with the board  of directors of                                                               
the  AHFC.   However, in  looking at  how to  structure a  future                                                               
board,  the board  would likely  include the  state commissioners                                                               
that are already on the AHFC  board of directors.  He offered his                                                               
opinion that the AHFC is  the single best managed organization in                                                               
Alaska  and  that  the  AHFC  board  of  directors  is  eminently                                                               
qualified to take this work forward  as a board of directors.  He                                                               
pointed  out  that   the  entity  will  have   its  own  internal                                                               
management  team that  is dedicated  100 percent  of the  time to                                                               
making the AGDC  project and process move forward.   An important                                                               
argument  at this  time for  not changing  the management  at the                                                               
level  of the  board of  directors  is that  the ongoing  federal                                                               
environmental  impact statement  (EIS)  and regulatory  processes                                                               
would  be compromised  by  a  change in  the  management and  the                                                               
timeframe  would  be set  back.    Once  the missions  have  been                                                               
accomplished  in  the future,  it  might  be  time to  look  into                                                               
changing  that  management  and   establishing  AGDC  as  a  more                                                               
autonomous function.                                                                                                            
3:07:33 PM                                                                                                                    
REPRESENTATIVE KAWASAKI,  in regard to  comments that HB  9 would                                                               
provide options, pointed  out that the route  selection is pretty                                                               
specific  and  would miss  Fairbanks  by  nearly  40 miles.    He                                                               
maintained that Fairbanks, the second  largest city in Alaska and                                                               
a  city dealing  with  high  energy costs,  is  cut  out of  this                                                               
particular plan.   He  observed that  the AGDC  executive summary                                                               
specifically states  that this  project plan  is the  final route                                                               
and  no more  study  or  analysis of  route  selection should  be                                                               
undertaken  by AGDC  or any  other  state agency.   He  therefore                                                               
asked how energy will be delivered to Interior Alaska.                                                                          
REPRESENTATIVE HAWKER replied that  before gas can be distributed                                                               
to  any community  in  the  state, there  must  be backbone  that                                                               
brings  gas through  the center  of  the state  and this  project                                                               
would be  exactly that.   The  mission statement  for AGDC  is to                                                               
make  that  backbone  happen  and   to  look  at  developing  the                                                               
distributive infrastructure necessary to reach communities.                                                                     
3:09:36 PM                                                                                                                    
REPRESENTATIVE  MUNOZ  moved  to report  the  proposed  committee                                                               
substitute (CS)  for HB  9, version  27-LS0075\S, Nauman/Bullock,                                                               
2/25/12,   as  amended,   out   of   committee  with   individual                                                               
recommendations and the accompanying fiscal notes.                                                                              
CO-CHAIR FEIGE  objected, saying that  page 2, Section 1,  of the                                                               
bill  essentially mandates  AGDC to  follow the  project plan  as                                                               
currently  established.   House  Bill  369 did  not  ask for  the                                                               
pipeline route  with the  maximum benefit;  rather, it  asked for                                                               
the economically  feasible route.   The bullet route  directly to                                                               
Anchorage was  less expensive; however,  the maximum  benefit has                                                               
somehow bypassed his  district.  This is unfair  to his district,                                                               
in  which  there is  significant  opposition  to  HB  9.   As  in                                                               
Fairbanks,  the temperatures  in  his district  reach 40  degrees                                                               
below zero and  the population has declined primarily  due to the                                                               
lack of  industry and  the high  cost of  energy.   Bypassing the                                                               
people of  his district is  essentially writing off that  part of                                                               
the state,  so in  good conscience  he cannot  vote to  allow the                                                               
bill out of committee.                                                                                                          
3:11:11 PM                                                                                                                    
REPRESENTATIVE KAWASAKI  said it boils  down to ANGDA,  which was                                                               
overwhelmingly established  by two-thirds of the  state's voters.                                                               
The measure  that passed in  2002 outlined specific  things, such                                                               
as:    how  to use  the  state's  royalty  gas,  which is  not  a                                                               
consideration  of  AGDC;  how   revenue  sharing  with  municipal                                                               
governments would  work, which  is not  proposed or  supported by                                                               
AGDC; plan  for delivering natural  gas to communities  along the                                                               
pipeline  route  and consequently  a  spur  line to  Southcentral                                                               
Alaska,  but [another]  route has  been pre-ordained  by AGDC;  a                                                               
plan  for delivering  and  pricing  LNG to  the  Yukon River  and                                                               
coastal communities, which is not  important to AGDC.  By pushing                                                               
through HB  9, ANGDA would be  thrown under a different  board of                                                               
directors.    He said  he  supports  ANGDA's continued  help  and                                                               
thinks this legislature ought to as well.                                                                                       
3:12:50 PM                                                                                                                    
A  roll call  vote  was taken.    Representatives Herron,  Munoz,                                                               
Foster,  Dick, Seaton,  and Wilson  voted in  favor of  reporting                                                               
Version S,  as amended.   Representatives Gardner,  Kawasaki, and                                                               
Feige  voted against  it.   Therefore, CSHB  9(RES) was  reported                                                               
from the House Resources Standing Committee by a vote of 6-3.                                                                   
3:14:09 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 3:14 p.m.                                                                 

Document Name Date/Time Subjects
HB 9 Version U.pdf HRES 2/6/2012 1:00:00 PM
HRES 2/8/2012 1:00:00 PM
HRES 2/10/2012 1:00:00 PM
HRES 2/24/2012 1:00:00 PM
HRES 2/27/2012 1:00:00 PM
HB 9
HB 9 Sectional, version U.pdf HRES 2/6/2012 1:00:00 PM
HRES 2/8/2012 1:00:00 PM
HRES 2/10/2012 1:00:00 PM
HRES 2/24/2012 1:00:00 PM
HRES 2/27/2012 1:00:00 PM
HB 9
CSHB289 version I 2 21.pdf HRES 2/24/2012 1:00:00 PM
HRES 2/27/2012 1:00:00 PM
HB 289
HB289 version A.pdf HRES 2/24/2012 1:00:00 PM
HRES 2/27/2012 1:00:00 PM
HB 289
Explanation of Changes version A to Version I 2.22.12.docx HRES 2/24/2012 1:00:00 PM
HRES 2/27/2012 1:00:00 PM
HB 289
HB 289 Sponsor Statement.docx HRES 2/24/2012 1:00:00 PM
HRES 2/27/2012 1:00:00 PM
HB 289
S.pdf HRES 2/27/2012 1:00:00 PM
HB 9
Memo 12-070.med.pdf HRES 2/27/2012 1:00:00 PM
HB 9