Legislature(2015 - 2016)BARNES 124

03/13/2015 01:00 PM RESOURCES


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Audio Topic
01:00:07 PM Start
01:01:59 PM HB105
01:10:11 PM Presentation(s): Alaska Oil and Gas Competitiveness Review Board Update
01:45:01 PM State of Alaska, Alaska Lng Project, 3rd Party Cost Forecast by Department of Natural Resources
01:51:37 PM Asap Project Reconfiguration Plan by Alaska Gasline Development Corporation
03:11:12 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Oil & Gas Competitiveness Review Board Update TELECONFERENCED
-- Testimony <Invitation Only> --
+ AK LNG Update by Dept. of Natural Resources, TELECONFERENCED
Dept. of Revenue & Alaska Gasline Development
Corporation
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 132 AGDC SUPPORT OF NATURAL GAS PROJECTS TELECONFERENCED
Scheduled but Not Heard
-- Testimony <Invitation Only> --
-- Will Reconvene at 1:00 p.m. 3/14/15 --
+= HB 105 AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 13, 2015                                                                                         
                           1:00 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Benjamin Nageak, Co-Chair                                                                                        
Representative David Talerico, Co-Chair                                                                                         
Representative Mike Hawker, Vice Chair                                                                                          
Representative Bob Herron                                                                                                       
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Andy Josephson                                                                                                   
Representative Geran Tarr                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Jim Colver                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 105                                                                                                              
"An  Act  relating  to  the  programs and  bonds  of  the  Alaska                                                               
Industrial  Development  and  Export Authority;  related  to  the                                                               
financing   authorization    through   the    Alaska   Industrial                                                               
Development  and  Export Authority  of  a  liquefied natural  gas                                                               
production   plant   and   natural  gas   energy   projects   and                                                               
distribution systems  in the state;  amending and  repealing bond                                                               
authorizations granted  to the Alaska Industrial  Development and                                                               
Export Authority; and providing for an effective date."                                                                         
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PRESENTATION(S):                                                                                                                
                                                                                                                                
Alaska Oil and Gas Competitiveness Review Board Update                                                                        
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
State Of Alaska,  Alaska LNG Project, 3rd Party  Cost Forecast by                                                             
Department Of Natural Resources                                                                                               
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
ASAP Project Reconfiguration Plan by Alaska Gasline Development                                                               
Corporation                                                                                                                   
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 132                                                                                                              
"An Act relating to the support of the Alaska liquefied natural                                                                 
gas project by the Alaska Gasline Development Corporation."                                                                     
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 105                                                                                                                  
SHORT TITLE: AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/11/15       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/11/15       (H)       ENE, RES, L&C, FIN                                                                                     
02/17/15       (H)       ENE AT 10:15 AM BARNES 124                                                                             
02/17/15       (H)       Heard & Held                                                                                           
02/17/15       (H)       MINUTE(ENE)                                                                                            
02/24/15       (H)       ENE AT 10:15 AM CAPITOL 17                                                                             
02/24/15       (H)       Moved  CSHB 105(ENE) Out of Committee                                                                  
02/24/15       (H)       MINUTE(ENE)                                                                                            
02/25/15       (H)       ENE RPT CS(ENE) 7DP                                                                                    
02/25/15       (H)       DP: NAGEAK, WOOL, TILTON, TALERICO,                                                                    
                         CLAMAN, COLVER, VAZQUEZ                                                                                
03/09/15       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/09/15       (H)       Heard & Held                                                                                           
03/09/15       (H)       MINUTE(RES)                                                                                            
03/13/15       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
TOM HENDRIX, Chair                                                                                                              
Alaska Oil and Gas Competitiveness Review Board                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation and                                                                   
update on the Alaska Oil and Gas Competitiveness Review Board.                                                                  
                                                                                                                                
JERRY BURNETT, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Answered questions  during the  PowerPoint                                                             
presentation   and   update   on   the   Alaska   Oil   and   Gas                                                               
Competitiveness Review Board.                                                                                                   
                                                                                                                                
MARTY RUTHERFORD, Deputy Commissioner                                                                                           
Office of the Commissioner                                                                                                      
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided  the State  of Alaska,  Alaska LNG                                                             
Project, third party cost forecast  in accordance with Section 77                                                               
of Senate Bill 138 [28th Alaska State Legislature].                                                                             
                                                                                                                                
DAN FAUSKE, President                                                                                                           
Alaska Gasline Development Corporation (AGDC)                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided  information regarding  the Alaska                                                             
Stand  Alone Pipeline  (ASAP) reconfiguration  plan [the  planned                                                               
PowerPoint presentation, "ASAP Reconfiguration", was not given].                                                                
                                                                                                                                
FRANK RICHARDS, P.E., Vice President                                                                                            
Engineering and Program Management                                                                                              
Alaska Gasline Development Corporation (AGDC)                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Assisted  in providing information regarding                                                             
the Alaska Stand Alone Pipeline  (ASAP) reconfiguration plan [the                                                               
planned PowerPoint presentation,  "ASAP Reconfiguration", was not                                                               
given].                                                                                                                         
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:00:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  BENJAMIN NAGEAK  called  the  House Resources  Standing                                                             
Committee meeting to order at  1:00 p.m.  Representatives Herron,                                                               
Johnson, Josephson,  Seaton, Olson, Hawker, Talerico,  and Nageak                                                               
were present at  the call to order.   Representative Tarr arrived                                                               
as the meeting  was in progress.  Representative  Colver was also                                                               
present.                                                                                                                        
                                                                                                                                
         HB 105-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT                                                                     
                                                                                                                                
1:01:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK  announced that  the first  order of  business is                                                               
HOUSE BILL  NO. 105, "An Act  relating to the programs  and bonds                                                               
of  the  Alaska  Industrial  Development  and  Export  Authority;                                                               
related  to  the  financing   authorization  through  the  Alaska                                                               
Industrial  Development  and  Export  Authority  of  a  liquefied                                                               
natural gas production plant and  natural gas energy projects and                                                               
distribution systems  in the state;  amending and  repealing bond                                                               
authorizations granted  to the Alaska Industrial  Development and                                                               
Export Authority; and providing for  an effective date."  [Before                                                               
the committee was CSHB 105(ENE).]                                                                                               
                                                                                                                                
1:02:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  stated he  would like to  bring up  HB 105                                                               
because the committee and co-chairs  had requested amendments for                                                               
this bill  by noon today.   While the  bill itself is  simple, he                                                               
said, this  deadline is  difficult because he  does not  yet know                                                               
enough about the  specifics of the project being  taken by Alaska                                                               
Industrial Development and Export  Authority (AIDEA) and what its                                                               
alternative plans are.  Prior  to the committee taking amendments                                                               
or reporting  the bill, he said  he would like an  opportunity to                                                               
hear  more from  AIDEA and  the other  entities participating  in                                                               
that new project.                                                                                                               
                                                                                                                                
CO-CHAIR TALERICO  submitted that  the committee was  looking for                                                               
more of a plan  for the project and more needed  to be heard from                                                               
other  participants  and  entities.     He  suggested  that  more                                                               
information  be provided  by the  utilities involved  as well  as                                                               
others.  Given that well over  $200 million would be required for                                                               
this project,  he maintained that  more information is  needed by                                                               
committee members.                                                                                                              
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked  whether the  co-chairs  have  a                                                               
schedule in mind.                                                                                                               
                                                                                                                                
CO-CHAIR  NAGEAK replied  he would  like to  hear what  the other                                                               
committee members have to say.                                                                                                  
                                                                                                                                
1:05:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON offered  his concern  about the  pace and                                                               
said he  would like to get  more information because he  does not                                                               
know what the problem is, much less  how to fix it.  He therefore                                                               
stated that additional time is needed.                                                                                          
                                                                                                                                
REPRESENTATIVE  OLSON related  that  about two  months ago  AIDEA                                                               
launched  a $750,000  study on  all the  alternatives of  getting                                                               
energy  relief to  Fairbanks.   He suggested  the committee  have                                                               
AIDEA share an update on this study.                                                                                            
                                                                                                                                
REPRESENTATIVE SEATON noted that  at the bill's previous hearing,                                                               
he had questioned  the presenter about whether it  was limited to                                                               
LNG.   The  presenter had  thought that  there was  some way  the                                                               
wordings  could  be  interpreted  that  that  could  be  a  small                                                               
diameter pipeline as well going  from Cook Inlet.  Representative                                                               
Seaton recalled that  he had told the presenter he  would like to                                                               
see a legal  opinion in this regard because that  would be such a                                                               
stretch  "and whether  the  committee wants  to  have it  cheaper                                                               
energy for Interior  Alaska if we are including  or not including                                                               
that  portion ...  in  that  analysis."   Since  he  has not  yet                                                               
received an answer, he said he  is hoping the committee will have                                                               
more time to get the information from the Interior project.                                                                     
                                                                                                                                
REPRESENTATIVE HERRON  said he, too, would  like more information                                                               
so he can make a better conclusion and decision.                                                                                
                                                                                                                                
1:07:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON recollected  that at  the previous  hearing                                                               
the  committee  asked  for additional  information  on  the  port                                                               
authority's gas offering of several  years ago, but the committee                                                               
only received  the names of  some of  the companies and  not much                                                               
information.  He  said receiving more information  in this regard                                                               
would also be helpful.                                                                                                          
                                                                                                                                
REPRESENTATIVE JOSEPHSON  shared the committee's desire  for more                                                               
information on the  revised AIDEA plan.  Given the  crisis in the                                                               
Interior, however,  he offered  his hope  that something  will be                                                               
done this session  with ample time for the other  body to look at                                                               
the bill as well.                                                                                                               
                                                                                                                                
REPRESENTATIVE  HAWKER  pointed  out  that a  companion  bill  is                                                               
currently being heard in the Senate.                                                                                            
                                                                                                                                
REPRESENTATIVE OLSON  commented that in  his eight years  on this                                                               
committee, the  committee has always  tried to send  the cleanest                                                               
bill forward  that it can, even  when there is a  companion bill.                                                               
He opined that the committee  having inadequate information would                                                               
be a  disservice to  the people  in Fairbanks as  well as  to the                                                               
rest of the state.                                                                                                              
                                                                                                                                
1:09:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NAGEAK offered  his belief  that a  bill will  not move                                                               
forward today.  He agreed the  committee needs to see a plan from                                                               
the people who brought the bill forward.                                                                                        
                                                                                                                                
CO-CHAIR NAGEAK held  over HB 105 after determining  there was no                                                               
objection to doing so.  He  directed committee staff to talk with                                                               
AIDEA about a future presentation of the alternative studies.                                                                   
                                                                                                                                
^PRESENTATION(S):   Alaska  Oil  and  Gas Competitiveness  Review                                                               
Board Update                                                                                                                    
                        PRESENTATION(S):                                                                                    
     Alaska Oil and Gas Competitiveness Review Board Update                                                                 
                                                                                                                              
1:10:11 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK  announced that the  next order of business  is a                                                               
PowerPoint  presentation and  update on  the Alaska  Oil and  Gas                                                               
Competitiveness Review Board.                                                                                                   
                                                                                                                                
1:10:29 PM                                                                                                                    
                                                                                                                                
TOM  HENDRIX, Chair,  Alaska Oil  and Gas  Competitiveness Review                                                               
Board, offered his appreciation for being able to testify today.                                                                
                                                                                                                                
JERRY BURNETT,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department  of  Revenue  (DOR),  noted  that  the  Department  of                                                               
Revenue  (DOR)  staffs the  Alaska  Oil  and Gas  Competitiveness                                                               
Review Board.                                                                                                                   
                                                                                                                                
1:10:57 PM                                                                                                                    
                                                                                                                                
MR. HENDRIX  turned to slide  2, explaining that the  overview he                                                               
is  providing today  follows the  report [entitled  "Alaska's Oil                                                               
and  Gas Competitiveness  Report  2015"] that  the committee  has                                                               
already received.                                                                                                               
                                                                                                                                
MR. HENDRIX moved to slide 3,  specifying that the Alaska Oil and                                                               
Gas  Competitiveness  Review Board  was  formed  under Senate  21                                                               
[28th  Alaska  State Legislature].    The  board was  created  to                                                               
establish  and  maintain  salient  data  regarding  oil  and  gas                                                               
exploration,  development,  and  production  in  Alaska,  and  to                                                               
advise  the  Alaska  State  Legislature  on  the  state's  fiscal                                                               
system, labor  pool, and  regulatory competitiveness.   Reviewing                                                               
the members of the board, he  said the board's two public members                                                               
are  Joey  Merrick, a  business  secretary  for Alaska  Laborers'                                                               
Local 341;  and Rodney Brown,  the treasurer for the  Plumber and                                                               
Pipefitters  Local  375.     The  board's  three  [administration                                                               
department heads] are  Randall Hoffbeck, Commissioner, Department                                                               
of  Revenue  (DOR);  Mark   Myers,  Commissioner,  Department  of                                                               
Natural Resources  (DNR); and  Kristin Ryan,  [Director, Division                                                               
of Spill Prevention & Response],  filling in for the commissioner                                                               
of  the  Department of  Environmental  Conservation  (DEC).   The                                                               
board's   one  commissioner   from   the  Alaska   Oil  and   Gas                                                               
Conservation Commission  (AOGCC) is Mike Gallagher.   The board's                                                               
three  oil  and  gas  subject matter  experts  are  Pete  Stokes,                                                               
Petroleum  Engineer [Petrotechnical  Resources  of Alaska];  Curt                                                               
Freeman,  geologist  [Avalon  Development Corporation];  and  Tom                                                               
Maloney, CPA [CH2M  Hill].  The board's two  industry trade group                                                               
representatives are Kara Moriarty,  President/CEO, Alaska Oil and                                                               
Gas  Association  (AOGA);  and  himself.    Providing  background                                                               
information about  himself, Mr. Hendrix  shared that he  was born                                                               
and raised in  Fairbanks, has two grown children  and a grandson,                                                               
resides  in  Palmer, and  has  been  with Carlile  Transportation                                                               
Systems, Inc. for  23 years where he is  currently vice president                                                               
and running the company's oil and gas division.                                                                                 
                                                                                                                                
1:14:27 PM                                                                                                                    
                                                                                                                                
MR.  HENDRIX drew  attention  to slide  4,  explaining the  board                                                               
began its  work by identifying  [Alaska's oil and  gas producing]                                                               
peers.   The peers  identified by  the board  are located  in the                                                               
Arctic, North  America, Europe,  and the  Pacific Region  and all                                                               
the  jurisdictions have  concession-type fiscal  arrangements for                                                               
tax and  royalties that  are similar to  Alaska.   The identified                                                               
jurisdictions  have   similar  size  reserves   and  undiscovered                                                               
resource potential as  Alaska, and have a  history of significant                                                               
hydrocarbon production.                                                                                                         
                                                                                                                                
MR. HENDRIX said  Alaska has vast resources [slide  5].  Although                                                               
not all  of them are proven  reserves, Alaska has a  third of the                                                               
nation's  reserves.   Regarding land  and lease  sales in  Alaska                                                               
[slide 6], he  said the federal lands are vast  [61 percent], but                                                               
are locked up and challenging to  develop.  The private lands [12                                                               
percent] have the  smallest offering and are contrary  to many of                                                               
Alaska's  peers.    State  lands   [27  percent]  have  the  most                                                               
potential  for development  in  the  short term.    The State  of                                                               
Alaska's lease sale program is  more consistent and reliable than                                                               
the federal government, which is very important to the state.                                                                   
                                                                                                                                
1:16:18 PM                                                                                                                    
                                                                                                                                
MR. HENDRIX brought  attention to slide 7,  stating that drilling                                                               
activity  in  Alaska is  a  good  indicator of  petroleum-related                                                               
activity.   For  example, there  was an  uptick in  activity when                                                               
Senate Bill  21 was  enacted [June  2013].   He pointed  out that                                                               
slide 7  is from the  Alaska Oil and Gas  Conservation Commission                                                               
and depicts  all well activity,  including workover  wells, water                                                               
production  wells,  coiled  tubing  unit  drilling,  and  infield                                                               
production drilling and said the  slide shows a tremendous amount                                                               
of activity.                                                                                                                    
                                                                                                                                
MR. HENDRIX  turned to slide 8,  specifying it is a  Baker Hughes                                                               
measure.  He  advised that the number of active  drilling rigs on                                                               
slide 8 differs  from the number of drilling rigs  shown on slide                                                               
7.   This  is because  AOGCC measures  every drill  rig activity,                                                               
whereas  the  Baker  Hughes  slides  are  more  of  a  production                                                               
drilling,  fixed rig,  reported by  the  bit salesmen.   He  said                                                               
slide 8  shows that Alaska  has had a fairly  consistent drilling                                                               
program through  the ups and  downs compared to the  other states                                                               
which have  gone through boom  and bust  cycles.  While  the well                                                               
counts and the  rig counts are significantly  different [from the                                                               
other states], the slide shows  that there is a tremendous amount                                                               
of stability in Alaska.                                                                                                         
                                                                                                                                
1:18:20 PM                                                                                                                    
                                                                                                                                
MR. HENDRIX  reviewed North  Slope infrastructure  and challenges                                                               
[slide  9].   He said  current infrastructure  consists of:   the                                                               
Trans-Alaska  Pipeline  System  (TAPS),  the  state-owned  Dalton                                                               
Highway,  and   oil  and  gas  related   infrastructure  that  is                                                               
primarily owned by  industry.  While there  has been conversation                                                               
about whether industry  or the state should own these,  it is not                                                               
an  issue  that  the  board   looks  at.    Current  North  Slope                                                               
challenges  are:   incident  response,  increased water  handling                                                               
capability as fields decline, and  the oil flow contingencies for                                                               
the Trans-Alaska Pipeline System.   The board has met with former                                                               
Commissioner  Kemp and  discussed roads  and other  Department of                                                               
Transportation &  Public Facilities infrastructure.   However, he                                                               
noted,  the board  has not  yet  had a  chance to  meet with  new                                                               
commissioner, Marc Luiken.                                                                                                      
                                                                                                                                
MR. HENDRIX  addressed the infrastructure  of the Cook  Inlet and                                                               
the frontier  basins [slide 10].   He said the Cook  Inlet has 34                                                               
units/fields,  all of  which are  connected to  infrastructure to                                                               
bring oil or gas into processing  facilities.  As well, there are                                                               
oil pipelines, dockage, and gas  storage facilities.  He said the                                                               
six  frontier  basins  include the  Fairbanks  area,  Glennallen,                                                               
Kotzebue, Emmonak, Egegik, and Port Moller.                                                                                     
                                                                                                                                
1:20:11 PM                                                                                                                    
                                                                                                                                
MR. HENDRIX, regarding labor and  employment [slide 11], reported                                                               
that  the board  met with  the  Department of  Labor &  Workforce                                                               
Development and  learned about the department's  current training                                                               
programs.   Tracking  workforce development  will be  one of  the                                                               
board's  "dashboard  items"  when  doing its  study.    Workforce                                                               
development  is something  to be  keenly aware  of because  it is                                                               
necessary for  being able  to attract  industry expansion  in the                                                               
state.   Having labor involved  on the  board is key  in Alaska's                                                               
future growth.   Expansion in this area would be  important and a                                                               
competitive advantage for Alaskans.                                                                                             
                                                                                                                                
CO-CHAIR NAGEAK  pointed out that  his district has  two training                                                               
centers.   He said they are  very important programs to  meet the                                                               
North Slope labor  needs.  He inquired whether  there is anything                                                               
the legislature can do to  ensure that these two training centers                                                               
will  continue to  be  a program  of the  Department  of Labor  &                                                               
Workforce Development.                                                                                                          
                                                                                                                                
MR. HENDRIX  deferred to the  department to answer  the question,                                                               
saying  he cannot  speak directly  to the  department's business.                                                               
He reported,  however, that the  Department of Labor  & Workforce                                                               
Development provided an extremely  good presentation to the board                                                               
showing the state's different training  programs.  Looking at the                                                               
state's available workforce and  the programs to train additional                                                               
Alaskan  workers  is  something  the  board  believes  should  be                                                               
measured and watched closely to  ensure Alaska has a workforce of                                                               
Alaskans to do that.                                                                                                            
                                                                                                                                
1:23:24 PM                                                                                                                    
                                                                                                                                
MR.  HENDRIX said  slide 12  is not  in the  board's report,  but                                                               
shows the difficulty,  challenges, and complexity that  is had in                                                               
permitting.   He pointed  out that the  yellow boxes  depicted on                                                               
the graphic are  items that the State of Alaska  can make changes                                                               
to, if needed.  The board  has not identified whether the state's                                                               
permitting process is fast enough,  robust enough, or competitive                                                               
with other  states, but  permitting is  something the  board must                                                               
study closely to  ensure that Alaska is not  disadvantaged by its                                                               
permitting process as compared to competing jurisdictions.                                                                      
                                                                                                                                
MR.  HENDRIX   addressed  slide  13,  which   lists  the  typical                                                               
permitting  requirements.   He  said  federal,  state, and  local                                                               
permits are required  to explore and develop,  whether onshore or                                                               
on the outer continental shelf (OCS).                                                                                           
                                                                                                                                
MR.  HENDRIX turned  to slide  14,  which shows  how royalty  and                                                               
different taxes make up the Alaska  fiscal system.  He noted that                                                               
the pie chart is from a better  time than what the state is faced                                                               
with  today.   Not shown  on slide  14, he  added, is  the actual                                                               
federal and local taxes that are generated in the process.                                                                      
                                                                                                                                
MR. HENDRIX  stressed that slide  15, highlighting  the petroleum                                                               
fiscal regimes  of Alaska's  peer groups,  is not  meant to  be a                                                               
comparison because there  is no perfect fiscal system.   Of note,                                                               
he said, is that those fiscal  regimes having higher taxes - such                                                               
as  Norway,  Australia, or  Australia  deepwater  - do  not  have                                                               
royalties.   While not a comparison,  the slide is a  snapshot of                                                               
the factors  that were in  place at  the time the  board's report                                                               
was put  together.  Nothing remains  static for long for  many of                                                               
the jurisdictions, he advised, especially during low prices.                                                                    
                                                                                                                                
1:26:23 PM                                                                                                                    
                                                                                                                                
MR. HENDRIX moved  to slide 16, pointing out that  the Alaska Oil                                                               
and Gas Competitiveness  Review Board was faced with  a very fast                                                               
start.  The board was mandated by  Senate Bill 21, but due to the                                                               
referendum the  board's first meeting  didn't occur  until August                                                               
2013.  Then  the change in Alaska's administration  resulted in a                                                               
change-out of some of the board's  members.  The board has had 10                                                               
meetings and  extremely good participation in  getting the report                                                               
done;  however,  the 2015  report  does  not meet  the  statutory                                                               
requirements under  Senate Bill 21.   The board's task was  for a                                                               
deliverable at end  January 2015 with written  findings, and this                                                               
report by no  means is written findings or  recommendations.  The                                                               
board has assembled a baseline of  where [Alaska] is at today and                                                               
a starting  point.  In  looking at what  it has been  tasked with                                                               
doing, the  board has discovered  that an outside study  needs to                                                               
be done, much  like the experts the administration  has hired for                                                               
different studies for oil and gas.   The board feels it important                                                               
that this  be an outside study  to ensure there is  good feedback                                                               
from oil  companies or producers  or folks who are  interested in                                                               
doing business  in Alaska.   If it comes  from the state  he does                                                               
not  think that  the oil  companies  or explorers  would feel  as                                                               
compelled to give  absolutely anything that might  be a criticism                                                               
or something that the state could  fix.  So, the board feels that                                                               
having a  third party do  that will yield far  better information                                                               
and  analytics.     There  is  a  broad  base   from  which  this                                                               
information needs  to be  drawn.   As unfortunate  as it  is, the                                                               
board has prepared a request  for proposals (RFP) where the board                                                               
has  asked for  funding to  continue  its work.   Following  this                                                               
study the board  believes it can meet  its statutory requirements                                                               
to  give written  recommendations,  but that  work  has not  been                                                               
completed yet.                                                                                                                  
                                                                                                                                
1:29:24 PM                                                                                                                    
                                                                                                                                
MR. BURNETT  added that the  Department of Revenue (DOR)  has met                                                               
with the  Alaska Oil  and Gas Competitiveness  Review Board.   He                                                               
confirmed the board  has had 10 meetings and has  been working on                                                               
the  aforementioned.   He specified  the fiscal  note for  Senate                                                               
Bill  21  was simply  for  funding  the administrative  costs  of                                                               
operating the board.   The board, including  the commissioners on                                                               
the board, have  concluded that an outside study is  needed.  The                                                               
report  was   due  in  January   [2015],  which  is   about  when                                                               
administratively it  was understood what  the needs would  be, so                                                               
it didn't come  to DOR in time for the  budget process this year.                                                               
It continues  to be  discussed, he  said, and  he thinks  all the                                                               
board   members,  including   DOR   Commissioner  Hoffbeck,   are                                                               
supportive of  finding funding someplace.   There could be  a way                                                               
to  get funding  from industry,  but because  an unbiased  report                                                               
must be ensured public funding is  being looked at as the source,                                                               
and this  will be discussed with  members of the legislature.   A                                                               
meeting was  held with  the governor's  office earlier  today and                                                               
support was received for making a funding ask for this work.                                                                    
                                                                                                                                
1:31:00 PM                                                                                                                    
                                                                                                                                
MR. HENDRIX stated that without  funding in this budget cycle the                                                               
board's work  will be pushed  out nine  months.  The  board would                                                               
not be  brought to  a complete  stop, he  said, but  without that                                                               
funding  the  board cannot  get  to  the written  recommendations                                                               
required under statute.   Other items that will be  pushed out as                                                               
a  result  of no  funding  are  the board's  future  deliverables                                                               
[slide 17].  The date for  the board's next report to legislative                                                               
committees is  January 15, 2017;  with lack of funding  that date                                                               
will be  pushed out.   The board can  try to compress  this work,                                                               
but this work  is extremely important to the State  of Alaska and                                                               
the board wants  to be thorough and accurate in  the execution of                                                               
this.    So,  he  advised,   there  will  have  to  be  something                                                               
legislatively to push  the dates for delivery on  the January 15,                                                               
2017, deadline, as well as the January 31, 2021, deliverable.                                                                   
                                                                                                                                
MR.  HENDRIX noted  the board  is  diverse and  includes a  large                                                               
contingent of labor, for which he  is glad because labor is a key                                                               
piece of Alaska's competitiveness.   He concluded by thanking all                                                               
of the  departments for their  participation, as well as  that of                                                               
AOGCC, because  every department gave  its time to  pull together                                                               
the data the board has presented in its 2015 report.                                                                            
                                                                                                                                
1:33:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked whether  the board has  an estimate                                                               
on the amount of funding needed.                                                                                                
                                                                                                                                
MR.  HENDRIX  replied  the  board has  identified  a  request  of                                                               
$300,000 in the RFP.                                                                                                            
                                                                                                                                
1:34:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  appreciated Mr.  Hendrix's acknowledgement                                                               
that the board's  2015 report does not comply  with the statutory                                                               
requirements.   He inquired whether  the board's intention  is to                                                               
supplement  this with  a report  that is  in compliance  with the                                                               
statutory  requirements  for  the  January 31,  2015,  report  in                                                               
addition to the January 15,  2017, and January 31, 2021, reports,                                                               
or whether the intention is to  move on forward with the 2017 and                                                               
2021 reports.                                                                                                                   
                                                                                                                                
MR. HENDRIX responded  that the board intends to  submit what was                                                               
statutorily required prior  to the January 2017 report.   So, the                                                               
board will meet its statutory  requirements, which will take more                                                               
time, prior  to the 2017 deliverable.   The board owes  the House                                                               
Resources Standing Committee a report  as outlined statutorily in                                                               
Senate Bill 21 and also owes another report in 2017.                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether  the board  will be  able to                                                               
complete the 2015 report if  the legislature does not appropriate                                                               
funds for the consulting study.                                                                                                 
                                                                                                                                
MR. HENDRIX answered  no.  Responding further,  he explained that                                                               
"without  having the  data to  be  able to  do the  comprehensive                                                               
study that we  ... need the information  and professional surveys                                                               
to pull  together, his answer would  be 'no', we're not  going to                                                               
turn out a quality product ... that   we would feel that we could                                                               
recommend to the state to move forward with."                                                                                   
                                                                                                                                
1:36:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR observed  the RFP will be issued  on March 23                                                               
[2015] and the  contractor's work period will be May  4 to July 1                                                               
[2015].   Concluding that something must  therefore come together                                                               
fairly quickly,  she asked whether the  plan is to issue  the RFP                                                               
without knowing  how it will be  paid for.  She  further inquired                                                               
whether July 1,  2015, is when the board is  expecting to get the                                                               
consultant's  final work  product that  would then  be integrated                                                               
into what Representative Hawker was just asking.                                                                                
                                                                                                                                
MR. BURNETT replied  the expectation is that those  dates will be                                                               
moved, those dates  are there as placeholders.   So, depending on                                                               
when funding  is available  and how it  is identified,  the dates                                                               
will be moved.   However, the body of the RFP is  ready to go, so                                                               
the dates can be changed and the RFP put out.                                                                                   
                                                                                                                                
REPRESENTATIVE  TARR observed  the notice  to award  is April  20                                                               
[2015] with  the contract for  May 4 to July  1, a window  of two                                                               
months.   She  asked  whether two  months is  enough  time for  a                                                               
contractor to be able to complete the study work.                                                                               
                                                                                                                                
MR. HENDRIX responded yes.                                                                                                      
                                                                                                                                
1:38:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON requested  Mr.  Hendrix to  state for  the                                                               
record why the board slid past this deadline.                                                                                   
                                                                                                                                
MR. HENDRIX  answered that the legislative  directive [requiring]                                                               
the board to  produce written findings was a hurdle  if the board                                                               
had  been formed  and  started  as soon  as  Senate  Bill 21  was                                                               
passed.   With  less than  seven months,  and a  volunteer board,                                                               
coming up with  the deliverable mandated under Senate  Bill 21 is                                                               
an insurmountable task.                                                                                                         
                                                                                                                                
1:39:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  turned   to  slide   12  regarding   the                                                               
regulatory and  permitting structure.  He  recalled Mr. Hendrix's                                                               
statement  that   comparisons  needed  to  be   made  with  other                                                               
jurisdictions.  He  asked which comparisons were  being made; for                                                               
example, costs per unit of  production, accidents, oil spills, or                                                               
looking at regulations in relation to results.                                                                                  
                                                                                                                                
MR. HENDRIX replied that slide 12  speaks to permitting.  He said                                                               
a  comparison of  Alaska's permitting  process needs  to be  made                                                               
with other  states, provinces, and  jurisdictions to  ensure that                                                               
Alaska's permitting  system doesn't inhibit producers  from being                                                               
able to  get permits to develop  leases.  The board  is trying to                                                               
compare  Alaska's permitting  system,  labor  system, and  fiscal                                                               
system.   Permitting  was an  item that  the board  strongly felt                                                               
needed to  be matched  up against  Alaska's competitive  peers to                                                               
ensure  that Alaska's  system  is as  good or  better  to try  to                                                               
attract business to the state of Alaska.                                                                                        
                                                                                                                                
1:41:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  remarked  that   there  are  reasons  for                                                               
permits.   He inquired whether  the board's review  of permitting                                                               
will  include looking  at the  outcomes of  the other  permitting                                                               
systems as  well as how functional  they are.  For  example, will                                                               
the  review be  about how  quickly  the permits  could be  gotten                                                               
through the  system or  how well did  the permits  control water,                                                               
oil spills, and accidents.                                                                                                      
                                                                                                                                
MR. HENDRIX responded  the board is cognizant  of the environment                                                               
and how responsible  the producers are in the  environment.  But,                                                               
the permitting view  being taken by the board is  very simple, it                                                               
is just looking  at the application and processing  of permits to                                                               
be able to develop hydrocarbons and nothing more than that.                                                                     
                                                                                                                                
1:42:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON specified that if  it is found that another                                                               
state's system allows for quicker  drilling, he wants to know the                                                               
value of  those quicker permits;  for example, what  the outcomes                                                               
are  and whether  it was  responsible permitting.   Without  that                                                               
information  it  will  be  unknown  whether  that  other  state's                                                               
permitting  was  responsible  permitting or  whether  Alaska  has                                                               
excess  requirements  that do  not  generate  any value  for  the                                                               
state.  It would be valuable  information, he opined, to know the                                                               
end outcome of the chain of permits in the other jurisdictions.                                                                 
                                                                                                                                
The committee took an at-ease from 1:43 p.m. to 1:45 p.m.                                                                       
                                                                                                                                
^State of Alaska, Alaska LNG  Project, 3rd Party Cost Forecast by                                                               
Department of Natural Resources                                                                                                 
State Of Alaska, Alaska LNG Project, 3rd Party Cost Forecast by                                                             
                Department Of Natural Resources                                                                             
                                                                                                                              
1:45:01 PM                                                                                                                    
                                                                                                                              
CO-CHAIR NAGEAK  announced that the  next order of business  is a                                                               
presentation  on the  State of  Alaska, Alaska  Liquefied Natural                                                               
Gas (LNG) Project, third party cost forecast.                                                                                   
                                                                                                                                
MARTY   RUTHERFORD,   Deputy    Commissioner,   Office   of   the                                                               
Commissioner, Department  of Natural  Resources (DNR),  noted she                                                               
is the  lead for the  State of Alaska  on the Alaska  LNG Project                                                               
(AK LNG).   She said she  is before the committee  to present the                                                               
third party cost  forecast to the legislature  in accordance with                                                               
Section 77  of Senate Bill 138  on the amount of  money the state                                                               
may be  obligated to pay a  third party - TransCanada  - under an                                                               
agreement or  contract under  AS 38.05 if  a North  Slope natural                                                               
gas project  is terminated before  the first  flow of gas  in the                                                               
project.    The report  is  focused  on information  specific  to                                                               
development costs that TransCanada  is undertaking on the state's                                                               
behalf through the precedent agreement  (PA).  This PA was signed                                                               
in June  2014 and has  a term of  no more  than two years  and is                                                               
expected  to  last  through  the  Pre-front-end  engineering  and                                                               
design (Pre-FEED) phase of the Alaska LNG Project.                                                                              
                                                                                                                                
1:46:55 PM                                                                                                                    
                                                                                                                                
MS. RUTHERFORD  related that on  February 17, 2015,  DNR provided                                                               
an updated  report to  the committee.   It was  an update  of the                                                               
previously submitted  report that was  sent on January  29, 2015.                                                               
She projected  onto the screen a  copy of the February  17, 2015.                                                               
As of December 31, 2014,  TransCanada has reported spending $13.7                                                               
million on the  state's behalf, she said.  This  was from January                                                               
2014 through  December 2014.   This amount includes  $5.6 million                                                               
net of Alaska Gasline Inducement  Act (AGIA) reimbursements spent                                                               
from January  1 to June  9 on  concept selection costs.   Another                                                               
$7.8 million  was spent  on Pre-FEED cash  calls and  $300,000 on                                                               
carrying costs.   Through  the Pre-FEED  phase it  is anticipated                                                               
that TransCanada will incur a total  of $108 million, split up as                                                               
follows:   $77 million in Alaska  LNG Project cash calls  made on                                                               
the state's  behalf; $18 million in  TransCanada's internal costs                                                               
for  Pre-FEED; $5.6  million net  of AGIA  reimbursements on  the                                                               
concept selection,  which was  cost prior  to entrance  into Pre-                                                               
FEED; and $8  million in carrying costs, which  are allowance for                                                               
funds used  during construction (AFUDC)  or, in this  case, funds                                                               
used during development.                                                                                                        
                                                                                                                                
1:48:17 PM                                                                                                                    
                                                                                                                                
MS. RUTHERFORD  said that going  forward the State of  Alaska has                                                               
several options.   The  state can exercise  the equity  option at                                                               
any  point  between now  and  the  end of  2015.    If the  state                                                               
exercises this option, the state can  choose anywhere from 0 - 40                                                               
percent of the  25 percent that is held on  the state's behalf by                                                               
TransCanada, and  the state would  owe anywhere between 0  and 40                                                               
percent of the  total costs up to that point.   Another option is                                                               
that the  state can continue  as is with TransCanada  holding the                                                               
full 25 percent of the  state's equity interest in the midstream,                                                               
which means the pipeline and the  gas treatment plant (GTP).  The                                                               
third  option  is  that  the   state  could  also  terminate  the                                                               
precedent agreement between now and any  time up until the end of                                                               
Pre-FEED if the state provides  TransCanada with a 90 day notice.                                                               
Also,  TransCanada  has the  option  to  terminate the  precedent                                                               
agreement.   The estimates of  what would be owed  vary depending                                                               
on  the date  the  state  exercises either  option  as that  will                                                               
depend on what  reimbursable costs have already  been accrued and                                                               
the associated carrying costs at the time of termination.                                                                       
                                                                                                                                
MS.  RUTHERFORD concluded,  saying  the aforementioned  completes                                                               
her presentation which  was for the purposes of  getting onto the                                                               
record the information that was provided in the two letters.                                                                    
                                                                                                                                
1:49:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER asked  whether the  aforementioned numbers                                                               
are  in line  with the  costs that  were anticipated  when Senate                                                               
Bill 138 was passed a year ago.                                                                                                 
                                                                                                                                
MS. RUTHERFORD replied  yes, they actually are  almost exactly in                                                               
alignment.                                                                                                                      
                                                                                                                                
REPRESENTATIVE HAWKER  concurred and offered  his congratulations                                                               
to Ms. Rutherford.                                                                                                              
                                                                                                                                
The committee took an at-ease from 1:50 p.m. to 1:51 p.m.                                                                       
                                                                                                                                
^ASAP Project Reconfiguration Plan  by Alaska Gasline Development                                                               
Corporation                                                                                                                     
ASAP Project Reconfiguration Plan by Alaska Gasline Development                                                             
                          Corporation                                                                                       
                                                                                                                                
1:51:37 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NAGEAK  announced that  next  order  of business  is  a                                                               
presentation  on the  reconfiguration plan  for the  Alaska Stand                                                               
Alone Pipeline (ASAP) Project.                                                                                                  
                                                                                                                                
1:51:46 PM                                                                                                                    
                                                                                                                                
DAN  FAUSKE, President,  Alaska  Gasline Development  Corporation                                                               
(AGDC), thanked the committee for  its patience, noting that AGDC                                                               
was supposed  to be before  the committee  more than a  week ago,                                                               
but various things occurred and that  was not able to happen.  He                                                               
said  the AGDC  Board met  yesterday  [March 12,  2015] with  the                                                               
three new  board members in  attendance.  The meeting  started at                                                               
9:00 a.m. and  concluded about 3:30 p.m., with  the meeting going                                                               
very well.   He  said that  today he will  review the  outcome of                                                               
that board  meeting as well  as what  the board of  directors has                                                               
asked the  staff to do  over the next  few weeks in  reference to                                                               
the  slide show  that  Mr.  Richards will  present  today on  the                                                               
reconfiguration  to  collect  data  and  to  come  up  with  some                                                               
assessments as to  what potential costs might be  involved in the                                                               
request that has been made of  staff by the board.  [This planned                                                               
presentation, "ASAP Reconfiguration", was not given.]                                                                           
                                                                                                                                
1:53:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  asked  a   "framing  question"  prior  to                                                               
commencement of the  slide show.  He recalled that  the last time                                                               
Mr.  Fauske was  before the  committee, Mr.  Fauske was  with Ms.                                                               
Rutherford and  all the  stakeholders in  the Alaska  LNG Project                                                               
(AK LNG).  At that time,  the committee was given assurances that                                                               
everything  was on  track,  on budget,  moving  forward, and  the                                                               
issues  were  being  resolved.   Later  that  day,  however,  the                                                               
administration  announced that  a  new competing  project was  in                                                               
place.   He requested Mr.  Fauske to address what  happened after                                                               
that  committee meeting  in  which AGDC  gave  a very  resounding                                                               
endorsement for the  work that was being done  in accordance with                                                               
Senate  Bill   138  and  the   directions  the   legislature  had                                                               
established  by policy.   He  asked what  has brought  Mr. Fauske                                                               
before the  committee today  to talk  about a  reconfiguration of                                                               
what [the committee] thought was [the state's] backup project.                                                                  
                                                                                                                                
MR. FAUSKE replied:                                                                                                             
                                                                                                                                
     What's happened  is that there has  been interest shown                                                                    
     and the  good work still  continues.  What  [staff has]                                                                    
     been  asked  to  look  into  is  an  upsizing  of  that                                                                    
     project.   We are on  track, we  are on budget,  we are                                                                    
     moving along precisely as we  were directed to do under                                                                    
     not only  [House Bill] 4,  but [Senate Bill] 138.   ...                                                                    
     the request  that has been  brought forward  to [staff]                                                                    
     is to take a look at  the upsizing of the project so as                                                                    
     to make  it more economical.   In other words,  the 500                                                                    
     million  feet  that  we've had  ...  through  statutory                                                                    
     constrictions in  the past and/or  policy restrictions.                                                                    
     As  of late  last year,  we had  arrived at  a position                                                                    
     where the 500 million, and  I've stated this before, is                                                                    
     economical in the  sense of it can still  supply gas to                                                                    
     Alaskans  at a  price  we believe  below imported  LNG.                                                                    
     Where you  run into  a problem, we  feel, is  that when                                                                    
     you go above that, and  ... Alaska only needs about 250                                                                    
     million feet a  day, at least on  the Railbelt section,                                                                    
     that  doesn't  include  as we  branch  it  out  further                                                                    
     hopefully  into the  future, only  needs about  240/250                                                                    
     million feet  of gas a day.   With a limit  of 500 that                                                                    
     means you have to sell  that other ... 250 million feet                                                                    
     of gas in  order to maintain the  tariff schedules that                                                                    
     we have  published.   There is where  it gets  a little                                                                    
     tricky, where  you might have  a gas  that is not  in a                                                                    
     position  to be  sold readily  to  ... an  Agrium or  a                                                                    
     Donlin Creek  or a  Conoco or  whoever else  that might                                                                    
     want to purchase that residual gas.                                                                                        
                                                                                                                                
1:56:20 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE continued his reply:                                                                                                 
                                                                                                                                
     The  administration has  also announced  that they  had                                                                    
     felt that  way; that  they wanted  to see  an upsizing.                                                                    
     That is not new news.   What happened yesterday was the                                                                    
     board has  directed [staff]  to come  back in  a couple                                                                    
     weeks  with  an  estimate  as to  what  work  would  be                                                                    
     involved,  or what  the costs  would be,  to look  at a                                                                    
     reconfigured ANSI.                                                                                                         
                                                                                                                                
MR. FAUSKE  explained that the  current design is to  an American                                                               
National Standards Institute (ANSI)  600, 36 inch, one compressor                                                               
station,  800-mile-long  pipeline  coming  down to  Beluga.    He                                                               
continued his reply:                                                                                                            
                                                                                                                                
     What we  have been asked to  take a look at  is an ANSI                                                                    
     600 with  added compression to  go from 500  million up                                                                    
     to 1.4 -  1.5 billion feet of  gas a day.   And then to                                                                    
     take a  look at  what it  would take  for an  ANSI 900,                                                                    
     which is  denser steel  and ...  stronger steel  ... to                                                                    
     look  at a  pipeline  that could  generate, again  with                                                                    
     more compression, up to 2.5  billion feet of gas a day.                                                                    
     ...  that  is the  directive  [staff]  has been  given.                                                                    
     Ancillary to that  will be some additional  work on the                                                                    
     gas   treatment  plant   [GTP].     There  is   no  LNG                                                                    
     configuration made in this ...  estimate which falls in                                                                    
     line with what  [House Bill] 4 has  always ... remember                                                                    
     we  are talking  ASAP  [Alaska  Stand Alone  Pipeline],                                                                    
     we've never been involved  in the liquefaction business                                                                    
     on the ASAP  side.  That was always the  intent, was to                                                                    
     get the  gas to Beluga,  and that the sale  from beyond                                                                    
     that point after  where it had fed into  the ... ENSTAR                                                                    
     line, that any commercial  activity after that would be                                                                    
     the responsibility of the person  or firms or companies                                                                    
     buying that  residual gas.  So,  Representative Hawker,                                                                    
     that's what's changed.                                                                                                     
                                                                                                                                
1:58:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER asked  another "framing  question", saying                                                               
he is now  thinking back to the first time  Mr. Fauske was before                                                               
the  committee this  legislative  session, rather  than the  last                                                               
time.   He  commented that  he is  sometimes not  sure which  Mr.                                                               
Fauske he has in front of him.   He recalled that an ASAP Project                                                               
update was given at the first  meeting and his takeaway from that                                                               
discussion was that the original  ASAP, AGIA-limited, concept was                                                               
a  backup project  that was  prepared and  ready to  move forward                                                               
into an  open season should AGDC  choose.  But, with  the success                                                               
that was going  on with AK LNG, [the ASAP]  open season timeframe                                                               
had been  sort of suspended.   It was  thought that AK  LNG would                                                               
move forward, but  if it didn't, AGDC was ready  to take ASAP and                                                               
ramp it up into a much  larger project that would allow the state                                                               
to continue its momentum in  getting gas if something happened to                                                               
AK LNG.  Now  it sounds like ASAP is no longer  being viewed as a                                                               
backup project.  The governor has  now characterized it as a race                                                               
to the finish  -- that ASAP is  to compete with and  enter into a                                                               
race  and a  competition for  state resources  with AK  LNG.   He                                                               
asked  whether what  has been  heard from  the governor  comports                                                               
with the directive  that AGDC staff has received  and where staff                                                               
is taking this new reconfiguration.                                                                                             
                                                                                                                                
2:00:11 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE responded:                                                                                                           
                                                                                                                                
     The  way  I'd like  to  characterize  that is  ...  the                                                                    
     administration, the governor's  comments, bear a strong                                                                    
     resemblance  to  -  the board  of  directors  met,  the                                                                    
     governor didn't  direct me to  do this - but  the board                                                                    
     of directors has met.   ... we're going to analyze this                                                                    
     data to come back to the  board with what kind of costs                                                                    
     are associated with  this.  And I'd like  to talk about                                                                    
     that for just a moment, if  I may.  We currently, prior                                                                    
     to  the  issuance  of  Administrative  Order  271  from                                                                    
     Governor  Walker,  to  I think  it  was  six  projects,                                                                    
     directing   them   to   cease   and   desist   on   ...                                                                    
     discretionary  funding.    And  we had  prior  to  that                                                                    
     announcement  already started  that  work in  reference                                                                    
     to, we  were so far ahead  time-wise of AK LNG  that it                                                                    
     made no sense for us to  continue to spend the money at                                                                    
     the clip we were spending  it, so we had ratcheted back                                                                    
     the spend  by about $90  million and we settled  on $60                                                                    
     million  as  ...  nondiscretionary funding  that  would                                                                    
     continue that  project to move forward  doing work that                                                                    
     was  beneficial to  both projects.   And  then it  also                                                                    
     stayed  within  the  parameters of  the  administrative                                                                    
     order issued by the governor.   And so, that's where we                                                                    
     currently were.                                                                                                            
                                                                                                                                
2:01:41 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE continued his reply:                                                                                                 
                                                                                                                                
     ASAP  has  completed  FEED [front-end  engineering  and                                                                    
     design].  And  if we were not constrained,  and I'm not                                                                    
     saying  that being  constrained is  bad because  the AK                                                                    
     LNG we're partners  in that too ... we're  proud of the                                                                    
     work  we're doing  on that.    But we  are the  state's                                                                    
     representative on the liquefaction  piece of the Alaska                                                                    
     gasline ...  AK LNG Project,  but it made no  sense for                                                                    
     us to  continue to move forward  ... to hold it  and to                                                                    
     file  for  the recourse  tariff  filing  with the  RCA,                                                                    
     subsequent  to that  hold an  open season  knowing that                                                                    
     the outcome  would probably not be  beneficial based on                                                                    
     the work  that AK LNG is  doing and would you  get, for                                                                    
     instance in  this case, would  the producers bid.   And                                                                    
     there  was the  desire to  allow the  other project  to                                                                    
     catch up; the  intent then being as you  move into that                                                                    
     first  to  second  quarter 2016,  which  has  been  the                                                                    
     published  dates shown,  it's  slipped a  few months  I                                                                    
     know, when the  ... PRE-FEED [pre-front-end engineering                                                                    
     and design] work  is completed and the  decision or the                                                                    
     time has  come for the  FEED decision to be  made, it's                                                                    
     always  been  the intention  that  you  would have  two                                                                    
     projects  melded   together.    ...  if   AK  LNG  were                                                                    
     successful,  which would  be a  great  event, the  work                                                                    
     that we  had done would ...  meld into that ...  and it                                                                    
     would go on.  But I  think it's a fair statement to say                                                                    
     that  you're not  going  to see  two  projects, so  the                                                                    
     intent was always that that's what would occur.                                                                            
                                                                                                                                
2:03:11 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE continued his reply:                                                                                                 
                                                                                                                                
     ... what's  been published now  and the  discussion is:                                                                    
     Is 500  million the size line  that you want to  end up                                                                    
     with at the  end of the day if, in  the event, ... FEED                                                                    
     ...  isn't successful.   If  there's a  decision that's                                                                    
     made  by industry  and others  that this  project isn't                                                                    
     worthy  or doesn't  meet market  conditions to  a level                                                                    
     that companies are comfortable,  including the State of                                                                    
     Alaska, to spend $60 billion,  what should the fallback                                                                    
     position be?   That's where  we find ourselves.   Do we                                                                    
     want  to end  up  at the  end  of the  day  with a  500                                                                    
     million  feet per  day gas  pipeline  that's very  well                                                                    
     designed -  and I  want to  say this  to Frank  and the                                                                    
     employees  and  consultants  we have  had,  we've  done                                                                    
     exemplary  work -  I'm just  so  proud of  it, it  just                                                                    
     stands up  to any scrutiny.   We've just  submitted our                                                                    
     class 3 estimate, which is  good.  ... but the question                                                                    
     is, and what's  being raised is:  Do we  want to end up                                                                    
     at 500 million feet design,  let's just call it June of                                                                    
     next year,  in the event  that a FEED  decision doesn't                                                                    
     make it and  doesn't go forward?  I think  we then find                                                                    
     ourselves - and statements that  have been made about a                                                                    
     merchant  type program  where you're  marketing dealing                                                                    
     directly with market forces and  buyers of gas - rather                                                                    
     than  necessarily  producers.   And  so,  there's  this                                                                    
     distinct difference....                                                                                                    
                                                                                                                                
2:04:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  agreed that  Mr. Fauske  characterized the                                                               
committee's  previous meeting  just  as he  recollected  it:   it                                                               
doesn't  make  sense to  continue  on  the backup  project  while                                                               
making  progress  on  the much  larger  integrated  project,  the                                                               
entire LNG project not just the  in-state gas project.  He agreed                                                               
with Mr. Fauske  that the likelihood of a  successful open season                                                               
for  "ASAP 1"  was highly  unlikely, particularly  since all  the                                                               
people that  hold and have all  the gas are the  investors in the                                                               
other project -- there is no gas for ASAP at the moment.                                                                        
                                                                                                                                
MR. FAUSKE interjected, "Including the state."                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER  said "the  state  has  no gas  until  the                                                               
producers produce it."  He inquired  as to "what has changed that                                                               
suddenly  makes  it  proper  now  ...  to  spend  the  money  the                                                               
legislature  earmarked  for that  backup  project  that had  been                                                               
testified to us was going  to be protected, marshalled, preserved                                                               
for  the future,  to start  forward right  now on  the course  of                                                               
expanding a  project."  He  further asked,  "How can we  expect a                                                               
different outcome  than what you  had reached the  conclusion and                                                               
testified to us would be the  fate of any other competing project                                                               
here just ... a month ago?"                                                                                                     
                                                                                                                                
2:06:06 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE offered:                                                                                                             
                                                                                                                                
     I don't  think we need  to expect a  different outcome.                                                                    
     ... for clarity, we've been  asked to, as quickly as we                                                                    
     can, come back with some  estimates at what the cost of                                                                    
     doing  the very  work that  I described  would be.   We                                                                    
     haven't been  directed to start  that project,  at this                                                                    
     point ....  We're going to  come back to the board in a                                                                    
     short  period of  time with  ... the  estimates because                                                                    
     then you  have to  analyze the  remaining money  in the                                                                    
     fund.  Is there enough to  do it?  There's a great deal                                                                    
     of  analysis.   What level  of estimate  do you  end up                                                                    
     with at the  end of the day?   As you know,  we have no                                                                    
     requests in before ... the  legislature ... for funding                                                                    
     on the  ASAP Project.   The work was going  to continue                                                                    
     on what we're doing on  the complementary work for both                                                                    
     projects;   we're   doing   that.     What's   changed,                                                                    
     Representative  Hawker, is  that  we've  been asked  to                                                                    
     supply  some numbers  for what  could  be a  subsequent                                                                    
     decision made  on that, I  will admit that, when  we go                                                                    
     back to the board.                                                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER   recalled  testimony  that   without  the                                                               
constraints  of AGIA,  AGDC had  already, in  concept, taken  the                                                               
original ASAP Project  far beyond the original  500 million cubic                                                               
feet per  day and  was looking  at it being  a much  larger line.                                                               
The question, he  said, is whether the state  would receive value                                                               
by continuing to  invest money in developing the  larger scale or                                                               
would  it be  duplicative.    He noted  his  appreciation of  the                                                               
distinction  between AGDC  not spending,  but  rather looking  at                                                               
spending here today.                                                                                                            
                                                                                                                                
2:08:11 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  asked whether  the direction  is just  for the                                                               
pipe component.                                                                                                                 
                                                                                                                                
MR. FAUSKE replied no.  The  resolution is pipe, but with that is                                                               
the ancillary,  one must look  at the gas treatment  plant (GTP),                                                               
what the  pipe is going to  attach itself into.   He said numbers                                                               
will therefore  be reviewed that include  pipe reconfiguration as                                                               
well as estimates as  to what the GTP would have to  be.  He then                                                               
reminded the  committee that  ASAP was  designed using  the Fluor                                                               
Solvent [Process]  because the  directive of  House Bill  4 (28th                                                               
Alaska State  Legislature) was  to bring gas  to Alaskans  at the                                                               
lowest possible  cost.  The design  was not for an  LNG line, but                                                               
rather a pipeline  flowing utility grade gas.   However, prior to                                                               
the passage of House Bill  4, an addendum was included specifying                                                               
[the  requirement]  to  haul about  1.5  percent  propane,  which                                                               
equates to  about 4,000 barrels  of propane [passing  through the                                                               
pipeline] for potential use down  the Yukon and/or the Richardson                                                               
Highway.   Therefore, AGDC is  going to examine whether  a larger                                                               
line could be used while  maintaining the Fluor Solvent design or                                                               
would  an amine  process have  to  be used  to produce.   Are  we                                                               
switching now  to an LNG  line or would this  be a gasline?   The                                                               
directive was  not to  change to  an LNG line  with an  LNG plant                                                               
configuration, but AGDC is going  to obtain numbers as to whether                                                               
the same Fluor  Solvent Process could be used to  deliver the gas                                                               
in greater volumes to the same destination.                                                                                     
                                                                                                                                
2:10:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  surmised that  after this work  is completed                                                               
there will be three options:                                                                                                    
                                                                                                                                
     If you're  at FEED with the  ASAP line as it  is ... we                                                                    
     have all the  ... specs and engineering  work ... ready                                                                    
     for that  stage, and then  this will give you  a second                                                                    
     piece of  information for  some alternatives,  and then                                                                    
     AK LNG.  So, at  some point here we'll have essentially                                                                    
     three alternatives to evaluate?                                                                                            
                                                                                                                                
MR. FAUSKE said  he would not characterize  them as alternatives,                                                               
rather he clarified  that AGDC will obtain the  numbers, get back                                                               
to the board with the idea  that if it fits within the parameters                                                               
of what  [AGDC] can afford or  the board wants to  do, then there                                                               
might  be  another alternative.    However,  currently [AGDC]  is                                                               
still at  the point  of obtaining  estimates as  to how  much the                                                               
endeavor would  cost.  He  acknowledged that a  third alternative                                                               
could  result.   He further  clarified  that it's  an attempt  to                                                               
determine  whether "you  can operate  where  we're currently  at,                                                               
redesign, up the volume, ...  stay within the funding levels that                                                               
we're  currently at."   He  advised that  the schedule  cannot be                                                               
forgotten.  "You want to  time yourself so that you're coinciding                                                               
with  the already  published FEED  decision based  on the  AK LNG                                                               
side."   The difficulty, he opined,  is in terms of  the level of                                                               
design  that  could  be  accomplished  to  get  to  the  class  3                                                               
estimates, which has taken a great deal of time.                                                                                
                                                                                                                                
FRANK  RICHARDS, P.E.,  Vice President,  Engineering and  Program                                                               
Management,  Alaska   Gasline  Development   Corporation  (AGDC),                                                               
interjected that AGDC does the work to industry standards.                                                                      
                                                                                                                                
2:12:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  recalled there  was testimony at  a previous                                                               
meeting  that pipe  had been  ordered and  some testing  had been                                                               
done.   She surmised that  at some point  that work could  be for                                                               
naught because a different decision could be made.                                                                              
                                                                                                                                
MR. FAUSKE clarified that that pipe  was ordered to be tested for                                                               
the current design of ANSI 600, 36-inch [pipe].                                                                                 
                                                                                                                                
MR.  RICHARDS specified  that the  pipe was  ordered specifically                                                               
for   areas  where   strain   accumulation   was  expected   from                                                               
discontinuous permafrost  either from  frost settlement  or frost                                                               
heave.   The pipe was  an X70 class  pipe.  Mr.  Richards offered                                                               
that  the  work  is  beneficial  to the  ASAP  Project,  any  new                                                               
iteration of the ASAP Project, or  the AK LNG Project.  He opined                                                               
that it's beneficial  work because it's about the  grade of steel                                                               
and meeting those design criteria for a pipeline.                                                                               
                                                                                                                                
2:13:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  pointed out  that  the  cost of  the  two                                                               
pipelines is impacted by whether the  gas is utility grade or LNG                                                               
grade  and whether  CO  could  be carried.   He  then recalled  a                                                               
                      2                                                                                                         
recent  presentation from  Agrium Inc.  regarding restart  during                                                               
which  it was  related that  CO  is  an input  necessary for  its                                                               
                               2                                                                                                
process.  He asked if AGDC  is working with Agrium Inc. regarding                                                               
the  amount of  CO   necessary for  the  processing  of urea  and                                                               
                  2                                                                                                             
whether the  [proposed] pipeline configuration still  makes sense                                                               
with  higher levels  of COin   the  pipe versus  North  Slope LNG                                                               
                          2                                                                                                     
quality.                                                                                                                        
                                                                                                                                
MR. FAUSKE said that AGDC has  met with Agrium Inc. several times                                                               
in the past,  but not recently.  He acknowledged  that there is a                                                               
difference in  the [level of] COwith   the Fluor  Solvent Process                                                               
                               2                                                                                                
versus the LNG quality gas versus utility grade gas.                                                                            
                                                                                                                                
MR. RICHARDS  noted his agreement  with Mr. Fauske that  AGDC has                                                               
met with Agrium Inc. several times  in the past, but not of late.                                                               
The current  design of  the ASAP Project  with the  Fluor Solvent                                                               
Process is one in which the  gas is reduced down to a consistency                                                               
of about 3 percent CO flowing down to Southcentral Alaska.                                                                      
                     2                                                                                                          
                                                                                                                                
2:15:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON   presumed   that   AGDC   will   be   in                                                               
conversations with Agrium Inc. as this is analyzed.                                                                             
                                                                                                                                
MR. FAUSKE replied that AGDC  will probably have discussions with                                                               
Agrium  Inc.   He then  explained that  AGDC, as  a builder  of a                                                               
pipeline, will state the consistency  of the available gas during                                                               
the  open  season  and  as the  bids/requests  are  received  and                                                               
analyzed, the  consistency of the  available gas can  be altered.                                                               
He remarked, "You  don't want to end  up, at the end  of the day,                                                               
with a  pipe that you miss  a golden opportunity to  have a large                                                               
anchor tenant and not have the ability to service that client."                                                                 
                                                                                                                                
2:17:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON related  his understanding  that the  work                                                               
product will be  completed by the next regular  board meeting [of                                                               
AGDC].  He inquired as to when that board meeting will be held.                                                                 
                                                                                                                                
MR.  FAUSKE related  his belief  that the  next board  meeting is                                                               
scheduled for [April  9th].  However, he noted that  in the event                                                               
[the work product is completed]  sooner, or there is a compelling                                                               
reason through the  available data, AGDC can  certainly request a                                                               
meeting of the  board sooner.  Mr. Fauske  acknowledged that this                                                               
is  an  issue that  plays  heavily  into  what the  committee  is                                                               
considering, and therefore  the sooner the data  can be comprised                                                               
the better.                                                                                                                     
                                                                                                                                
2:18:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER returned  to the topic of  pipes and sizing                                                               
up without really  sizing for LNG.  He  related his understanding                                                               
that  AGDC  staff has  only  been  tasked with  determining  cost                                                               
estimates to scale up the pipe size.                                                                                            
                                                                                                                                
MR. FAUSKE said that's correct.                                                                                                 
                                                                                                                                
REPRESENTATIVE HAWKER  then inquired  as to why  [estimates would                                                               
be made] to  scale up the pipe without the  intent and purpose of                                                               
it being  an LNG  project.  He  questioned whether  estimates not                                                               
considering an LNG  project are being made to  avoid saying there                                                               
is a competing LNG project.                                                                                                     
                                                                                                                                
MR.  FAUSKE  clarified  that  AGDC  is not  involved  in  an  LNG                                                               
project, the  only LNG project  in which  AGDC is involved  is AK                                                               
LNG.    However, he  related  his  understanding that  AGDC  will                                                               
consider LNG.                                                                                                                   
                                                                                                                                
MR.  RICHARDS informed  the committee  that the  presentation and                                                               
what the AGDC  Board has provided goes into the  specifics of the                                                               
reconfiguration plan.   He offered to address that  now or during                                                               
the presentation.                                                                                                               
                                                                                                                                
2:20:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON,  following up on  Representative Tarr's                                                               
question,  inquired  as to  whether  the  discussion of  a  third                                                               
alternative   would  be   more   properly   characterized  as   a                                                               
reconfiguration  or  reconsideration   of  a  reconfigured  first                                                               
alternative that is House Bill 4.                                                                                               
                                                                                                                                
MR. FAUSKE opined  that [AGDC] is ensuring that  ASAP is designed                                                               
at a  level that better  suits the needs  of Alaska or  a market-                                                               
type condition or  the ability to produce more  product than it's                                                               
currently designed  to achieve.   The ultimate goal, he  said, is                                                               
that AK LNG  goes forward and is the end  product.  However, what                                                               
[AGDC] is  looking at  is what  is being done  in the  interim in                                                               
terms of the desired end product, if  this was not to occur.  Mr.                                                               
Fauske said  that 500  feet doesn't fit  with comments  that were                                                               
made  or the  sense of  the board.   The  [pipeline] needs  to be                                                               
sized at  a level that  provides a more competitive  advantage to                                                               
Alaska or  the ability to deliver  a product at a  greater level,                                                               
and  AGDC is  trying  to develop  some numbers  as  to what  that                                                               
alternative would cost.                                                                                                         
                                                                                                                                
2:22:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked  whether there  is  anything  in                                                               
House Bill  4, Senate Bill  138 [28th Alaska  State Legislature],                                                               
or the precedent  agreements that would preempt this  in any way.                                                               
In other  words, he asked  whether Mr. Fauske has  read anything,                                                               
or  been  informed  of  anything, that  would  stop  this  policy                                                               
adaptation.                                                                                                                     
                                                                                                                                
MR. FAUSKE  related AGDC's belief  that under House Bill  4, AGDC                                                               
has  the  ability  to  review   this  and  potentially  do  this.                                                               
However, Senate Bill 138 does restrict  AGDC in the sense that AK                                                               
LNG could only  be proposed if it involves working  within the AK                                                               
LNG parameters of  the legislation.  Mr. Fauske  opined that AGDC                                                               
believes that  under House Bill  4 it  has the ability  to review                                                               
this as the  language refers to "providing  the best alternatives                                                               
for Alaska"  and "operating in  a prudent  manner".  He  said, "I                                                               
think that's what we're exercising here  is ... let's take a look                                                               
at that to see if we can end  up at a level that makes more sense                                                               
to the state."                                                                                                                  
                                                                                                                                
2:23:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  questioned how AGDC can  be progressing in                                                               
a prudent manner when the directive  of House Bill 4 was for AGDC                                                               
to continue with the project  plan established per House Bill 369                                                               
[26th Alaska State Legislature],  with modifications necessary to                                                               
meet the  other statutory  objectives of House  Bill 4  and House                                                               
Bill 369.   The top responsibility was to get  gas to communities                                                               
in  Alaska first  and foremost.    Representative Hawker,  again,                                                               
inquired as to  how it can be  prudent at this time  to embark on                                                               
this course, when,  as acknowledged earlier, there is  no gas for                                                               
this  project.   He recalled  an  earlier rationale  that it  was                                                               
prudent,  responsible,  and  appropriate  to back  off  from  the                                                               
further  post-AGIA limitations  scale-up of  ASAP.   He therefore                                                               
inquired as  to what the AGDC  Board believes has changed  as the                                                               
current testimony is contradicting prior testimony.                                                                             
                                                                                                                                
MR. FAUSKE  replied that he  doesn't believe he  is contradicting                                                               
the  testimony  yet.    By  that,  he  reiterated  that  AGDC  is                                                               
developing  cost  estimates  to  report  to  the  AGDC  Board  to                                                               
determine if this  is a prudent endeavor that  should be pursued.                                                               
He  said, however,  that Representative  Hawker's question  would                                                               
bear far more weight if the AGDC Board decides to go forward.                                                                   
                                                                                                                                
2:25:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER characterized a  scenario in which the AGDC                                                               
Board  chooses  to  move  forward as  a  serious  question  about                                                               
prudence and diligence and a  horrific contradiction.  He pointed                                                               
out  that the  governor clearly  stated  in writing  that he  was                                                               
embarking on a  competing project that would be in  a race to the                                                               
finish with  AK LNG.  When  the two competing projects  reach the                                                               
final  investment  decision  (FID), the  executive  would  choose                                                               
between the two projects and  put the resources behind the chosen                                                               
project.    However, he  emphasized,  that's  not what  is  being                                                               
described today.   Rather, he is hearing testimony  that the AGDC                                                               
Board  has directed  staff to  price larger  pipe, which  is very                                                               
inconsistent with  what he  was expecting  to hear.   He  said he                                                               
expected to hear  testimony that AGDC is  executing the direction                                                               
established  by  the  chief  executive   officer  of  the  state.                                                               
Therefore, he  questioned who he  should believe:  Mr.  Fauske or                                                               
the governor.                                                                                                                   
                                                                                                                                
2:27:04 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE specified  that the governor did not direct  him to do                                                               
anything,  the  AGDC Board  did.    He  opined  that there  is  a                                                               
difference.   He acknowledged  that the  governor has  been quite                                                               
public that  the 500 million  makes no  economic sense.   He said                                                               
the AGDC Board has requested  staff to review the alternatives to                                                               
[the 500 million].  Mr. Fauske continued:                                                                                       
                                                                                                                                
     This involves  so many moving  parts ...  because we're                                                                    
     not only  trying to figure  out what exactly  does this                                                                    
     mean because we're  so far down the trail  on the other                                                                    
     project.  We  also have a business  relationship on the                                                                    
     AK LNG side,  so then you get into the  sharing of data                                                                    
     and ...  does that relationship  stay the same?   And I                                                                    
     don't know  the answer  to that  yet.   I do  know that                                                                    
     that  will  factor  in  heavily  to  a  decision  going                                                                    
     forward for  information going back  to the  board ....                                                                    
     We've had  the ability to  share data in the  work that                                                                    
     we're doing.   I was clear to the  board yesterday that                                                                    
     it's going  to be my  desire to work with  the industry                                                                    
     to  try and  keep  that relationship  whole.   ...  the                                                                    
     industry has been  quite outspoken as well  as to their                                                                    
     concerns or  possible confusion over this  action.  So,                                                                    
     I  think over  the next  few weeks,  we're going  to be                                                                    
     working  very hard  to try  and clear  that up,  try to                                                                    
     figure out what  will this thing actually  look like if                                                                    
     it goes forward  and, to the best of  our ability, what                                                                    
     those costs would be.                                                                                                      
                                                                                                                                
2:28:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  recalled a  press conference in  which the                                                               
governor named  Mr. Fauske  as his  point man  to respond  to all                                                               
questions  about  his  competing   pipeline  project  that  would                                                               
compete  with the  AK LNG  pipeline to  FID, at  which point  the                                                               
governor would decide [which project would move forward].                                                                       
                                                                                                                                
MR. FAUSKE  explained that he  was not at that  press conference.                                                               
He noted his appreciation for  the governor's acknowledgement and                                                               
AGDC  team.   However, the  governor's comments,  he said,  don't                                                               
reflect his actions  yesterday.  He reiterated  that yesterday he                                                               
was not taking action from the  governor but rather from the AGDC                                                               
Board of Directors.                                                                                                             
                                                                                                                                
REPRESENTATIVE HAWKER identified the  problem as the inability to                                                               
know who  is credible.   He  opined that he  doesn't know  if the                                                               
governor is intending to do what  he has said publicly or whether                                                               
to believe what is being  said today.  Representative Hawker said                                                               
he is horribly confused.                                                                                                        
                                                                                                                                
2:31:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  said he  thinks that  what he  is hearing                                                               
Mr. Fauske  say is:  "It's  just a coincidence that  the governor                                                               
appoints three  new board members,  does a press  conference, and                                                               
the board takes  a different direction."  He asked  whether it is                                                               
just coincidence.                                                                                                               
                                                                                                                                
MR. FAUSKE replied:                                                                                                             
                                                                                                                                
     No, it's  not a  coincidence.   ... I  think this  is a                                                                    
     board that's taking some action  based on the desire of                                                                    
     the  administration  and,   but  more  importantly,  to                                                                    
     analyze what we  know has been said to see  if it makes                                                                    
     any  economic  sense.     I'd  like  to   hold  out  in                                                                    
     reservation,  and  ... I  think  I  can speak  for  any                                                                    
     prudent  individual  whether  the governor  or  anybody                                                                    
     else, that if  we come back with some  numbers that say                                                                    
     this makes  absolutely no sense,  based on  whatever, I                                                                    
     think then we  could have a different  discussion.  I'd                                                                    
     like to remain  hopeful on that.  I've  been working on                                                                    
     this a long time.                                                                                                          
                                                                                                                                
2:32:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON requested that Mr. Fauske repeat his                                                                     
answer.                                                                                                                         
                                                                                                                                
MR. FAUSKE responded:                                                                                                           
                                                                                                                                
     I'm saying  that we've been  asked to come back  to our                                                                    
     board with what  we think this would cost.   This could                                                                    
     be a situation  where, if it comes back  and it exceeds                                                                    
     the  amount of  money that  we have  on hand  to do  it                                                                    
     accurately,  then  you have  to  sit  down with  people                                                                    
     whoever they  might be -  governor on down -  if you're                                                                    
     looking  at  [legislative]   request  for  funding,  if                                                                    
     you're  looking at  a toll,  a reconfiguration.   We're                                                                    
     trying  to come  up  with ...  facts  and figures  that                                                                    
     would  support doing  this action.   We  don't know  at                                                                    
     this point if  we have enough funds to do  that.  ... I                                                                    
     guess what  I'm trying to  say is, if we  could revisit                                                                    
     this at  a such time.   I'm  trying to be  defensive of                                                                    
     this isn't  a final decision  yet.  This has  been some                                                                    
     work that's been assigned to us to go look at.                                                                             
                                                                                                                                
2:33:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  said he is  sure this will  be revisited.                                                               
He asked  whether Mr. Fauske is  talking money to kick  the tires                                                               
or money  to build  the project.   He further  asked how  far Mr.                                                               
Fauske has been instructed to  go and what Mr. Fauske's intention                                                               
is.  He  inquired whether Mr. Fauske is asking  for money for the                                                               
research to find  out if it's feasible, or what  the line is here                                                               
because he hasn't  heard anything specific and  it's just kicking                                                               
tires and will cost X.                                                                                                          
                                                                                                                                
MR. FAUSKE answered that  he didn't mean to say it  that way.  He                                                               
said:   "We're not here  requesting money.   We're going  to come                                                               
back with the idea of what this is going to cost to do."                                                                        
                                                                                                                                
2:33:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON asked, "What is 'this'?"                                                                                 
                                                                                                                                
MR. RICHARDS replied:                                                                                                           
                                                                                                                                
     What the  board asked  us to do  yesterday was  to come                                                                    
     back  with   a  scope,  schedule,  and   budget  to  do                                                                    
     additional work on two pipe  class size.  So that means                                                                    
     we are  to go back  and in  the next two  weeks develop                                                                    
     what's it going  to take to advance  through a Pre-FEED                                                                    
     and  FEED effort  for ANSI  600 and  an ANSI  900 pound                                                                    
     class pipeline.                                                                                                            
                                                                                                                                
2:34:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON inquired as to  how much of that work AGDC                                                               
has already done through the ASAP project.                                                                                      
                                                                                                                                
MR. RICHARDS responded:                                                                                                         
                                                                                                                                
     The FEED  work that  we've just  completed now  for the                                                                    
     ASAP Project  was for a  36 inch, ANSI 600  pound class                                                                    
     pipe,  with a  gas conditioning  facility on  the North                                                                    
     Slope to  utility grade  gas.   So that  was for  a 500                                                                    
     million standard  cubic foot a day  throughput.  That's                                                                    
     been  the ...  basis of  our work  to date.   What  the                                                                    
     board has asked us to do  is, then, with that ANSI pipe                                                                    
     class in order to  increase the volume throughput, then                                                                    
     you  need  to add  compression  and  you need  to  have                                                                    
     additional  conditioning  facilities   upsized  on  the                                                                    
     North Slope.   So they've asked  us to go back  and say                                                                    
     what's  it going  to take  in  order to  do the  design                                                                    
     efforts  for  that  upsizing of  the  gas  conditioning                                                                    
     facility  and the  look at  doing compression  stations                                                                    
     along the pipeline route, feeding  into an LNG facility                                                                    
     by someone else.                                                                                                           
                                                                                                                                
2:35:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON   said  he  understands  that,   but  his                                                               
question is how  much of the work  on the ANSI 600  pipe has AGDC                                                               
staff already done.                                                                                                             
                                                                                                                                
MR. RICHARDS answered,  "We've done FEED-level work  for the ANSI                                                               
600 pipe."                                                                                                                      
                                                                                                                                
REPRESENTATIVE JOHNSON asked how much  of that is duplicative for                                                               
this  new   project  called  the   "governor's  plan",   or  "new                                                               
pipeline", or whatever it is going to be called.                                                                                
                                                                                                                                
MR. RICHARDS replied:                                                                                                           
                                                                                                                                
     If we call it "reconfigured"  or "ASAP Prime", whatever                                                                    
     we call it ... consider  this:  the two main components                                                                    
     right now  of the ASAP Project,  as currently designed,                                                                    
     is a  gas conditioning facility  and a pipe.   The pipe                                                                    
     work  is  solid and  can  be  used for  anything  going                                                                    
     forward,  because   you  would  be   adding  additional                                                                    
     conditioning on the slope and  compressor stations.  So                                                                    
     the  pipe, the  design  of the  pipe, the  right-of-way                                                                    
     work, that  is all solid work  that can be used  for an                                                                    
     additional, or reconfigured, project.                                                                                      
                                                                                                                                
2:36:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON said  his point is [the  state] is sharing                                                               
information that  it has  already paid for  under ASAP  with this                                                               
"transformer  pipeline",   but  it  is  supposed   to  be  siloed                                                               
eventually so [the  state] is not competing with  its partners in                                                               
sharing information that  the AK LNG pipeline has.   It seems, he                                                               
said, that there is a sieve of information going back and forth.                                                                
                                                                                                                                
MR. RICHARDS responded:                                                                                                         
                                                                                                                                
     The existing cooperation that we  have between AGDC and                                                                    
     our  AK  LNG partners  is  a  very solid  relationship.                                                                    
     Primarily we're looking at work  on the pipeline right-                                                                    
     of-way.    So we're  looking  at  the geohazards  work,                                                                    
     we're looking  at the geotechnical work,  we're looking                                                                    
     at  cultural resource  work, wetlands  delineation, and                                                                    
     we  are  looking at  essentially  the  strength of  the                                                                    
     pipe, so  that the ... strain-based  pipe design effort                                                                    
     that we've been undertaking  in the small-scale testing                                                                    
     is  of  value  to   both  projects.    The  cooperation                                                                    
     agreement is between  ... the AK LNG  partners and AGDC                                                                    
     for the  ASAP Project at  500 million  max.  So,  if we                                                                    
     were to ... reconfigure  the project to greater volume,                                                                    
     we would  no longer be able  to, unless we can  reach a                                                                    
     common  understanding and  agreement  to do  that at  a                                                                    
     future date.                                                                                                               
                                                                                                                                
REPRESENTATIVE JOHNSON said he will follow up later because he                                                                  
is being unable to articulate his question very well.                                                                           
                                                                                                                                
2:38:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON asked whether it is the AGDC Board that is                                                                
driving the boat or whether another captain is driving the boat.                                                                
                                                                                                                                
MR. FAUSKE answered:                                                                                                            
                                                                                                                                
     I  think it's  an accurate  statement to  say that  the                                                                    
     board  of  directors  takes the  action.    Through  my                                                                    
     entire existence of doing this  type of work, governors                                                                    
     have  appointed boards  ... and  to  state that  boards                                                                    
     don't have  some responsibility  to the  governor would                                                                    
     be inaccurate on  my part.  I'm not  saying that's what                                                                    
     occurred, but  of course there  is some  interplay when                                                                    
     governors make  their appointments.   To what  level it                                                                    
     occurred   here,  I'm   sure   that   there  has   been                                                                    
     discussions.  I  am just speculating.  I  wasn't in the                                                                    
     room, I  don't know,  but I'm  just, I'm  past history.                                                                    
     I'm  sure  that  when  someone appoints  someone  to  a                                                                    
     board, there  is some interaction  there as to  what is                                                                    
     desirous of  that individual.   But I'd like  to defend                                                                    
     the board on  that regard.  At the end  of the day it's                                                                    
     the board that  makes the decisions ...  the board that                                                                    
     has  fiduciary and  legal responsibility.   And  so I'm                                                                    
     not trying to be vague  here ... I would assume nothing                                                                    
     else.                                                                                                                      
                                                                                                                                
2:39:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON, regarding what transpired yesterday with                                                                  
the new board, inquired whether that was the first significant                                                                  
action that the new board has taken.                                                                                            
                                                                                                                                
MR. FAUSKE replied "yes, it was;  that was the first gathering of                                                               
that board."                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  requested that  the committee  co-chairs be                                                               
provided with a copy of the meeting transcript for distribution.                                                                
                                                                                                                                
MR. FAUSKE agreed to do so.                                                                                                     
                                                                                                                                
2:40:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON commented  that  "the  fact finding  is                                                               
absolutely  critical,   it's  our   job,  it's   invaluable,  and                                                               
important to do, and we need to do  more of it."  But, what he is                                                               
hearing, he  continued, is  that there  is a  new governor  and a                                                               
policy  change in  some  ways,  and the  committee  is trying  to                                                               
figure out  what degree.  There  is "sort of this  hushed tone or                                                               
almost sort  of a conspiratorial  sense that  something's afoot."                                                               
He said  he saw  yesterday that  there is a  change in  policy on                                                               
Medicaid expansion, too,  so he knew there were going  to be some                                                               
changes because  he followed the  election.  Therefore,  he said,                                                               
he is a little bit confused by that part of it.                                                                                 
                                                                                                                                
2:41:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  said he  is trying  to sort  through these                                                               
two new arbitrary  sizes that AGDC staff is going  to look at for                                                               
pricing.  He  understood that AGDC staff was directed  to do this                                                               
by  the AGDC  Board yesterday.    Recalling that  Mr. Fauske  had                                                               
[previously]  talked   about  the  open  and   transparent  board                                                               
process, he  asked whether there  was any board  discussion about                                                               
the rationale behind this new approach  and how the board came up                                                               
with these two sizes that it has directed staff to look at.                                                                     
                                                                                                                                
MR. FAUSKE  confirmed that there  was [discussion by  the board].                                                               
He continued:                                                                                                                   
                                                                                                                                
     I  was   fairly  pleased  with  where   the  discussion                                                                    
     originally started  to where  we ended up  in reference                                                                    
     to  concerns  that  board  members  shared  with  where                                                                    
     exactly we were  heading and what data we  would end up                                                                    
     with  ... as  a result  of this  work.   It transformed                                                                    
     into more meaningful.  ...  originally it was more of a                                                                    
     debate to just do pipe, but  it's hard to do just pipe,                                                                    
     come  up accurately  without looking  at  the GTP  [gas                                                                    
     treatment plant].   And so I thought the  board in that                                                                    
     regard  moved the  resolution closer  to an  event that                                                                    
     could  be far  more  workable, the  accurate data  that                                                                    
     would be meaningful when presented.                                                                                        
                                                                                                                                
2:42:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER said  that is  not quite  the question  he                                                               
asked; he is  asking whether there is a public  discussion on the                                                               
board  meeting record,  that the  committee will  be receiving  a                                                               
transcript  of, as  to the  rationale behind  the two  pipe sizes                                                               
that staff was  directed to look at.  Staff  was directed to look                                                               
at an ANSI 600,  1.4 - 1.6 billion cubic feet a  day, and an ANSI                                                               
900, 2.4  - 2.6 [billion  cubic feet] a  day, both of  which will                                                               
take a bunch  of money to look  at.  He asked  what the rationale                                                               
is and  whether anybody has  determined that those are  the right                                                               
size for the market.  He  remarked that it seems like a backwards                                                               
bit of  engineering.  Noting  that Mr. Richards is  the engineer,                                                               
he asked whether  there is a proper scoping or  any evidence of a                                                               
scoping that rationalizes  the state spending money  on those two                                                               
particular  sizes  as alternatives.    He  maintained that  these                                                               
aren't even aligned with the  governor's public statement about a                                                               
42 or 48 inch,  5 billion cubic feet per day,  pipeline.  He said                                                               
he is a member doing his  best to represent the public trust with                                                               
the real  mission and  objective of  seeing Alaska's  North Slope                                                               
natural gas get  to market.  However, he continued,  so many data                                                               
points  have  suddenly been  thrown  into  this otherwise  fairly                                                               
clear process  that he is now  horribly confused.  He  asked what                                                               
the basis is  for the pipe sizes that staff  has been directed to                                                               
look at.                                                                                                                        
                                                                                                                                
2:44:37 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS answered:                                                                                                          
                                                                                                                                
     Since the  termination agreement  of the  AGIA contract                                                                    
     with TransCanada, then AGDC  has been asked repeatedly,                                                                    
     "What's  the maximum  throughput on  the pipe  that you                                                                    
     are  designing?"    And  ... we  have  talked  in  this                                                                    
     committee about that.  We  gave [an] estimation that it                                                                    
     was  probably 1.6  billion cubic  feet on  an ANSI  600                                                                    
     class pipeline.   So, the  board in  their discussions,                                                                    
     and  we have  subcommittees  on the  board  ... one  of                                                                    
     which is  the Technical  Committee, which is  ... where                                                                    
     we discuss  and provide  updates on the  technical work                                                                    
     that  is being  done  by the  corporation staff,  we've                                                                    
     discussed numerous  times again what are  the potential                                                                    
     for  an ASAP  Project with  this design  configuration.                                                                    
     ... in order to get more  flow out of ASAP, you have to                                                                    
     add  compression, because  that's how  you're going  to                                                                    
     get more gas down a pipeline.   So that means if you're                                                                    
     going to have more volume  then you're going to have to                                                                    
     upsize  your  conditioning  facility.    So,  in  those                                                                    
     discussions  in  those   subcommittee  hearings,  we've                                                                    
     talked about  the various how  do you get  flow through                                                                    
     the  common  diameter,  36-inch  diameter?    That  was                                                                    
     really  kind of  the  standard that  we  have kept  to,                                                                    
     which was 36  inch.  So, in those  deliberations it was                                                                    
     a discussion on  what would it take.   What are general                                                                    
     estimates of  what it  would take  and what  that would                                                                    
     mean ultimately to consumers,  to Alaskans, because ...                                                                    
     under the  premises of [House  Bill] 4 it's  to provide                                                                    
     gas  at the  lowest possible  cost.   So, more  volume,                                                                    
     lower  cost.   Again,  just looking  just  at the  ASAP                                                                    
     Project for  the 36  inch.   So, in  those discussions,                                                                    
     then, we  were directed to  come back with ...  a scope                                                                    
     to be  able to  advance this work  and what  that would                                                                    
     mean going  into a  Pre-FEED and  FEED effort  for what                                                                    
     would  then be  the critical  path ovens.   And  that's                                                                    
     essentially the  facilities, because as  I've described                                                                    
     earlier, the  pipeline, the  ANSI 600  - and  again for                                                                    
     those  watching, ANSI  is  American National  Standards                                                                    
     Institute  class 600,  which is  a maximum  pressure of                                                                    
     1,480 pounds  per square inch  - so ... for  that class                                                                    
     pipe, we were asked to  look at ... how many compressor                                                                    
     stations  and   what  size  conditioning   facility  or                                                                    
     additional trains would make  that economic.  So that's                                                                    
     where we were  asked to come back and  represent to the                                                                    
     board yesterday a  plan, which is again  coming up with                                                                    
     a  scope,   schedule,  and  budget  to   do  additional                                                                    
     engineering work on  these two class pipes  ... to look                                                                    
     at the most economically viable project.                                                                                   
                                                                                                                                
2:47:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said  the argument he is  hearing is "we're                                                               
just talking about  looking how much gas we can  shove down a 36-                                                               
inch  pipe and  let's look  at a  couple options."   However,  he                                                               
continued,  the word  'compression'  is being  used,  which is  a                                                               
pretty significant redesign  of the project.  He  asked what this                                                               
dialogue, whether it is a  competing project or a reconfiguration                                                               
project,  has   done  to  AGDC's  ongoing   environmental  impact                                                               
statement work that was originally underway.                                                                                    
                                                                                                                                
MR. RICHARDS  replied that the  U.S. Army Corps of  Engineers, as                                                               
lead  federal agency  conducting  the supplemental  environmental                                                               
impact  statement,  made  the  decision  on  March  3  [2015]  to                                                               
"suspend the  work on the ASAP  supplemental environmental impact                                                               
statement  because they  can see,  through  the newspapers,  that                                                               
that  there is  policy questions  that  are being  raised in  the                                                               
legislature.  ... rather than  having the regulators continue the                                                               
work, they  decided to suspend it  ... for a couple  months until                                                               
there is resolution and they can  then ... hear from AGDC on what                                                               
project is going forward."                                                                                                      
                                                                                                                                
2:49:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said he understands  that the Army Corps of                                                               
Engineers  doesn't want  to waste  its precious  assets and  time                                                               
when  [the state]  doesn't quite  know what  its real  project is                                                               
here.  He asked whether there  is "a risk that that same approach                                                               
could be  taken by other  regulatory agencies that  are currently                                                               
deeply involved  and committed to  doing the same work  and other                                                               
regulatory approvals  on the AK  LNG Project because  our ramping                                                               
up of  this project  into a competitive  nature is  causing doubt                                                               
about what will be the ultimate project."                                                                                       
                                                                                                                                
MR. FAUSKE responded:                                                                                                           
                                                                                                                                
     We  went  through  a  similar  situation  when  ...  we                                                                    
     decided  to go  away from  the 24-inch,  2500 PSI.   We                                                                    
     were at  a point  on the  original bullet  line concept                                                                    
     that  we were  expecting  the record  of decision,  the                                                                    
     ROD, from BLM  [U.S. Bureau of Land  Management] and at                                                                    
     such time  when we reconfigured going  to 36-inch, that                                                                    
     was  suspended, meaning  maybe a  little bit  different                                                                    
     than the  way this has  been done, but  meaning further                                                                    
     outcome  of we  like  you guys'  project continuing  to                                                                    
     move forward, but this is  different than what you were                                                                    
     doing.    Yes,   you  can  expect,  or   would  not  be                                                                    
     surprising to see other agencies,  if they follow suit,                                                                    
     the utilization of their resources  if they're not sure                                                                    
     what it  is exactly we're  doing, but so far  it's been                                                                    
     the Corps  of Engineers ...  and I'm not sure  who else                                                                    
     ... might follow.                                                                                                          
                                                                                                                                
2:50:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  interpreted   Mr.  Fauske's  response  as                                                               
stating that  "it's entirely possible  that agencies  involved in                                                               
regulatory  permitting and  review of  the AK  LNG Project  could                                                               
become concerned  and perhaps have  their process disrupted  as a                                                               
result  of  the  uncertainties  being  introduced  by  our  other                                                               
activities here."                                                                                                               
                                                                                                                                
MR. FAUSKE answered "that could happen, absolutely."                                                                            
                                                                                                                                
2:51:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR surmised  that  AGDC's  presentation is  not                                                               
going to happen  today, but said she has two  questions in regard                                                               
to slide 6  of the presentation.  Drawing attention  to the total                                                               
cost to  final investment  decision (FID) for  each of  the three                                                               
volume scenarios, she asked how this  will be assessed as part of                                                               
the  work now  being done,  or whether  the reconfiguration  work                                                               
will pre-suppose that  that volume of gas will  be made available                                                               
to meet  that design.   She  further observed  that in  the total                                                               
cost to FID, all three  scenarios state "$150 million expended to                                                               
date",  which she  said  she thinks  is  consistent with  earlier                                                               
slides that  say to avoid  duplication and competition  [slide 3]                                                               
and  to  ensure   complementary  versus  competitive  orientation                                                               
[slide 4]  so that the money  is being considered as  having been                                                               
spent for  any one of  these projects.   She inquired what  the 5                                                               
percent  of capital  cost [on  slide 6]  is referring  to in  the                                                               
total cost  to FID [for the  columns under ASAP Option  1A at 1.4                                                               
billion cubic  feet a day and  for ASAP Option 1B  at 2.4 billion                                                               
cubic feet a day].                                                                                                              
                                                                                                                                
MR. RICHARDS took the second question first, stating:                                                                           
                                                                                                                                
     On the  slide specifically,  total cost  to FID  is the                                                                    
     line,  and  for the  left-hand  column  you'll see  the                                                                    
     current ASAP and that's the  500 million standard cubic                                                                    
     foot  a day  design that  we have  completed.   When we                                                                    
     were  initially doing  the  work  with the  legislature                                                                    
     through  House Bill  369  and  then subsequently  House                                                                    
     Bill  4,  we  identified  what it  would  take  to  get                                                                    
     through   FEED,  front-end   engineering  and   design,                                                                    
     through  an  open  season to  a  project  sanction  or,                                                                    
     synonymously  called, final  investment decision.   And                                                                    
     we represented  that as approximately 5  percent of the                                                                    
     total  installed  cost.    So  at  the  time  ASAP  was                                                                    
     envisioned to  be approximately an $8  billion project,                                                                    
     5 percent  was about  $400 million and  the legislature                                                                    
     responded  by   appropriating  $400  million   for  the                                                                    
     advancement  of ASAP  through  to  project sanction  or                                                                    
     FID.    As  we  discussed   with  the  board,  the  two                                                                    
     potential concepts,  then we ... haven't  done the work                                                                    
     to define  what the total  installed cost would  be, so                                                                    
     we haven't really come up with what [it] will take to                                                                      
     get to FID, but used our 5 percent as a representation                                                                     
     as work we have done and work we will do.                                                                                  
                                                                                                                                
MR. RICHARDS,  regarding the first question  about gas ownership,                                                               
reiterated Mr. Fauske's earlier  statement, saying "we don't have                                                               
the gas  and we  didn't have  the gas for  the ...  original ASAP                                                               
concept either."   So, Mr. Richards continued,  AGDC is designing                                                               
a  plant such  that gas  would be  fed into  the system  from the                                                               
Prudhoe Bay  Unit, or potentially  the Point Thomson  Unit, which                                                               
is now  under construction  and will  hopefully be  providing gas                                                               
for sale.                                                                                                                       
                                                                                                                                
2:54:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER  directed   attention  to   AGDC's  slide                                                               
entitled  "Primary  Objectives"  and  the  first  two  objectives                                                               
listed:                                                                                                                         
                                                                                                                                
     ƒBuild a North Slope natural gas project                                                                                  
     ƒAccelerate development of Alaska LNG                                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER  noted  his   agreement  that  those  were                                                               
primary  objectives and  to  the  best of  his  knowledge is  the                                                               
objective.   However,  he clarified  that the  construction of  a                                                               
natural  gas project  is only  to  be done  if it's  economically                                                               
advantageous and serves the greatest  needs of Alaskans.  He then                                                               
expressed concern  with the best  practices in  accomplishing the                                                               
two  primary   objectives.    He   acknowledged  that   AGDC  has                                                               
scrupulously   followed  the   best  practices   of  mega-project                                                               
development, including  a stage-gated  approach, but  inquired as                                                               
to whether  AGDC has utilized  the Independent  Project Analysis,                                                               
Inc. to review AGDC's process.                                                                                                  
                                                                                                                                
MR. RICHARDS replied yes.                                                                                                       
                                                                                                                                
2:56:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER, referring to  the book entitled Industrial                                                             
Megaprojects, related  his understanding that the  AK LNG Project                                                             
is at  the end of  scoping or what Independent  Project Analysis,                                                               
Inc. refers to  as Pre-FEED reaching to the  FEL2 gate [front-end                                                               
loading  2 gate]  and moving  into FEED.   More  specifically, he                                                               
surmised that AK LNG is moving from Pre-FEED to FEED.                                                                           
                                                                                                                                
MR. RICHARDS concurred  that the AK LNG is in  the Pre-FEED phase                                                               
and  hopefully,  a FEED  decision  will  be  made in  the  second                                                               
quarter of 2016.                                                                                                                
                                                                                                                                
2:56:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER, drawing from  the book entitled Industrial                                                             
Megaprojects, related his further  understanding that the closure                                                             
of  shaping,  which is  Pre-FEED,  "must  mark  the start  of  no                                                               
further  changes  in scope  and  the  data clearly  and  strongly                                                               
support  the  importance  of  bringing  the  business  issues  to                                                               
closure in  conjunction with the  completion of FEL  2 [front-end                                                               
loading 2],  moving into  FEED or FEL  3 [front-end  loading 3]."                                                               
Continuing to  draw from the aforementioned  book, he highlighted                                                               
that the  most common reason  for failure of projects  is failure                                                               
to achieve  full stakeholder  alignment and  that "at  a definite                                                               
point, the option must be  exercised or dropped."  Representative                                                               
Hawker  stressed  that  the  evidence  clearly  illustrates  that                                                               
megaprojects  fail when  those objectives  and guidelines  aren't                                                               
followed.   He expressed  concern that  at the  critical decision                                                               
point of  the big project, a  change to an entirely  new scope is                                                               
being introduced  for the legislature  to evaluate, the  world to                                                               
review, and the business partners  to question why [the state] is                                                               
entering into  competition with them  when the project is  at the                                                               
stage gate.   Representative Hawker  then questioned  whether the                                                               
objective  abandonment  of  the  best  management  practices  for                                                               
successful  megaprojects is  compromising the  potential progress                                                               
of the AK LNG Project.                                                                                                          
                                                                                                                                
MR. FAUSKE characterized  that as a very good  point, but assured                                                               
the committee that if he is  involved there will be no compromise                                                               
on those policies.   Mr. Fauske noted that this  is an event that                                                               
has  occurred within  the last  24  hours.   Moving this  project                                                               
forward, [AGDC] will endeavor to  use those same staunch policies                                                               
and  criteria with  any advice  that staff  would provide  to the                                                               
AGDC Board  within a few weeks.   Mr. Fauske noted  his agreement                                                               
with Representative Hawker, saying:                                                                                             
                                                                                                                                
     There's no better  way to move forward and  you have to                                                                    
     stay  within  those guidelines.    So,  yes, this  does                                                                    
     create  a   situation  where  using   those  guidelines                                                                    
     implicitly  to  determine  what  is  the  viability  of                                                                    
     moving  forward  with  this  change  and  what  is  the                                                                    
     accurate amount of money and  other issues that have to                                                                    
     be  considered to  stay  within  it.   I  think we  are                                                                    
     living  proof, by  adhering  to  those policies,  we've                                                                    
     been able to get where we're  at today with ADAP on the                                                                    
     Class 3.  We've been complimented by the industry and                                                                      
     others.  I would never find myself in a position where                                                                     
     I would not stick to that regime.                                                                                          
                                                                                                                                
3:00:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   JOSEPHSON   recalled    discussion   about   the                                                               
commitment of gas and that under  any revised plan in which there                                                               
was a  true export  project, there wouldn't  be enough  gas since                                                               
it's already  committed.  However,  he related  his understanding                                                               
that technically  the AK LNG  Project doesn't have  any committed                                                               
gas.   He then asked  whether the  aforementioned is part  of the                                                               
concern that would hopefully be alleviated 18 months from now.                                                                  
                                                                                                                                
MR. FAUSKE  replied that there  might be  a term difference.   He                                                               
explained that,  with AK LNG,  all the owners  of the gas  are at                                                               
the  table.   Therefore, the  owners are  involved and  would not                                                               
spend this amount of money without  an intent to commit that gas.                                                               
Mr. Fauske  stated that there is  a commitment to put  gas in the                                                               
line to supply  an LNG project.  However, ASAP  is different.  In                                                               
August   2011,  an   expression  of   interest,  a   confidential                                                               
gathering, was  held in which  there were  nonbinding commitments                                                               
for work  on that project, for  gas being placed into  that line.                                                               
Although  the  commitments  were nonbinding,  there  was  extreme                                                               
interest.  He remarked that  the line was oversubscribed as there                                                               
was more gas than the 500 to which it was limited.                                                                              
                                                                                                                                
3:01:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   understood  that  without   the  firm                                                               
transportation   services  agreements,   there  is   a  hoped-for                                                               
commitment, a prospective commitment,  as was discussed last year                                                               
and referenced in  Senate Bill 138 and the  agreements.  However,                                                               
he understood that that commitment  comes with FEED, and so there                                                               
is not a firm commitment of that gas.                                                                                           
                                                                                                                                
MR. FAUSKE responded  that it comes with open  season, when other                                                               
commitments are made and bids come forward.                                                                                     
                                                                                                                                
3:02:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether Representative  Josephson is                                                               
referring to AK LNG or ASAP.                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON said he is referring to AK LNG.                                                                        
                                                                                                                                
MR. FAUSKE interjected that there is no open season on AK LNG.                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER requested  that the aforementioned dialogue                                                               
start over  as the  information is  critical and  very inaccurate                                                               
statements have been made.                                                                                                      
                                                                                                                                
MR.  FAUSKE  related  his  understanding   that  he  thought  the                                                               
dialogue was in reference to ASAP to AK LNG.                                                                                    
                                                                                                                                
3:02:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  clarified that  he was referring  to AK                                                               
LNG.                                                                                                                            
                                                                                                                                
MR. FAUSKE  clarified, then,  that all the  owners are  there and                                                               
there would be no open season on AK LNG.                                                                                        
                                                                                                                                
REPRESENTATIVE JOSEPHSON then asked  whether there is a hoped-for                                                               
commitment or an actual commitment of gas for AK LNG.                                                                           
                                                                                                                                
REPRESENTATIVE  SEATON  interjected that  the  FID  has not  been                                                               
made.                                                                                                                           
                                                                                                                                
MR. FAUSKE agreed.                                                                                                              
                                                                                                                                
3:03:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER inquired  as to the source of  gas that was                                                               
required  to  initiate  a Federal  Energy  Regulatory  Commission                                                               
(FERC) application.                                                                                                             
                                                                                                                                
3:03:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON recalled  from attending  an "IPA  program"                                                               
that Representative  Hawker put  on a couple  years ago  that the                                                               
definition of a megaproject is in excess of $1 billion.                                                                         
                                                                                                                                
MR. FAUSKE agreed with Representative Olson's recollection.                                                                     
                                                                                                                                
REPRESENTATIVE OLSON asked  whether anyone on the  new AGDC Board                                                               
has  been involved  in a  significant manner  with a  megaproject                                                               
that came to fruition.                                                                                                          
                                                                                                                                
MR. FAUSKE answered that he does not believe so.                                                                                
                                                                                                                                
REPRESENTATIVE OLSON  related his  understanding that  Mr. Fauske                                                               
has  been involved  in  at  least one  megaproject  that came  to                                                               
fruition.                                                                                                                       
                                                                                                                                
MR. FAUSKE indicated his agreement.                                                                                             
                                                                                                                                
3:04:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON referred to the  third bullet on [slide 2],                                                               
entitled "Primary  Objectives", which  states "Ensure  Alaska has                                                               
an economically  viable alternative if  Alaska LNG falters".   If                                                               
that's the goal  with the review of the 1.4  or 2.5 billion cubic                                                               
feet, then  it seems to  be in alignment  with what House  Bill 4                                                               
and  ASAP were  with the  500-million-cubic-feet-a-day constraint                                                               
removed.  Representative Seaton continued:                                                                                      
                                                                                                                                
     We've kind of  changed a little bit  our positions here                                                                    
     and where  we are.  But  I hate to put  the designation                                                                    
     of what we  were trying to do and what  we're trying to                                                                    
     make sure that we have  if final investment decision is                                                                    
     not  reached, so  that we  don't  have an  economically                                                                    
     viable alternative on the table.   And so, I think that                                                                    
     slide number 2, we need to  look at all of those bullet                                                                    
     points.   ...  I think  that's what  I've been  hearing                                                                    
     today  is  that  you're  looking   at  design  on  [an]                                                                    
     economically viable  alternative if  it falters.   Now,                                                                    
     am I  wrong?  Should we  take that bullet point  off or                                                                    
     is that what we're really talking about?                                                                                   
                                                                                                                                
MR.  RICHARDS replied  that Representative  Seaton summarized  it                                                               
very well.   The work product that will be  presented to the AGDC                                                               
Board will be  an estimate to do a traunch  of work, not starting                                                               
the traunch of  work at that point; staff are  defining what that                                                               
work effort will  be at this point.  Following  the objectives in                                                               
line with  the success factor and  the strategy so that  there is                                                               
no duplication of  effort while meeting the intent  of House Bill                                                               
4 and Senate Bill 138 and the powers that reside within AGDC.                                                                   
                                                                                                                                
3:07:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER asked whether the  AK LNG Project has filed                                                               
for an export permit.                                                                                                           
                                                                                                                                
MR. FAUSKE responded yes.                                                                                                       
                                                                                                                                
REPRESENTATIVE HAWKER  related his  understanding that as  a part                                                               
of that  permit, a source of  gas and commitment of  that gas has                                                               
to be identified by those filing.                                                                                               
                                                                                                                                
MR. FAUSKE answered that is correct.                                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER then  surmised that AK LNG  has a committed                                                               
source of gas.                                                                                                                  
                                                                                                                                
MR. FAUSKE replied that is correct.                                                                                             
                                                                                                                                
3:08:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER,  in regard to the  governor's proposal for                                                               
a  competing  project  to  race neck-and-neck  to  a  final  FID,                                                               
inquired  as to  whether  the regulatory  authorities will  allow                                                               
[AGDC]   to  commit   the  same   gas  to   a  separate   project                                                               
simultaneously so that [the state] can compete to FID.                                                                          
                                                                                                                                
MR. FAUSKE  replied that although he  cannot answer definitively,                                                               
it certainly will  be something that will be  questioned and draw                                                               
a great  deal of  scrutiny.   While he can  say probably  not, he                                                               
added that he does not know that for sure.                                                                                      
                                                                                                                                
REPRESENTATIVE HAWKER asked  whether there is anyone  in the room                                                               
who knows the answer to his question.                                                                                           
                                                                                                                                
CO-CHAIR NAGEAK  directed that  someone be  found who  can answer                                                               
this question.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER  observed  that  some  very  knowledgeable                                                               
people are in the room,  including the deputy commissioner of the                                                               
Department of  Natural Resources and  the head of the  Alaska LNG                                                               
Project.   He asked whether  any of them  have a clear  answer to                                                               
his question of whether the same gas can be committed twice.                                                                    
                                                                                                                                
REPRESENTATIVE TARR  understood it was  ExxonMobil or one  of the                                                               
other partners that filed the export application.                                                                               
                                                                                                                                
MR. FAUSKE responded  that [the three partners]  formed a limited                                                               
liability company (LLC).                                                                                                        
                                                                                                                                
MS. RUTHERFORD stated she is  not completely sure, but added that                                                               
she  does know  that the  gas that  was identified  by the  three                                                               
sponsors of the AK LNG did  involve their gas but did not involve                                                               
the state's  royalty or  tax as  gas.   If in  fact the  State of                                                               
Alaska enters  into the  LLC, the  state can add  its gas  in the                                                               
application.  She said she is  unsure, though, whether there is a                                                               
limitation  on a  competing  project to  identify  the same  gas.                                                               
But, she continued, she thinks  the controlling entity on the gas                                                               
would need to  make that commitment of gas or  attempt to make it                                                               
to a second project.                                                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER said the state doesn't have gas to commit                                                                 
until the producers produce it.                                                                                                 
                                                                                                                                
MS. RUTHERFORD answered correct, the state cannot overlift.                                                                     
                                                                                                                                
3:11:12 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was recessed at 3:11 p.m.                                                                  
until 1:00 p.m. on March 14, 2015.