Legislature(2017 - 2018)Anch LIO Conf Rm

10/16/2017 01:00 PM House RESOURCES

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01:05:32 PM Start
01:08:30 PM Alaska Lng Project Update
01:17:44 PM Presentation on Aklng
05:00:23 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Joint with Senate Resources Committee TELECONFERENCED
Alaska LNG Project Update
Alaska Gasline Development Corporation
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
              SENATE RESOURCES STANDING COMMITTEE                                                                             
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        October 16, 2017                                                                                        
                           1:05 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
SENATE RESOURCES                                                                                                                
 Senator Cathy Giessel, Chair                                                                                                   
 Senator John Coghill, Vice Chair                                                                                               
 Senator Natasha von Imhof                                                                                                      
HOUSE RESOURCES                                                                                                                 
 Representative Andy Josephson, Co-Chair                                                                                        
 Representative Geran Tarr, Co-Chair                                                                                            
 Representative Dean Westlake, Vice Chair                                                                                       
 Representative Harriet Drummond                                                                                                
 Representative Justin Parish                                                                                                   
 Representative DeLena Johnson                                                                                                  
 Representative David Talerico                                                                                                  
MEMBERS ABSENT                                                                                                                
SENATE RESOURCES                                                                                                                
 Senator Bert Stedman                                                                                                           
 Senator Shelley Hughes                                                                                                         
 Senator Kevin Meyer                                                                                                            
 Senator Bill Wielechowski                                                                                                      
HOUSE RESOURCES                                                                                                                 
 Representative Chris Birch                                                                                                     
 Representative Mike Chenault                                                                                                   
 Representative Chris Tuck                                                                                                      
 Representative George Rauscher                                                                                                 
OTHER LEGISLATORS PRESENT                                                                                                     
Senator Berta Gardner                                                                                                           
Senator Donald Olson                                                                                                            
Senator Anna Mackinnon                                                                                                          
Senator Gary Stevens                                                                                                            
Senator David Wilson                                                                                                            
Representative Paul Seaton                                                                                                      
Representative Dan Saddler                                                                                                      
Representative Zach Fansler                                                                                                     
Representative Jason Grenn                                                                                                      
Representative Charisse Millett                                                                                                 
Representative Lance Pruitt                                                                                                     
COMMITTEE CALENDAR                                                                                                            
ALASKA LNG PROJECT UPDATE                                                                                                       
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
DAVE CRUZ, Chair                                                                                                                
Alaska Gasline Development Corporation (AGDC) Board                                                                             
Anchorage, Alaska                                                                                                             
POSITION STATEMENT: Provided an outline of AGDC.                                                                              
FRANK RICHARDS, Senior Vice Chair                                                                                               
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                             
POSITION STATEMENT: Provided an update on the regulatory aspects                                                              
of the Alaska Liquefied Natural Gas project (AKLNG)                                                                             
LIEZA WILCOX, Vice President                                                                                                    
Commercial and Economics                                                                                                        
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                             
POSITION STATEMENT: Provided an update on the financial aspects                                                               
of the AKLNG project.                                                                                                           
ACTION NARRATIVE                                                                                                              
1:05:32 PM                                                                                                                    
CHAIR CATHY  GIESSEL called the  joint meeting of the  Senate and                                                             
House  Resources  Standing  Committees  to  order  at  1:05  p.m.                                                               
Present at  the call  to order  were Senators  Coghill, Micciche,                                                               
von  Imhof,  and  Chair   Giessel,  and  Representatives  Parish,                                                               
Talerico, Westlake, and Co-Chair Tarr.                                                                                          
CO-CHAIR GERAN TARR introduced the House members.                                                                               
^ALASKA LNG PROJECT UPDATE                                                                                                      
                   ALASKA LNG PROJECT UPDATE                                                                                
1:08:30 PM                                                                                                                    
CHAIR GIESSEL  announced the  meeting as  the required  update on                                                               
the  Alaska  Liquified Natural  Gas  (AKLNG)  Project. The  AKLNG                                                               
project  was constituted  three  years ago  with two  objectives:                                                               
monetize  natural gas  resources  on the  North  Slope and  bring                                                               
natural gas to  Alaska citizens. Many members  present today were                                                               
part of  a lengthy process of  passing Senate Bill 138  by a vote                                                               
of 52 to 8. It had  tremendous support. Since the State of Alaska                                                               
was  investing significant  public funds  into the  AKLNG project                                                               
and was one of several partners  in a $45 to $65 billion venture,                                                               
the legislature  felt the  public should know  how its  money was                                                               
being  managed.  A  provision requires  a  quarterly  legislative                                                               
public update. Since the passage of  SB 138, there have been five                                                               
joint interim updates.                                                                                                          
1:09:49 PM                                                                                                                    
CHAIR GIESSEL  listed the dates  and locations of  those updates,                                                               
including an  infamous meeting in  Palmer that lasted  six hours.                                                               
The  resource  committees  have  also  held  updates  during  the                                                               
legislative sessions.  At each  hearing, she  said, she  would be                                                               
reminded of  changes that occurred  in personnel,  direction, and                                                               
scope  and framework  of the  project. She  said there  have been                                                               
substantial changes from the original  vision of the legislature.                                                               
The  AKLNG  project has  frequently  changed  to something  quite                                                               
different. The  many reasons include  the global drop  in prices,                                                               
philosophical differences, and  personality differences. Alaskans                                                               
have talked about  a gasline project for  generations, she added,                                                               
and public money is continuing to  be spent toward that goal. She                                                               
believes that about  $700 million has been spent so  far, and she                                                               
has heard  people say that the  gas pipeline is too  big to fail,                                                               
so Alaska must complete the project.                                                                                            
1:11:47 PM                                                                                                                    
CHAIR GIESSEL  said the purpose of  this hearing is to  learn how                                                               
close the project is to the  stated goal of monetizing the gas to                                                               
the  benefit  of  the  treasury and  getting  affordable  gas  to                                                               
citizens. She asked if Representative Tarr had opening comments.                                                                
1:12:31 PM                                                                                                                    
CO-CHAIR  TARR recognized  members  who are  on  line. The  House                                                               
Resources Committee received  a brief update on AKLNG  at the end                                                               
of the  last session, and  she is looking forward  to information                                                               
on two  announcements from  last summer:  the IRS  private letter                                                               
ruling and a solicitation of interest.                                                                                          
[Audio missing: 1:13:25 to 1:14:30]                                                                                             
1:14:37 PM                                                                                                                    
CHAIR  GIESSEL explained  that the  members on  line will  not be                                                               
able to  speak due to  technical difficulties, and she  told them                                                               
they  could text  questions.  She noted  that  all documents  are                                                               
available online  through the legislative  website. She  said the                                                               
speakers include Dave Cruz, Frank Richards, and Lieza Wilcox.                                                                   
^Presentation ON AKLNG                                                                                                          
                     PRESENTATION ON AKLNG                                                                                  
1:17:44 PM                                                                                                                    
DAVE CRUZ,  Board Chair,  Alaska Gasline  Development Corporation                                                               
(AGDC), Anchorage,  said the  board is  composed of  five Alaskan                                                               
CEOs and  two commissioners of Governor  Walker's administration.                                                               
Four of the CEOs are  actively engaged in major business portions                                                               
of  Alaska. One  is  retired,  and two  are  affiliated with  the                                                               
pipeline   industry,   one   with   finance,   one   with   heavy                                                               
construction,  and one  is affiliated  with labor.  "This is  the                                                               
best board since  I've been on," he stated. The  board is managed                                                               
responsibly  and actively  engaged.  Members  participate in  the                                                               
board meetings as  well as in varying  committees. The committees                                                               
cover  technical,   governance,  communication,   and  commercial                                                               
issues, he added. It is a very, very active board.                                                                              
1:19:28 PM                                                                                                                    
MR. CRUZ  said AGDC stepped up  and took leadership of  the AKLNG                                                               
project in January  of this year and began  marketing the project                                                               
in Asian markets. "We have come a  long way in a short time." The                                                               
president, Keith Meyer, is now in  Asia marketing our gas, and he                                                               
has been leading  the charge and doing as the  board has directed                                                               
to work  tirelessly to  get a customer  and financing.  The board                                                               
thought it was crucial for him to  remain in Asia to work on that                                                               
mission. He  said he appreciates  the legislative support  to the                                                               
AGDC this year. He has committed  that the board will advance the                                                               
AKLNG project, and it has. "I  would like to highlight the issues                                                               
of  negative  comments  and  headlines  that  are  impacting  our                                                               
marketing  efforts." He  said the  world is  watching, and  every                                                               
local news  story places a great  challenge when the team  has to                                                               
first  defend  the  project against  the  negative  comments.  "I                                                               
respectfully  ask  for your  consideration  when  talking to  the                                                               
media,"  he  requested.  Today,   the  committee  will  hear  the                                                               
successes of  regulatory, financial, and commercial  efforts. The                                                               
board is very engaged with President  Meyer and the team at AGDC,                                                               
and he expects the committee to find the progress satisfactory.                                                                 
1:22:15 PM                                                                                                                    
CHAIR  GIESSEL said  she and  Senator von  Imhof have  a question                                                               
about the financials. Looking over  the presentation, she doesn't                                                               
see a lot of numbers, yet the  update in February 2016 had a very                                                               
detailed  report. In  that same  meeting, AKLNG  created breakout                                                               
codes with the Legislative Finance  Division as it made transfers                                                               
of money from appropriated money.  "We're no longer getting those                                                               
kinds  of reports,"  she said.  Senator Von  Imhof asked  for the                                                               
SENATOR NATASHA  VON IMHOF said  she met with certain  AGDC staff                                                               
on  Friday regarding  AGDC's financial  position for  its mission                                                               
over  the next  12  to 24  months.  "There was  a  little bit  of                                                               
dancing around that,"  she stated. Over the weekend,  she saw the                                                               
GeFONSI account activity with about  $16.8 million in one account                                                               
and  $53.7  million  in  the   second  account.  This  is  public                                                               
information. The  other report  she looked  at was  the component                                                               
detail report, and, being on  the finance committee, she looks at                                                               
it on a  regular basis for many departments. The  report for AGDC                                                               
in December 2016  shows a breakdown of  travel, compensation, and                                                               
other  expenses,  and  for  every  department  there  is  similar                                                               
detail. "I think our concern …  does AGDC have the money to carry                                                               
out its  mission in  the next 18  to 24 months,  and what  is the                                                               
burn rate, and  where's the money actually going?"  She said AGDC                                                               
received  tax-exempt  status as  a  public  entity, and  that  is                                                               
wonderful,  but  it means  that  AGDC  must publicly  report  its                                                               
1:26:00 PM                                                                                                                    
MR. CRUZ  said, "That is  provided monthly  to the board,  and we                                                               
openly have  that at our  board meetings." There are  normally 11                                                               
board meetings  a year, and  that is  "where we measure  that and                                                               
keep track  of it." He did  not mean to belittle  the legislature                                                               
in  not providing  that. It  is  readily available  at the  board                                                               
meetings. He said Frank [Richards] will go into detail.                                                                         
SENATOR VON IMHOF  said, outside of the  visual presentation, she                                                               
is assuming there will be an addendum.                                                                                          
MR. CRUZ said Frank will go into it now.                                                                                        
1:27:52 PM                                                                                                                    
CO-CHAIR TARR  ask about Mr. Cruz  saying the board is  the best,                                                               
and since  he has  been involved  from the  start, she  asked why                                                               
this group of people are best positioned to move things forward.                                                                
MR. CRUZ said  he whole-heartedly agrees with  what Chair Giessel                                                               
said earlier.  He has been  involved since its inception  and has                                                               
never been  involved in  a project with  as many  "twists, turns,                                                               
ups, downs, spin  cycle, meetings, and what have you.  We stood a                                                               
corporation  up  for  the  state  from  nothing."  The  AGDC  was                                                               
organized  under one  pipeline  project, the  Alaska Stand  Alone                                                               
Pipeline  Project (ASAP),  and was  handed the  responsibility of                                                               
AKLNG,  and  it continued  to  move  both projects  forward.  Not                                                               
favoring one  over the other,  it has tried to  monetize Alaska's                                                               
gas resources,  he said. It  has been a challenge.  The positives                                                               
include the leadership  today. "From looking at  this project and                                                               
how many  iterations of  a pipeline  for the  state of  Alaska, I                                                               
would say,  if we ever  had a possibility,  the sun and  the moon                                                               
and the  stars have aligned to  try and get closure  on this, and                                                               
so we are actively, actively working on it."                                                                                    
MR. CRUZ said  that sometimes he talks to his  wife using certain                                                               
acronyms about  the project,  and with  others, he  has different                                                               
acronyms.  But when  the president  of China  came to  Alaska, he                                                               
didn't  come to  look  at beluga  whales, he  came  to meet  with                                                               
Alaska, direct  from meeting the  President of the  United States                                                               
in Florida where he discussed  trade imbalances. This project has                                                               
the potential to help balance that.  "This is big time," he said.                                                               
It  is  starting  to  change.  The  gasline  summit  in  Girdwood                                                               
included meeting with the end-users,  and that's the first. Never                                                               
has anyone  brought up  an actual  customer to  take the  gas, he                                                               
noted.  President Xi  left his  secretary of  state to  meet with                                                               
AGDC, which is  very important for Alaska. There would  not be an                                                               
oil pipeline today if it  wasn't for Vice President Spiro Agnew's                                                               
one  vote in  the U.S.  Senate. "We're  in direct  marketing," he                                                               
said. "We're  no longer relying  on trying  to take a  company in                                                               
Alaska or  an international company  and tell them,  'Well, we'll                                                               
help you with your permits. We're  really behind you. We hope you                                                               
can put  something together.'"  This is  the first  time Alaskans                                                               
are engaging  directly with the  end user, he explained.  He said                                                               
it  is phenomenal,  and he  has had  the personal  opportunity to                                                               
meet potential customers.  He went to the North  Slope with them,                                                               
and they went up  on a phase-2, which means "you  can only see 30                                                               
feet instead of  a little bit further than that."  What it showed                                                               
the customers,  he said, is  a machine  that runs every  day, and                                                               
that is  important for reliability.  For him, he said,  those are                                                               
very much  successes, and  AGDC has done  all this  since January                                                               
2017. He  said he  totally agrees with  Senator Giessel,  "and if                                                               
it's 750, it's 750."  The only way to get that  back, he said, is                                                               
to follow  through and  build something.  The board  of directors                                                               
first met  at the Dena'ina  Center in  2013, and each  member was                                                               
asked their vision, and they all  said they were there to build a                                                               
project, not  study it.  "We are  here to build  a project  … and                                                               
that is our mantra."                                                                                                            
1:33:30 PM                                                                                                                    
SENATOR DONALD OLSON said people like  him who are in the private                                                               
sector get very concerned about  the comment that the project has                                                               
come too far  to pull the plug.  He would like to  hear that that                                                               
mentality does not prevail, which could  get the state in a worse                                                               
situation that it is now.                                                                                                       
MR. CRUZ said  he didn't make that comment. "I  just want to make                                                               
sure I'm not in trouble."                                                                                                       
1:34:19 PM                                                                                                                    
SENATOR  PETER  MICCICHE  said  Mr.  Cruz  spoke  about  negative                                                               
comments  from the  legislature. He  said the  legislature has  a                                                               
constitutional  job description  to be  the appropriators,  so it                                                               
has the responsibility  to make sure that the state  is headed in                                                               
the right direction. He knows that  Mr. Cruz did not say "too big                                                               
to fail,"  but the legislature's job  is to make sure  that's not                                                               
the case. For those willing to  invest in this project, the check                                                               
and  balance is  a selling  point.  He said  that's important  to                                                               
remember.  He  asked  if  AGDC is  going  to  request  additional                                                               
appropriations for fiscal year 2019.                                                                                            
1:35:41 PM                                                                                                                    
MR. CRUZ said that determination  hasn't been made yet. He thinks                                                               
"it's going  to result in are  we able to deliver  a gas customer                                                               
for AGDC." He  said he did not single the  legislature out in his                                                               
earlier comment. He hears negative  comments on the public media.                                                               
About three years  ago, the head of Exxon made  a statement, "and                                                               
I want everybody  to think about what I'm saying."  When the head                                                               
of Exxon  was asked about  the gasline project, he  said Alaskans                                                               
are their  own worst enemy.  Mr. Cruz  said he bristled  at that.                                                               
How can anyone from Texas say  that? However, being the chair, he                                                               
shares a  lot of that  sentiment. Alaska can't stand  success, he                                                               
said, but look at  what has been done in the  last ten months. He                                                               
thanked the committee for its support,  "but this is not the time                                                               
when we talk about declining  revenue and income taxes when we're                                                               
sitting  on  the  largest  known reserves  in  North  America  of                                                               
natural  gas, and  all it  needs  is a  pipeline to  get it  down                                                               
here." He  stated that he asks  a lot of people  what Alaska does                                                               
better than anyone else. He said  his whole career has dealt with                                                               
energy exploration  and production in  Alaska, and the  one thing                                                               
the state does better than anyone  else is energy export. This is                                                               
just the next phase of energy export.  It will have a road up one                                                               
side  of it.  It will  never be  built like  TAPS [Trans  Alaskan                                                               
Pipeline Services] was,  he said, it has a lot  of positives, and                                                               
that's what keeps him positive.                                                                                                 
CO-CHAIR TARR  noted that Representative Justin  Parrish asked if                                                               
the discussions of a state fiscal  plan, or that lack of a fiscal                                                               
plan, has any impact on the project.                                                                                            
1:39:28 PM                                                                                                                    
MR. CRUZ  said the project will  either succeed or fail  based on                                                               
its  merits. There  is  a global  gas price  that  it must  meet.                                                               
Certain returns are expected from this project.                                                                                 
1:39:59 PM                                                                                                                    
SENATOR  ANNA  MACKINNON  said  Cruz Industries  has  put  a  lot                                                               
Alaskans  to work.  She thanked  Mr.  Cruz for  his efforts.  The                                                               
appreciation may not seem as much as  she wants it to be. "I just                                                               
hope you  will accept the  entire legislative body's  well wishes                                                               
and thanks for  your service." She explained that she  had to ask                                                               
hard  questions because  of phone  calls from  constituents. They                                                               
are asking to support the project  and to ask hard questions. She                                                               
hears from people  who are concerned about "the burn  rate of the                                                               
cash  that Alaska's  going through."  She asked  what price  will                                                               
Alaskans  receive for  the resource?  She  acknowledged that  the                                                               
cost of the  project must be known first? The  only value that is                                                               
being  negotiated is  the bottom  line. If  Alaska is  successful                                                               
with the IRS  ruling, which she has questions on,  there is going                                                               
to  be  an amount  that  Alaska  is  willing  to accept  for  the                                                               
resource, and "I've never heard  what that is." She keeps hearing                                                               
that after 20  years, the state will have millions  of dollars or                                                               
more,  but what  is our  bottom line?  She asked  for the  actual                                                               
numbers  from  Mr.  Cruz,  which   can  be  addressed  inside  an                                                               
executive session.                                                                                                              
MR.  CRUZ replied  it's a  labor  of passion.  Another thing,  he                                                               
said, this is  the crossroads. There is a  declining gas resource                                                               
in  Cook Inlet.  Depending on  what customers  sign up  under the                                                               
Letters of Intent  (LOIs) and the volume, Alaska could  see a 90-                                                               
year supply of known reserves to  the State of Alaska. What other                                                               
state has  a 90-year known  reserve? He  said Alaska has  been on                                                               
diesel  for about  100  years.  That is  another  benefit to  the                                                               
state. "We'll get  into the numbers. Mrs. Wilcox has  a very good                                                               
CO-CHAIR TARR  said Representative  Dean Westlake asked  what the                                                               
costs of not doing anything now.  She said he may be referring to                                                               
the costs of not moving forward.                                                                                                
MR. CRUZ  said, speaking explicitly  of the market  window, there                                                               
has to be an  LNG customer to make it work  for Alaskans by 2025.                                                               
If it  cannot be done  now, "we probably  better put this  on the                                                               
waiting  list, and  the  legislature  of 2037  can  look at  this                                                               
again." It  is cyclic,  and it has  long-term contracts.  He said                                                               
every  Alaskan is  part of  this  corporation. "We  do not  waste                                                               
people's time.  We use our  money in the most  expeditious manner                                                               
that we  possibly can." The  board has given president  Meyer one                                                               
task: get  us a gas  customer. There  are two good  projects that                                                               
are  not technically  challenged.  He said  it  is a  competitive                                                               
project, but to  do nothing, the project should  be considered in                                                               
CO-CHAIR TARR said she understood that  there was not going to be                                                               
a request from the FY19 budget, and Mr. Cruz was not clear.                                                                     
MR. CRUZ said that is correct.                                                                                                  
1:46:58 PM                                                                                                                    
At ease                                                                                                                         
1:47:39 to 1:48:44                                                                                                              
FRANK  RICHARDS, Senior  Vice Chair,  Alaska Gasline  Development                                                               
Corporation, Anchorage, said he spoke  with Senator von Imhof and                                                               
she requested  some financial  information, but  the presentation                                                               
was done,  and he  could not  insert it. He  said he  brought the                                                               
information with him,  and it is presented monthly  to the board.                                                               
He can share the financials with everyone.                                                                                      
SENATOR  VON IMHOF  said she  would like  a monthly  or quarterly                                                               
report  of  expenses, a  simple  pro  forma, including  the  FERC                                                               
[Federal Energy  Regulatory Commission] costs, which  is a pretty                                                               
significant hurdle.                                                                                                             
CHAIR GIESSEL asked about the personnel and travel expenses.                                                                    
MR. RICHARDS said the most  recent report has information both on                                                               
an operating budget level by  personnel, travel, capital, as well                                                               
as  contractual, similar  to what  the legislature  receives from                                                               
the  state in  the 100  through  400 accounts.  It also  provides                                                               
information on the  spend rate on the capital side,  which is the                                                               
money spent  for FERC regulatory issues  and commercial expenses.                                                               
In the  August meeting, the  report showed they had  spent around                                                               
$22 million for  both the operating and  capital expenditures for                                                               
AGDC, he added.                                                                                                                 
CHAIR GIESSEL asked the time of that expenditure.                                                                               
MR.  RICHARDS  told  the  committee  that  the  expenditures  are                                                               
identified by  calendar year, because  the board  authorized "for                                                               
our 18-month  future look out,  and that was where  they provided                                                               
us  with authorization  for  expenditure to  cover  not only  our                                                               
operating  expenses but  also the  major  capital expenses."  So,                                                               
that was  the 18 months "we  were reporting to." The  $22 million                                                               
was  for calendar  year 2017,  so  that would  have been  January                                                               
through  August,  with  a   projection  of  August  expenditures.                                                               
Senator  von Imhof  asked about  a burn  rate. For  the past  few                                                               
months,  it  has  averaged  about   $3  million  per  month,  and                                                               
sometimes more. The board gave  authorization to spend $6 to $6.5                                                               
million per  month, but AGDC  has taken the board's  direction to                                                               
work smartly, judiciously, and tirelessly  and has "not gone out,                                                               
as  we  had  identified,"  to   bring  in  a  large  engineering,                                                               
procurement, and construction contractor  (EPC) to help assist us                                                               
in advancing the  technical and regulatory. "We've  kept that in-                                                               
house," he said.                                                                                                                
1:54:12 PM                                                                                                                    
SENATOR VON IMHOF  asked about November 1  and forward. Regarding                                                               
FERC, will  there be more  pressure on  the finances? How  is the                                                               
FERC process? She said she believes  that AGDC is looking to hire                                                               
a finance  person and  asked how that  will impact  management of                                                               
"the run rate going forward."                                                                                                   
MR.  RICHARDS  said   he  hopes  FERC  is  ready   to  start  its                                                               
environmental  impact statement;  AGDC  has spent  the last  five                                                               
months  answering hundreds  of  questions  for the  environmental                                                               
review, and he hopes that is now  done. The burn rate now will be                                                               
from continued  interactions with FERC on  the regulatory issues,                                                               
but  maybe  not  as  much  on the  engineering.  He  hopes  those                                                               
expenses  will  decline. He  said  Ms.  Wilcox will  discuss  the                                                               
investment banker and the projections for that.                                                                                 
SENATOR VON  IMHOF asked if  the January component  detail report                                                               
will  be updated,  because  the  last one  she  has was  released                                                               
December 2016.                                                                                                                  
MR. RICHARDS  said the report  from the Office of  Management and                                                               
Budget will  have that, but  AGDC also  provides it on  a monthly                                                               
basis to its board.                                                                                                             
1:56:41 PM                                                                                                                    
SENATOR GIESSEL asked Mr. Richards to repeat the expenses.                                                                      
MR. RICHARDS  said the $6.5  million per  month is the  burn rate                                                               
the  board had  authorized  ADGC  to spend,  and  it is  actually                                                               
spending about $3 million per month.                                                                                            
CHAIR GIESSEL  said that  when Alaska was  one of  four partners,                                                               
she heard that in pre-FEED  [front end engineering design], usual                                                               
expenditures were $10 million per year.  In the FEED stage, it is                                                               
$10 million  per month, and when  the project is being  built, it                                                               
will be $10 million per day. What phase is this project in?                                                                     
MR. RICHARDS  said AGDC is in  regulatory permitting advancement.                                                               
The pre-FEED work concluded at the end of 2016.                                                                                 
CHAIR GIESSEL said  that sounds like a  new stage-gated approach.                                                               
She said  she is looking at  how the project was  configured when                                                               
the state had corporate partners.  It was using a very prescribed                                                               
stage-gated  approach and  was executed  very  carefully. As  she                                                               
looks at  what she was given  in February 2016, she  is concerned                                                               
that $98 million was spent  in 2015 during pre-FEED. She applauds                                                               
AGDC for being frugal, yet, "I  hope we're doing a really careful                                                               
job and  we've considered all  the contingencies and we  have the                                                               
right people in place and we're  not budgeting for a project that                                                               
could really sink the state financially."                                                                                       
1:59:26 PM                                                                                                                    
MR. RICHARDS  explained that  when the  chairman took  over, AGDC                                                               
was  following the  stage-gate  process for  the  ASAP, and  AGDC                                                               
adhered to  that, "and  we followed that  through with  the AKLNG                                                               
project as  well." In 2017,  AGDC needed to somewhat  de-risk the                                                               
project, so  it advanced the  environmental permitting  stage. He                                                               
said ADGC has been focusing on  that for the last nine months, so                                                               
it could apply to FERC for  the Section 3 license and address the                                                               
issues  raised by  FERC. They  knew  that advancing  to FEED  was                                                               
going  to  be  an  extremely  expensive  endeavor.  The  cost  is                                                               
estimated  at $1  to  $1.5  billion, based  on  the  work by  its                                                               
partners. "We  did not have  the money to  do that," so  the best                                                               
way to advance it was to  de-risk it by addressing the regulatory                                                               
issues in Alaska.  "As we all know, everyone loves  Alaska and we                                                               
want  to make  sure its  protected." At  the same  time, AGDC  is                                                               
pushing  through with  the commercial  and financial  discussions                                                               
with potential  partners and  investors. By  attracting customers                                                               
and investors, the project can go to the next stage gate.                                                                       
CHAIR GIESSEL  said that the  legislature took a course  on mega-                                                               
projects in 2012,  and the course outlined  appropriate steps for                                                               
such projects.  It is raising  concerns if AGDC is  not following                                                               
best  practices. She  asked to  see  a timeline  like what  Steve                                                               
Butt, the previous  project manager on the AKLNG  project used to                                                               
provide  for the  previous  project. For  the  next meeting,  she                                                               
wants to  see where the project  is, what is being  worked on, as                                                               
well as the expected burn rate.                                                                                                 
2:02:30 PM                                                                                                                    
CO-CHAIR  TARR  asked  on  behalf  of  Representative  Talerico's                                                               
office  whether the  detailed financial  information is  publicly                                                               
available on the AGDC website.                                                                                                  
MR. RICHARDS said the information is at www.agdc.us.                                                                            
CHAIR GIESSEL said she will also link it to this meeting.                                                                       
SENATOR MACKINNON  noted that Mr.  [Larry] Persily  sends updates                                                               
about  what  is happening  around  the  world  on LNG  and  other                                                               
hydrocarbon  projects.  She said  that  Japan  just went  into  a                                                               
unique agreement  for purchasing  that allows them  to go  to the                                                               
spot  market, and  they don't  actually  have to  land all  their                                                               
shipments. It has already been  said today that Alaska is looking                                                               
for a  buyer, and  it needs long-term  contracts. She  added that                                                               
legislators  have been  through  a  mega-project course  multiple                                                               
times  to  tell them  what  they  should  be looking  for.  Their                                                               
financial consultants  have told  them the  risks and  rewards of                                                               
owning the project, but "we are  shifting right now in the global                                                               
market  with such  supply on  the  water that  the contracts  are                                                               
changing." She said  she is not sure if there  are 25 and 30-year                                                               
contracts,  and she  asked Mr.  Richards if  he is  following the                                                               
changes in the contracts.                                                                                                       
MR. RICHARDS said  he also receives the emails  from Mr. Persily,                                                               
but  what she  is likely  referring  to is  that these  contracts                                                               
allow [the buyers]  to sell the resource to  another buyer. Those                                                               
are new activities that buyers  are entering into, and Ms. Wilcox                                                               
will talk about contracting strategies.                                                                                         
SENATOR  MACKINNON said  she  greatly  appreciates Mr.  Richards'                                                               
service. Both he and Mr.  Persily are former federal coordinators                                                               
of  gas  transportation  projects.   "We  do  have  an  excellent                                                               
resource available."                                                                                                            
2:05:55 PM                                                                                                                    
SENATOR MICCICHE said he respects  Mr. Richards expertise, but he                                                               
would like  to talk about  the deadline  to pull the  plug, which                                                               
has passed.  He asked him  to explain why the  legislature should                                                               
remain behind the schedule. He said  a lot of folks expect things                                                               
to happen  in a certain  timeline for pre-Feed plus,  FEED light,                                                               
or whatever current  stage-gate. He said to  explain why Alaskans                                                               
should remain behind the project despite the date change.                                                                       
MR.  RICHARDS  answered that  the  deadline  Senator Micciche  is                                                               
referring to  might be from what  the governor said about  a year                                                               
ago  for needing  an  activity  by September  2017.  At the  AGDC                                                               
level, the project has advanced to  marketing in Asia in the nine                                                               
months  that  is  has  taken   on  the  project.  He  said,  "Our                                                               
activities and the responses we  are getting have been positive."                                                               
Positive is relative, he noted,  but from within his organization                                                               
and from the  board's direction, they have been  told to proceed.                                                               
The  board   finds  enough  significant  activity   and  positive                                                               
response, and they support AGDC going forward with the project.                                                                 
2:08:45 PM                                                                                                                    
MR.  RICHARDS  noted that  Rosetta  Alcantra,  another AGDC  vice                                                               
president who focuses on external  affairs, is here. Referring to                                                               
slide  3 of  his  presentation,  he said  he  will  speak to  the                                                               
activity and achievements of the  last nine months, which is when                                                               
the state  took sole responsibility  for the project.  There have                                                               
been several significant federal  actions and a positive response                                                               
from the administration in Washington  DC. In review, the Section                                                               
3 application  is required by  FERC to construct an  LNG project.                                                               
FAST-41 stands  for Fixing America's  Surface Act of  2015, Title                                                               
41, which is  a mechanism for major projects to  be recognized at                                                               
the  federal  level,  he  explained,   and  special  permits  are                                                               
required through  PHMSA, the Pipeline Hazardous  Materials Safety                                                               
Administration. He said  he will give an overview of  some of the                                                               
guidelines coming out through the  Council on Environment Quality                                                               
and   the  new   organization  called   the  Federal   Permitting                                                               
Improvement  Steering Committee.  He said  he will  also cover  a                                                               
designation  in  the  Yukon  River  Basin  by  the  Environmental                                                               
Protection  Agency  called  ARNI, Aquatic  Resource  of  National                                                               
Importance, and how that would impact the project.                                                                              
2:12:02 PM                                                                                                                    
MR.  RICHARDS turned  to slide  4, which  shows three  six-and-a-                                                               
half-foot  stacks of  binders with  60,000  pages of  information                                                               
provided to FERC.  It was submitted in April and  was accepted as                                                               
a complete application.  He said FERC's two roles  are to advance                                                               
the environmental  review process  and to  assure the  safety and                                                               
security of  the project. With  the application, AGDC had  to ask                                                               
for an initiation  of the environmental process and  to start the                                                               
safety and security  part. Section 3 is normally for  just an LNG                                                               
plant and  not necessarily a  plant, an 800-mile pipeline,  a gas                                                               
treatment plant, and a pipeline  to Pt. Thomson. The pipeline has                                                               
been thoroughly studied on numerous  occasions, and he hopes that                                                               
FERC will push it forward.  The issue was getting the application                                                               
complete  and  accepted  by  FERC.  The  partners  had  pre-filed                                                               
various  editions  of  the  resource  report,  and  AGDC  had  to                                                               
assemble  it for  the application.  At  the same  time, FERC  and                                                               
other  agencies  were asking  for  continued  information, so  in                                                               
January  it had  to work  rapidly. Detailed  questions are  still                                                               
coming from FERC,  and ADGC is still addressing  the issues. Many                                                               
of the questions have been answered before.                                                                                     
CHAIR GIESSEL  asked if the project  will fall to the  end of the                                                               
line if deadlines are missed.                                                                                                   
MR. RICHARDS  said he will  discuss that along with  actions that                                                               
the federal administration has put in place.                                                                                    
MR.  RICHARDS referred  to  slide 5,  which shows  a  map of  the                                                               
pipeline  route  from Pt.  Thomson  to  Prudhoe  Bay with  a  gas                                                               
treatment plant, and  then the 800-mile pipeline  to Nikiski with                                                               
a  liquefaction plant.  The pipeline  parallels the  oil pipeline                                                               
for the first 400 miles.  There were previous projects, including                                                               
the Alaska  Natural Gas  Transportation System  in 1976,  with an                                                               
EIS  [environmental   impact  statement]  conducted  by   the  US                                                               
Department of Interior. It would  have gone through Canada to the                                                               
Lower  48. After  that, there  was the  Trans Alaskan  Gas System                                                               
[TAGS]  that  proposed  to  terminate in  Valdez.  That  EIS  was                                                               
completed by the  Army Corps of Engineers and the  Bureau of Land                                                               
Management  in 1988.  "Another  thoroughly studied  environmental                                                               
process by the federal agencies."                                                                                               
2:17:54 PM                                                                                                                    
MR.  RICHARDS  said,   most  recently,  at  the   behest  of  the                                                               
legislature, "we at AGDC have  nearly completed the ASAP project,                                                               
which runs from Prudhoe Bay down  to Pt. McKenzie across the Cook                                                               
Inlet, which  again parallels  the same route  as the  Alaska LNG                                                               
project." He said AGDC will  have a complete environmental impact                                                               
statement by  December of this  year. Again, it's the  same route                                                               
as the Alaska  LNG project. The route has been  studied, the same                                                               
environmental  review has  been  undertaken  by numerous  federal                                                               
agencies that  are also working with  AKLNG and FERC, so  the EIS                                                               
may be accelerated.                                                                                                             
CHAIR  GIESSEL noted  that it  is  crossing a  lot of  waterways.                                                               
There is a ballot initiative related  to salmon, and she asked if                                                               
it would have an impact on the project.                                                                                         
MR. RICHARDS  said the  project crosses  about 430  waterways, so                                                               
AGDC will go through the process  that it is required to with the                                                               
State of Alaska and in Title 17,  and it will make sure to comply                                                               
with state  laws. He  said he assumes  that the  existing process                                                               
would suffice  for this project.  He turned  to slide 6  and said                                                               
there are  many federal authorizations needed.  He enumerated the                                                               
major  federal  permits   and  authorizations,  including  safety                                                               
standards, Section 404 of the  Clean Water Act permits to protect                                                               
wetlands,  right-of-way leases  for crossing  federal lands  that                                                               
are mostly  north of the  Yukon River, and  incidental harassment                                                               
authorizations  for   protected  species  from   National  Marine                                                               
Fisheries. The  activity is all  going on concurrently  with what                                                               
must be provided  to FERC, he explained. The  normal timeline for                                                               
FERC is  18 months, so  the goal  is to accelerate  that schedule                                                               
due to the work done on previous projects.                                                                                      
MR. RICHARDS said slide 7  depicts most federal, state, and local                                                               
authorities to deal with during construction.                                                                                   
2:22:57 PM                                                                                                                    
MR.  RICHARDS said  slide 8  refers to  Fixing America's  Surface                                                               
Transportation (FAST)  Act of 2015, which  is the reauthorization                                                               
of the  federal highway bill. It  authorizes state transportation                                                               
departments  to receive  federal dollars.  There was  a provision                                                               
called Title 41 allowing for  major projects-over $200 million-to                                                               
be elevated  to an  expedited arena  of review.  Originally, AGDC                                                               
did not  apply but decided to  in August and was  accepted within                                                               
two weeks.  He said that  the AKLNG  project is now  ensured good                                                               
communication   and  coordination,   which   will  provide   more                                                               
accountability with the federal agencies.  It also means that the                                                               
agencies  must commit  to a  schedule, and  any slippage  of that                                                               
schedule must be reported to Congress.  He said he is hoping that                                                               
AGDC will  have all the  federal authorization schedules  by next                                                               
week. "That's a great thing," he  stated. He said he met with the                                                               
[FAST-41   Federal  Permitting   Improvement  Steering]   Council                                                               
executive director and identified  the previous efforts that have                                                               
been  done for  Alaska projects.  He asked  to help  leverage the                                                               
work of  FERC to  reduce duplication  and improve  efficiency and                                                               
timeliness.  He was  assured of  that.  He said,  to be  accepted                                                               
under  the  FAST Act,  the  council  and  FERC had  to  determine                                                               
whether AGDC  was technically capable of  completing the project,                                                               
and they  determined that in very  short order, and he  took that                                                               
as positive.                                                                                                                    
2:26:28 PM                                                                                                                    
CO-CHAIR  TARR  noted  that  Representative  Millet  asked  which                                                               
terminal is being marketed, Valdez or Nikiski.                                                                                  
MR. RICHARDS said it is proceeding with Nikiski.                                                                                
CO-CHAIR  TARR  said that  Representative  Parish  asked for  the                                                               
number of fish-bearing waterways that will be crossed.                                                                          
MR. RICHARDS  said about  433 waterways will  be crossed,  but he                                                               
will later  provide a list  of fish-bearing waters. He  turned to                                                               
slide  9, an  overview  of  PHMSA special  permits.  The AGDC  is                                                               
asking  for   consideration  of  the  large   expanses  that  are                                                               
uninhabited in  Alaska by obtaining waivers  for certain pipeline                                                               
regulations.  Regulations  are  set  to  keep  people  safe  from                                                               
pipeline  breaks and  explosions, and  they involve  block valves                                                               
and crack  arrestors. Waivers are  requested to reduce  costs, so                                                               
the pipeline  can have fewer  block valves.  Engineering analyses                                                               
show that the  spacing can be increased  without reducing safety.                                                               
The regulations  are all based  on the number of  inhabitants and                                                               
habitable dwellings. He said he  is also asking PHMSA to consider                                                               
strain-based  design,  the  ability  to  design  pipe  that  will                                                               
withstand   ground  movements   for  frost   heaves  and   ground                                                               
settlement,  particularly in  areas of  discontinuous permafrost.                                                               
This  is new  for a  land-based  pipeline, but  PHMSA allows  for                                                               
strain-based  design on  offshore pipes  all the  time. It  would                                                               
allow  the pipe  to  withstand movement  greater  than 5  percent                                                               
strain. [He later  corrected himself and said it  was 0.5 percent                                                               
strain.] Another  issue is  sufficient containment  in case  of a                                                               
leak on  the pipe leading to  the loading berths on  the trestle.                                                               
New technology  called pipe-in-pipe has  been used, "and  we feel                                                               
we can use it as a major cost savings."                                                                                         
2:30:27 PM                                                                                                                    
CHAIR GIESSEL asked the diameter of the pipe.                                                                                   
MR. RICHARDS said it will be a 42-inch pipe.                                                                                    
CHAIR  GIESSEL  asked  if  AGDC  is  testing  only  one  diameter                                                               
regardless of how many trains are constructed.                                                                                  
MR. RICHARDS  said the design  is 42  inches, but a  48-inch pipe                                                               
was tested. The ASAP project  considered a 36-inch pipe. "We have                                                               
a very good repository of pipeline data," he stated.                                                                            
SENATOR  MICCICHE said  he  won't torture  him  on the  technical                                                               
aspects,  but what  are the  cost  savings on  the block  valves,                                                               
coating, and pipe-in-pipe? They  will reduce costs significantly,                                                               
he  stated. He  asked about  the  probability of  success. He  is                                                               
unaware of a US  pipe-in-pipe approval, and, unfortunately, being                                                               
in  remote and  different geography  like Alaska  isn't accounted                                                               
for by federal regulators..                                                                                                     
MR. RICHARDS said, "We feel  very good after our discussions with                                                               
PHMSA" on the probability of  waivers on mainline block valve and                                                               
crack  arrester spacing  after  explaining  the project's  safety                                                               
procedures.  The external  coatings,  fusion-based epoxy  coating                                                               
versus  three layers  of polyethylene,  will be  a heavier  lift,                                                               
because  PHMSA  has  not  had  that experience  in  the  US,  but                                                               
pipelines around the world  use polyethylene, including pipelines                                                               
constructed elsewhere by Alaska  producers. It's all about trying                                                               
to  prevent   cathodic  corrosion,   and  he  doesn't   know  the                                                               
probability. The  pipe-on-pipe is a  technology that he  feels is                                                               
warranted and  has been  used, but  not in the  US. He  said AGDC                                                               
will contend that it will  meet the safety requirements; it's all                                                               
about spill containment, he explained.                                                                                          
SENATOR MICCICHE asked for the estimated cost savings.                                                                          
MR. RICHARDS said it is in the  tens of millions if not a hundred                                                               
million dollars or more.                                                                                                        
2:35:46 PM                                                                                                                    
MR. RICHARDS  said slide 10 reviews  "establishing discipline and                                                               
accountability  in   the  environmental  review   and  permitting                                                               
process  for infrastructure."  The  goals are  to identify  where                                                               
there  is   repetition  and  inefficiencies  in   the  permitting                                                               
process. It is  an attempt to condense  environmental reviews and                                                               
authorizations to two years,  have accountability, and "eliminate                                                               
redundancy and prevent duplication."  He said ADGC has identified                                                               
duplications, and he  would like AKLNG to be the  poster child to                                                               
meet the guidelines.  He said he has had  good conversations with                                                               
the Council  on Environment  Quality and  hopes the  council will                                                               
enact the guidelines quickly.                                                                                                   
MR.  RICHARDS  stated  that  the   Departments  of  Interior  and                                                               
Agriculture can designate energy  corridors across federal lands,                                                               
which may expedite  the project. In August, Region 10  of the EPA                                                               
sent  a letter  to the  Army Corps  of Engineers  designating the                                                               
waters  of  the  Yukon  River   Basin  as  an  area  of  national                                                               
significance.  This is  similar to  a designation  of the  Tanana                                                               
River around a significant bridge  crossing, the Niqliq chnannel,                                                               
and  the CD-5  development on  the North  Slope. It  elevates any                                                               
activities that would impact waters,  including wetlands. The EPA                                                               
protects wetlands, but  wetlands will be filled for  the work pad                                                               
along the  pipeline. The Army  Corps of Engineers  is authorizing                                                               
this  fill,  which concerns  the  EPA.  He  said AGDC  asked  the                                                               
governor  to  chime  in,  and  he   sent  a  letter  to  the  EPA                                                               
administrator.  Mr. Richards  is hoping  that Region  10 will  be                                                               
directed on how it would like  to see the process moving forward.                                                               
He  said  an Alaskan  may  be  running  Region  10 soon  and  may                                                               
"alleviate this issue."                                                                                                         
CHAIR  GIESSEL referenced  slide  10 and  asked  if the  pipeline                                                               
crosses Native corporation land where there might be objections.                                                                
MR. RICHARDS  said the corridor  crosses state,  federal, Native,                                                               
and  other  private land.  The  Department  of Natural  Resources                                                               
(DNR)  granted AGDC  a right-of-way  on  state lands.  Currently,                                                               
AGDC  is applying  for the  federal corridor,  and it  will begin                                                               
negotiating with private landowners.                                                                                            
2:42:41 PM                                                                                                                    
MR. RICHARDS turned to slide 12  and said AGDC staff have been in                                                               
Washington  DC discussing  federal  issues  and keeping  Alaska's                                                               
Congressional delegation  informed. There  is a provision  in the                                                               
Senate  energy bill  asking for  relief from  Title 11  of ANILCA                                                               
(Alaska  National Interest  Lands Conservation  Act) for  running                                                               
the pipeline  through Denali National Park.  The specific section                                                               
of  the act  has an  onerous burden  of requiring  a presidential                                                               
override  to agency  objections, which  is  a very  high bar,  he                                                               
said. He is  looking at the 2004 Alaska Natural  Gas Pipeline Act                                                               
(ANGPA),  because it  contained loan  guarantees of  $18 billion,                                                               
and AGDC is  working on AKLNG to qualify for  that assistance. He                                                               
said  the administration  is supporting  this project,  including                                                               
from the Departments of Commerce and the Interior.                                                                              
MR. RICHARDS turned to slide 13 and  said he is proud of the team                                                               
he leads.  There is an  active board and  tried-and-true Alaskans                                                               
who  manage  the  project  and   its  team  of  consultants.  The                                                               
timelines are  being met, he said,  and AGDC is using  the people                                                               
who  helped  develop the  AKLNG  project  for the  ExxonMobil-led                                                               
team. He noted other entities ADGC  is working with. He turned to                                                               
slide 14, listing the next  steps. He noted the FAST-41 schedule,                                                               
nonduplication of federal efforts,  working with commercial folks                                                               
to  align the  project components,  and developing  a contracting                                                               
strategy  that offers  the  best  rate to  customers  to keep  it                                                               
economically achievable. That is  the conclusion of the technical                                                               
and regulatory update, he said.                                                                                                 
2:48:59 PM                                                                                                                    
CO-CHAIR  TARR said  Representative  Saddler  asked the  turnover                                                               
rate of AGDC personnel over the last three years.                                                                               
MR.  RICHARDS said  the former  president, the  late Dan  Fauske,                                                               
left at  the end  of 2015.  Three vice  presidents left  in 2016.                                                               
Some  administrative staff  moved  on. On  the contracting  side,                                                               
where  most work  is  done,  people move  on  when contracts  are                                                               
CO-CHAIR TARR  said Representative Parish asked  what would cause                                                               
the board to recommend the termination of the project.                                                                          
MR. CRUZ  said the deciding factor  would be lack of  a customer.                                                               
Referring to  the previous question,  he said the  core technical                                                               
team is the same as day-one.  He said he has enjoyed working with                                                               
them, and it is a very small circle.                                                                                            
SENATOR MACKINNON said the legislature  was told that October was                                                               
the deadline  for getting a  customer, and after that,  "we would                                                               
cease and desist."                                                                                                              
MR.  CRUZ  said  the  board  has always  used  December  31.  The                                                               
administration had a different date.  A firm take-or-pay contract                                                               
will  not happen  in  2017.  The board  is  seeking  a solid  LOI                                                               
(letter of  intent) by  that time. The  gas marketing  folks have                                                               
said that  if an Asian entity  firms up a deal  with a Memorandum                                                               
of  Understanding  (MOU)  and  with   a  letter  of  intent-those                                                               
entities  do not  break letters  of intent-and  that is  what the                                                               
board is  looking for. It will  take time beyond that  to get the                                                               
SENATOR  MACKINNON  said  there  have been  multiple  letters  of                                                               
intent without  follow through. Maybe  there are  different kinds                                                               
that  are more  contractual.  She noted  that  when the  pipeline                                                               
headed towards the Lower 48,  it had expressions of interest, and                                                               
she asked if an LOI is more of a contract.                                                                                      
MR. CRUZ  said yes.  From the  end user, the  utilities, it  is a                                                               
solid  process and  they very  much are  serious when  they issue                                                               
those  type of  letters, he  stated. One  of the  Asian utilities                                                               
AGDC is  talking to is in  China and is state-owned.  They have a                                                               
million employees  and 300 million  customers. "Our project  is a                                                               
drop in the  bucket for them to contract with  us for a long-term                                                               
gas supply." He said that is unbelievable volume for a market.                                                                  
2:56:43 PM                                                                                                                    
SENATOR VON  IMHOF asked if  the LOI  would have a  price number,                                                               
like eight or nine dollars.                                                                                                     
MR.  CRUZ  said  yes,  "We are  expecting  capacity."  That  will                                                               
dictate how  much they  are willing  to take  and the  price they                                                               
will take.  Alaska must  be competitive;  it is  an international                                                               
commodity. "Our gas is no  better than someone else's, other than                                                               
we're a lot closer, and that's  one of the big, big plusses." The                                                               
other thing is the IRS exemption.                                                                                               
2:58:28 PM                                                                                                                    
SENATOR VON  IMHOF said, "What we  saw in the end  of 2017, let's                                                               
hope that  it holds  true in 2025."  She referred  to flexibility                                                               
and if  the buyer  can back  out. Is  there flexibility  with the                                                               
eight dollars in  terms of contractual rigidness?  Slide 18 shows                                                               
a  projected demand,  she noted.  How can  Alaska respond  to the                                                               
market changes? "Will there be, in  this LOI, or are you actively                                                               
looking to negotiate some type of out by the buyer in 2025?"                                                                    
2:59:31 PM                                                                                                                    
MR.  CRUZ said  not that  he  is aware  of. "We  are not  wanting                                                               
somebody who wants to go to the  dance and then when it's time to                                                               
go to the dance, she doesn't want to go with us."                                                                               
2:59:59 PM                                                                                                                    
SENATOR MICCICHE  said he  thinks he will  wait for  Ms. Wilcox's                                                               
discussion, because there  sounds like there might  be a midpoint                                                               
between a  firm gas sales agreement  and a LOI. He  is unaware of                                                               
binding LOIs.                                                                                                                   
3:00:18 PM                                                                                                                    
CHAIR GIESSEL said slide 15 begins the commercial update.                                                                       
3:00:31 PM                                                                                                                    
LIEZA WILCOX,  Vice President,  Commercial and  Economics, Alaska                                                               
Gasline  Development Corporation,  Anchorage, addressed  slide 16                                                               
that provided an overview of her presentation.                                                                                  
3:02:35 PM                                                                                                                    
MS.  WILCOX said  slide 17  speaks to  balancing three  competing                                                               
objectives. One is  clearing the LNG market  in the Asia-Pacific.                                                               
Clearing the  market on one  day does not  mean that is  where it                                                               
will stay,  she clarified, so  what she really means  is clearing                                                               
the  long-term market  starting in  the mid-2020s.  "That's where                                                               
every  LNG project,  at the  moment, that  is in  development, is                                                               
trying to  compete." Another objective is  acceptable pricing for                                                               
debt and equity markets, which means  getting the debt at a level                                                               
where  the project  can compete  and  getting the  equity at  the                                                               
projected levels.  In other words,  she said, "Can we  get equity                                                               
investors interested  with the level  of commitment  this project                                                               
has  to receive  the rate  of return  that we've  projected?" The                                                               
third  objective  is  for  an acceptable  netback.  Some  of  the                                                               
revenue to the state will  be the upstream netback, royalties in-                                                               
value or royalties  in-kind. It also means  acceptable netback to                                                               
the North Slope producers.                                                                                                      
3:04:40 PM                                                                                                                    
SENATOR MACKINNON asked for more  information on what constitutes                                                               
an  acceptable netback.  Multiple  times, the  governor has  said                                                               
having money 30 years after  paying back debt is unacceptable. If                                                               
that is the only return, it is  unacceptable to her. It is a huge                                                               
investment,  she said,  but  she  will hold  off  if  it will  be                                                               
covered later.                                                                                                                  
3:05:49 PM                                                                                                                    
MS.  WILCOX said  she will  address the  netback, but  it is  not                                                               
AGDC's  decision  to  determine  if it  is  acceptable.  It  will                                                               
provide the information for the state to make that decision.                                                                    
3:06:06 PM                                                                                                                    
SENATOR MACKINNON  said this  has been an  evading answer  by the                                                               
administration.  The legislature  has  been  trying to  determine                                                               
what the governor believes is  acceptable, and she and the people                                                               
of  Alaska are  worried if  the  governor can  make a  commitment                                                               
without asking  the legislature.  She said, "We  did that,  so we                                                               
would have a project that  was viable and could produce long-term                                                               
revenue for  our state as  well as affordable energy."  She added                                                               
that  the  concern   is  increasing,  because  a   penny  is  not                                                               
acceptable, and she is not  included in that discussion. "That is                                                               
why you  hear Chairman Cruz  sort of  probing and poking  all the                                                               
time, because you're  in the boardroom and we are  outside of the                                                               
boardroom for  the most part  when you go into  executive session                                                               
to talk about some of this." It is a huge issue.                                                                                
3:07:27 PM                                                                                                                    
MS.  WILCOX noted  that the  netback will  be addressed  shortly.                                                               
Addressing  slide 18,  she  said  it has  been  shown to  various                                                               
legislative committees, so it is a  review, but she has an update                                                               
for  2017.  The slide  shows  long-term  contracts for  LNG  from                                                               
several months ago,  and AGDC has not spent  much effort updating                                                               
it, because  not many new  contracts have  been made. But  in the                                                               
short term,  Asia has a bit  of an over-sold market,  and that is                                                               
why  flexibility clauses  are important  to Asian  buyers. It  is                                                               
from a  record upswing in  the LNG  markets when the  prices were                                                               
high.  Every analyst  she has  heard from  expects the  market to                                                               
rebalance  in the  mid-2020s. There  are not  many projects  that                                                               
have  taken the  plunge to  commit to  that rebalance,  she said,                                                               
meaning  not many  projects have  achieve  FID [final  investment                                                               
decision] since  2015. At the  same time, 2017 saw  record growth                                                               
in  the trade  of  LNG.  Bloomberg expects  the  global trade  to                                                               
exceed 280 million tons per annum.  It was about 245 tpa in 2016,                                                               
and that is  the highest increase since 2011. She  said about 5.7                                                               
million tons per  year of long-term LNG commitments  were made in                                                               
the first half of the year,  which is the lowest since 2010. "So,                                                               
you  see the  market increase  in use  of LNG  with new  projects                                                               
coming  in and  with  prices being  low,  but not  a  lot of  new                                                               
projects  being sanctioned.  Part of  the urgency  is due  to the                                                               
long-term development for  this project, and Alaska  should be on                                                               
the front  end of that  next wave to  get the contracts.  That is                                                               
why,  she stated,  they are  working so  hard on  the letters  of                                                               
3:10:43 PM                                                                                                                    
SENATOR JOHN COGHILL said this  is predicated on the market "that                                                               
we're looking for."  He has read that the  market using long-term                                                               
contracts are  going more into  short-term contracts in  2025. He                                                               
asked if Alaska has to be more nimble.                                                                                          
3:11:19 PM                                                                                                                    
MS. WILCOX said  the flexibility of new projects  will be limited                                                               
by financing.  It is a  question of  how flexible the  banks will                                                               
be,  and so  far, they  have  not shown  a great  degree of  that                                                               
flexibility,  which means  that any  project that  is constructed                                                               
will need  a portion  of it to  be debt, and  debt needs  to come                                                               
with long-term commitments. The spot  market is between 15 and 20                                                               
percent of the total LNG trade, and  it is expected to rise to 25                                                               
or 30  percent. Some  estimate it  to be higher  in the  early to                                                               
mid-2020s. There  is no question  that spot sales  and short-term                                                               
sales  will be  a larger  part of  the market,  she said,  but it                                                               
won't be the entire market.                                                                                                     
3:12:23 PM                                                                                                                    
SENATOR COGHILL  stated the "two  biggies" are Australia  and the                                                               
Gulf Coast.  The Gulf  Coast has  a lower debt,  and by  the time                                                               
this window shows  up, Australia will probably be  paid off. Does                                                               
that impact the  financing and the market? "Since  we're taking a                                                               
shot at a window, I want to know what our chances are."                                                                         
3:12:59 PM                                                                                                                    
MS. WILCOX said the Gulf Coast  started producing LNG a couple of                                                               
years  ago, and  many  are  still in  development,  so they  will                                                               
likely still  have debt  by 2025.  About half  of the  Gulf Coast                                                               
pricing is  dependent on  Henry Hub, and  she believes  a smaller                                                               
percent  of the  pricing for  Alaska LNG  can be  dependent on  a                                                               
commodity, and that is one of Alaska's competitive advantages.                                                                  
3:13:56 PM                                                                                                                    
SENATOR MACKINNON  said some projects  have utilities as  part of                                                               
ownership, and she asked if there  is a limit on end-user percent                                                               
of ownership as far as debt.                                                                                                    
3:14:20 PM                                                                                                                    
MS. WILCOX asked if Senator MacKinnon meant equity.                                                                             
SENATOR MACKINNON  said she means  equity, "but then  I'm looking                                                               
at our debt  per se after that to actually  finance the project."                                                               
There could  be an upstream  ownership, a pipeline  ownership, an                                                               
LNG ownership, or a transportation  ownership in the same project                                                               
but with different  rates of return and risks. Are  we looking at                                                               
capping  a percentage  of ownership?  Is  it wide  open where  an                                                               
outside  organization could  have significant  ownership interest                                                               
in the project?                                                                                                                 
3:15:21 PM                                                                                                                    
MS.  WILCOX said  there is  a balance  between minimal  ownership                                                               
with no control  of the project and maximum ownership  with a lot                                                               
of financial risk  or perceived risk. The goal is  to present the                                                               
options  and tradeoffs.  Ultimately,  the state  makes that  risk                                                               
choice. By owning the project,  the state could receive long-term                                                               
stable  returns. From  the cashflow  projections, that  can be  a                                                               
foundation of the income to  the state, she explained. The income                                                               
from the upstream may be  more volatile, but smaller, because the                                                               
state  only has  the  royalty  plus tax  compared  to the  entire                                                               
project. The state will have to make that choice.                                                                               
3:17:03 PM                                                                                                                    
SENATOR  MACKINNON said  a  legislative  analyst showed  projects                                                               
with  a 5  percent  utility kind  of ownership,  or  maybe a  few                                                               
percentages  beyond that.  She  expressed  concern about  selling                                                               
larger  shares   to  utility  owners.   Utilities  want   in  the                                                               
discussion,  because they  want to  know the  finances associated                                                               
with these  projects. So, they  buy small shares to  "come inside                                                               
the tent  and hear the  information." If they buy  larger shares,                                                               
they  are  more  likely  to  start  dictating  terms  to  benefit                                                               
themselves and not the state.                                                                                                   
3:18:07 PM                                                                                                                    
SENATOR VON  IMHOF said slide 18  is the crux of  the whole deal,                                                               
and it should  be her first slide. It is  the periodic gut-check.                                                               
It is wildly  talked about that Alaska gas is  very expensive and                                                               
not competitive.  She said she  was looking at  the International                                                               
Gas Union, and there are 15  projects just in Canada that will be                                                               
coming  out in  2020. Two,  Grassy Point  LNG and  Discovery LNG,                                                               
will  come out  between 2021  and  2014. Both  look exactly  like                                                               
AKLNG  in terms  of capacity  and  target market,  she said.  She                                                               
asked how Alaska gas compares and  what their costs are and their                                                               
debt.  "If you're  going  to  build something  you  want to  know                                                               
exactly who your  competitors are and how you  fare," she stated.                                                               
Is Alaska still competitive?                                                                                                    
3:20:22 PM                                                                                                                    
MS. WILCOX said that is a  good transition to the next slide. She                                                               
will talk about Alaska LNG  competitiveness with at least one set                                                               
of projects  that are the most  active at conferences and  in the                                                               
markets, "and  that is  the projects  in the  US Gulf."  She said                                                               
those projects  have had the  same uplifting atmosphere  as AKLNG                                                               
with the  US trade policy  wanting to  export more LNG.  They are                                                               
trying  to  take  advantage  of that,  but  they  are  structured                                                               
differently,  and their  competitive drivers  are different.  The                                                               
Gulf Coast  cost structure  for selling LNG  to Asia  breaks into                                                               
thirds: a third is infrastructure  cost, a third is shipping, and                                                               
a  third  is the  price  of  Henry  Hub, because  those  projects                                                               
generally don't produce  their own gas-they buy gas  in the Lower                                                               
48.  The shale  gas  revolution  has allowed  them  to enjoy  low                                                               
pricing.  Cheniere  is the  company  that  started exporting  LNG                                                               
first, and there  are many projects that are  in development, and                                                               
they all  rely on the  relatively low  cost of Henry  Hub natural                                                               
gas and the relatively low cost  of putting a project together in                                                               
the Gulf states.                                                                                                                
MS. WILCOX  said the chart shows  the Henry Hub costs  in yellow,                                                               
expressed  in  2018  dollars, based  on  the  Energy  Information                                                               
Administration  (EIA)  forecast  for  2025. The  low  and  medium                                                               
forecasts are  generally what AGDC looks  at. The range is  $8 to                                                               
$10, which  is the range  of what  a Henry Hub-based  LNG project                                                               
might present  to the  market for  a long-term  contract, because                                                               
they  don't know  what they  will buy  the gas  for in  2025. Gas                                                               
purchases don't go  out that far, because it is  a liquid market,                                                               
she  explained, so  they have  to depend  on the  market to  stay                                                               
where it's  at now to really  be competitive in Asia.  Spot price                                                               
for LNG hovered at  $5 or $6, and now it is  $8.50 because of the                                                               
increase in the use of LNG.                                                                                                     
3:24:03 PM                                                                                                                    
MS.  WILCOX said  Alaska's structure  is different.  The cost  of                                                               
infrastructure  is  higher. The  range  on  the chart  represents                                                               
different financing  terms. Alaska's advantages  include shipping                                                               
and  gas supply.  The Henry  Hub  price is  at liquefaction,  she                                                               
explained.  "You  have to  pay  for  the  cost of  the  pipeline,                                                               
tariffs  to  get there-to  get  to  the liquefaction  point  from                                                               
wherever  it is  produced-and you  have to  pay for  the upstream                                                               
cost  of  the  gas,  which  requires  …  drilling  and  fracking,                                                               
nowadays, in order  to actually make the supply  happen." So, the                                                               
cost of Henry  Hub does not represent the  true upstream netback.                                                               
Alaska's  netback is  at the  entrance  to the  pipeline and  the                                                               
treatment system that  takes it to the market. She  added that 75                                                               
percent  of  Alaska's  gas  is already  developed.  It  is  being                                                               
produced in Prudhoe  Bay and re-injected, so it  does not require                                                               
an  extensive drilling  program. That  one to  two dollars  "is a                                                               
reasonable amount to compensate the  upstream." She said it would                                                               
be good to  get more, of course,  but part of the  balance is the                                                               
other terms  and the time it  takes to make the  contract happen.                                                               
The graphic is attempting to show that Alaska can compete.                                                                      
3:26:41 PM                                                                                                                    
MS.  WILCOX said  she has  looked at  the Canadian  projects, and                                                               
Alaska's  project is  also on  the  list that  Senator von  Imhof                                                               
referred to.  The list indicates  the stage of the  projects, and                                                               
many of  the Canadian  projects that were  really going  strong a                                                               
few years ago  have run into permitting,  economic, or sponsoring                                                               
issues. Many are  on the board but are not  moving forward at the                                                               
moment, partly due to the downturn in the market.                                                                               
3:27:32 PM                                                                                                                    
CO-CHAIR  ANDY JOSEPHSON  said the  issue  of competitiveness  is                                                               
what it's  all about. Looking  at the 2037 market  would generate                                                               
the same  discussion. Competitiveness  is an  important question,                                                               
but there is no getting away from that, is there?                                                                               
MS. WILCOX agreed. The cost  structure of the upstream may change                                                               
by 2037. The  AOGCC [Alaska Oil and  Gas Conservation Commission]                                                               
ruling said the mid-2020s was a  good time to start production of                                                               
gas in  Prudhoe Bay, but it  would maximize the recovery  of oil.                                                               
In 2037,  the state  will still  be 800 miles  long, and  it will                                                               
still be difficult to export LNG from the North Slope.                                                                          
3:29:02 PM                                                                                                                    
CO-CHAIR  TARR clarified  that the  cost estimates  on the  graph                                                               
show the lower and upper estimates.                                                                                             
MS. WILCOX said that is correct.                                                                                                
3:29:26 PM                                                                                                                    
SENATOR  MICCICHE  said  he  would   like  more  details  on  her                                                               
assumptions  for the  cost  of  supply. Ms.  Wilcox  seems to  be                                                               
saying that  gas to the liquefaction  plant will be $3  to $6. "I                                                               
struggle with that."                                                                                                            
3:30:19 PM                                                                                                                    
MS. WILCOX said the assumptions will be covered next.                                                                           
3:30:28 PM                                                                                                                    
SENATOR MICCICHE asked for an update  of the demand data on slide                                                               
18. If  the source is  Global NatGas  Advisors, "I would  like to                                                               
see an  EIA. That is a  very rosy outlook for  projected demand."                                                               
He said he has talked about  this several times. The public needs                                                               
to  know that  when  looking eight  years out,  there  will be  a                                                               
dropout,  but  he  agrees  that  there  is  a  contract  rollover                                                               
opportunity.  He suggested  that her  diagram paints  a different                                                               
picture than what really exists.                                                                                                
3:31:33 PM                                                                                                                    
MS.  WILCOX said  she would  update the  demand data  and provide                                                               
examples of several curves that  exist, but "I don't believe this                                                               
is  the  most aggressive  projection."  There  is a  large  swing                                                               
factor  out  there  and  some  very  large  economies  with  many                                                               
consumers who still have gas as  a very small percentage of their                                                               
energy  portfolio. Even  a small  variation in  the growth  rate-                                                               
those economies  are projected to  grow-can affect  the forecast.                                                               
She will  happily provide  some examples. She  said she  has seen                                                               
more aggressive projections, and  they are usually from companies                                                               
who want to sell gas so should be taken with a grain of salt.                                                                   
3:32:37 PM                                                                                                                    
CHAIR  GIESSEL  addressed  slide  19  regarding  shipping  costs,                                                               
noting that China and India will  be demanding the gas. She asked                                                               
what shipping  to them will cost.  She said she is  assuming that                                                               
the shipping estimate is to Japan.                                                                                              
3:33:07 PM                                                                                                                    
MS. WILCOX answered that the  shipping estimate ranges from 60 to                                                               
75 cents  and covers China.  It may be a  bit low for  India, but                                                               
that is not the core market Alaska is aiming for.                                                                               
3:33:36 PM                                                                                                                    
SENATOR VON IMHOF  asked about gas supply on slide  19. She asked                                                               
if Alaska  has a contract  with the  big three suppliers  and the                                                               
smaller producers.                                                                                                              
MS. WILCOX replied  that the producers are  interested in selling                                                               
their gas, but agreements have  not been concluded. "What we plan                                                               
to  offer is  a  price  that we  view  will  balance those  three                                                               
objectives of the market."                                                                                                      
SENATOR VON  IMHOF expressed her  hope that the letter  of intent                                                               
and the supply complement one another in the next three months.                                                                 
3:35:03 PM                                                                                                                    
CHAIR GIESSEL  said, for slide  19, the Gulf Coast  would include                                                               
Oklahoma, Texas,  and Louisiana,  and she asked  why the  cost of                                                               
their gas would be higher than the cost of Alaska's gas.                                                                        
MS.  WILCOX explained  that the  Gulf  Cost gas  price is  market                                                               
based-a balance  of the cost  of production versus demand.  It is                                                               
an  index  connected  by  pipelines.  Henry  Hub  has  been  very                                                               
volatile, ranging from  $11 to $1.60 just in the  last ten years.                                                               
It has been $2.50  to $3 for a few years. If  the projects in the                                                               
Gulf Coast  are successful, "it  might be  driven by the  pull of                                                               
those projects  versus the  ability of  the producers  to satisfy                                                               
those contracts  at a certain  price." The producers  are located                                                               
through the US,  they have to drill and frack,  they have to ship                                                               
the  gas to  the  facilities that  buy it,  "and  they have  that                                                               
purchase as  a component in  their contract." The  ultimate buyer                                                               
of the  gas has to pay  whatever price Henry Hub  delivers. It is                                                               
not  the  responsibility  of  the  project  itself-it's  indexed,                                                               
generally at  115 percent or so,  for the gas portion.  Why is it                                                               
higher?  Because the  cost  of the  continual  investment in  gas                                                               
production and the  cost of the pipeline network is  part of that                                                               
number.  The gas  is  not  all associated  with  oil, and  people                                                               
actually drill  for the  gas and build  the facilities  to export                                                               
it. The netback to the upstream  producers, which is part of this                                                               
pipeline-connected market, is likely lower than Henry Hub.                                                                      
3:37:57 PM                                                                                                                    
MS.  WILCOX said  slide 20,  Financial  Model Basic  Assumptions,                                                               
shows  what  is used  to  estimate  the  higher-end cost  of  the                                                               
infrastructure, which is  close to $6. It is 75  percent debt and                                                               
25 percent equity, the general  construction period is six years,                                                               
and production starts in 2025. The toll is for the full build-                                                                  
out of the  three trains, and AGDC also analyzed  a phased build-                                                               
out of  two trains. She  thinks there may  be levers to  make the                                                               
project work even  with the two trains. The  financial inputs are                                                               
5  percent interest  on the  debt  and 5  percent financing  fees                                                               
charged upfront, so  that does have a big impact  on the project.                                                               
Anything with such  a long construction schedule  that is charged                                                               
upfront is  a concern.  It may be  misplaced in  the assumptions,                                                               
but the  IRR is 8  percent for the  equity investor based  on the                                                               
20-year contract term.  The assumption for PILT  [payment in lieu                                                               
of tax]  is $450  million during  the operational  life, slightly                                                               
escalated  as  discussed in  the  previous  reincarnation of  the                                                               
project,  "and  just  under  a   billion  dollars  O&M  that  has                                                               
inflation  assumption in  it."  The PILT  is  the substitute  for                                                               
property  tax  for  the  project,  and  "O&M"  is  operation  and                                                               
maintenance expense, she explained.                                                                                             
3:41:25 PM                                                                                                                    
MS.  WILCOX said  the  tolls  were structured  to  have a  slight                                                               
escalation  of 1.15  percent, and  that  means the  owner of  the                                                               
project starts  out charging a  lower toll that goes  up slightly                                                               
over its life,  but it is still under inflation.  That allows the                                                               
owner  or shipper  to have  a  lower cost  upfront when  starting                                                               
production.  It basically  provides for  the O&M  portion of  the                                                               
project to  rise with inflation,  because the O&M will  rise too,                                                               
but, for the  fixed portion of the project that  has already been                                                               
expended,  it  keeps  relatively  flat.  The  25  percent  equity                                                               
investment  is about  $10.8  billion in  today's  dollars and  is                                                               
structured to  give Alaska the  opportunity to invest.  A portion                                                               
of it  could be with  municipal bonds  as the project  enters the                                                               
next stage.                                                                                                                     
3:42:00 PM                                                                                                                    
CO-CHAIR  TARR asked  about bond  limits. Referring  to the  last                                                               
general  obligation  transportation  bond, it  seems  like  those                                                               
don't  get much  more  above  a few  million  dollars. Are  there                                                               
limitations on what can be accomplished with bonding?                                                                           
MS. WILCOX deferred to an bonding expert.                                                                                       
3:42:53 PM                                                                                                                    
CHAIR  GIESSEL  asked  about  the  $450  million  PILT  estimate,                                                               
because she recalls that it was much more last year.                                                                            
MS.  WILCOX said  the  estimate was  $550  million, the  midpoint                                                               
between the  $45 and $65  billion estimate. The pre-FEED  was not                                                               
then completed,  and at the  bottom of it all,  it was tied  to a                                                               
$55 billion project. Since pre-FEED,  the estimate has decreased,                                                               
and it is reasonable to put out a smaller number.                                                                               
3:44:08 PM                                                                                                                    
MS. WILCOX  addressed slide 21,  "Debt Data Points," which  is an                                                               
example  from  an  industry publication.  There  have  been  many                                                               
questions  on if  the project  debt  assumptions are  reasonable.                                                               
"Five percent  has been there  for some time,"  and knowledgeable                                                               
and  experienced people  say, "You  will know  the debt  once you                                                               
have  the contracts  and those  contracts provide  the underlying                                                               
security for  the project, and then  you will know for  sure what                                                               
the mortgage rate  is." The graph provides some  good data points                                                               
that  really put  Alaska's project  toward the  top of  other LNG                                                               
projects that have  been financed, and she recognizes  that it is                                                               
a large project. It  may have a bit of a  premium, but this gives                                                               
AGDC confidence that "we're in the range on our assumptions."                                                                   
3:45:25 PM                                                                                                                    
CHAIR GIESSEL  asked if investors  ever bring up the  Alaska risk                                                               
MS. WILCOX  said that is  the first factor  that comes up  in any                                                               
conversation, and that is what  AGDC is constantly trying to work                                                               
with. Alaska's risk factor is a bit  of a lore that is not always                                                               
justified.  She said  she has  seen that  Alaska is  viewed as  a                                                               
mystery. The projects  that are financed in the state  tend to do                                                               
very well,  but it  always takes a  bit of  convincing, including                                                               
clarifying that  Alaska is part  of the US.  "It is cold,  but we                                                               
can still construct  things." However, it is a risk,  and part of                                                               
what our  teams are  doing is de-risking  the Alaska  factor. The                                                               
permitting  determines a  lot of  the costs,  and it  drives, for                                                               
instance, how  the block  valves are spaced  and how  much gravel                                                               
needs  to be  put down.  "That  is what  we're doing  to, if  not                                                               
eliminate, at least substantially reduce the Alaska factor."                                                                    
3:47:22 PM                                                                                                                    
CHAIR GIESSEL  stated that she  sees the "Alaska risk  factor" as                                                               
the  political environment,  including  changing  tax policy  and                                                               
having tax certificates "that we don't seem able to pay."                                                                       
MS.  WILCOX  said  those  factors  have  not  been  part  of  the                                                               
discussion so far.                                                                                                              
3:48:02 PM                                                                                                                    
SENATOR MICCICHE asked  the project view on  royalty versus "ROI"                                                               
of the state. If the state  invests, "what is your vision on that                                                               
3:48:31 PM                                                                                                                    
MS. WILCOX noted  that she will address what the  cash flow could                                                               
look like if the state was  the owner, and that would provide 100                                                               
percent  of equity  investment.  She  said she  is  not making  a                                                               
judgment on  what equity the  state will take, but  those numbers                                                               
can be scaled fairly easily.                                                                                                    
SENATOR MICCICHE said he is  wondering about the baseline and the                                                               
right proportion.                                                                                                               
3:49:38 PM                                                                                                                    
MS.  WILCOX said  if the  project  is successful  in its  current                                                               
state, just  by virtue of having  invested in it, the  state will                                                               
be a part owner  because of the money that has  been spent, if it                                                               
is any good  at getting some value for that  in the equity model.                                                               
As far as  how much the state should invest,  that is the state's                                                               
3:50:21 PM                                                                                                                    
MR. CRUZ stated that the first  customer will dictate "so much to                                                               
us." The state will have to look  at the rate of return and if it                                                               
is  worth the  investment, or  if it  uses outside  funds. Either                                                               
way, Alaska  will have an  equity position. "We're not  giving it                                                               
away, I can tell you that."                                                                                                     
MS. WILCOX added that the state's  capacity to invest has a large                                                               
impact. Slide  22 is a  review of capacity solicitation  from the                                                               
summer.  The solicitation  causes  a lot  of  questions, but  the                                                               
reason that  the capacity solicitation  occurred over  the summer                                                               
is that  AGDC and the state  wanted clarity of how  much LNG they                                                               
are representing in  the market and how much LNG  would likely be                                                               
sold by  the upstream  owners. It was  a broad  solicitation, not                                                               
just  for  the  upstream  producers.  The  marketing  effort  had                                                               
started  earlier in  the year,  and normally  buyers wait  to see                                                               
what the project  owners, sponsors, and resource  owners will do.                                                               
The responses  received were  from one  North Slope  producer and                                                               
one that  was not  conforming to the  solicitation. The  LOI that                                                               
went out is part of  the committee materials. Then AGDC responded                                                               
to its  own solicitation as  the owner to  make sure that  it got                                                               
foundation capacity right  on the project, "so the  we'd be ready                                                               
to buy the  LNG, ship the LNG  to the system, and  sell the LNG."                                                               
Based  on  the  result,  AGDC  received  some  clarity  that  the                                                               
majority of  LNG would have to  be sold by AGDC  representing the                                                               
state, and it  would have to be  through a purchase of  gas and a                                                               
sale  of  the end  product.  She  said  that  is not  an  unusual                                                               
scenario  for an  LNG project.  Many  are financed  that way.  In                                                               
fact,  ultimately the  offtake contracts  for many  LNG contracts                                                               
are financed  on the  basis of the  offtake commitments.  That is                                                               
another reason why  many buyers have a keen interest  in having a                                                               
position  in the  project itself,  because they  know it's  their                                                               
credit and  the value of  their contracts  that are taken  to the                                                               
3:54:20 PM                                                                                                                    
CO-CHAIR TARR  asked about  the diagram  on slide  21 and  if the                                                               
size of  the circle is  relative to the  value of the  debt taken                                                               
on, and  the Y axis  is the interest  rate for borrowing.  All of                                                               
the  dark   blue  circles  represent   US  projects,   but  which                                                               
represents AKLNG?                                                                                                               
MS.  WILCOX said  the AKLNG  project  has not  been financed,  so                                                               
those represent Gulf Coast projects and one East Coast project.                                                                 
3:55:11 PM                                                                                                                    
CO-CHAIR TARR asked  on behalf of Representative  Parrish if AGDC                                                               
is considering  a debt more than  three times higher than  any on                                                               
the diagram.                                                                                                                    
MS. WILCOX said it is a  large infrastructure project, but it has                                                               
not been a  secret, so that is correct. Most  of the projects are                                                               
financed and  built in phases. It  is the smallest size  that can                                                               
compete in  the market, so they  start with two or  three trains,                                                               
and that  is the size of  financing, and then they  build up from                                                               
there. Because of  the pipeline that is  necessary, Alaska cannot                                                               
start as  small; however,  some of the  circles may  be different                                                               
phases  of the  same project.  Sabine  Pass has  already had  one                                                               
expansion, and  if they put  out two different  finance packages,                                                               
there may be  two separate circles, but in  totality that project                                                               
is close to 45 billion [dollars].                                                                                               
3:56:31 PM                                                                                                                    
SENATOR MACKINNON asked if AGDC has  to be the marketer. When the                                                               
project  was  approved,  there was  a  conversation  about  joint                                                               
marketing  with some  of the  producers. As  she recalls,  BP and                                                               
ConocoPhillips had offered to joint sell. Is that off the table?                                                                
MS.  WILCOX  said   AGDC  had  an  MOU   with  ConocoPhillips  on                                                               
marketing. The concept  would be purchasing the  gas upstream and                                                               
marketing. At  this time,  AGDC has not  reached an  agreement to                                                               
execute the marketing.  In the meantime, AGDC has  been going out                                                               
to  the market  representing, potentially,  the state's  gas, but                                                               
that  would be  DNR's decision  and potentially  gas that  Alaska                                                               
could buy, but, ultimately, under  the constructs of the MOU, the                                                               
gas would still be purchased upstream.                                                                                          
3:57:56 PM                                                                                                                    
SENATOR  MACKINNON asked  if the  price of  something goes  up or                                                               
down if there are more people selling it.                                                                                       
MS. WILCOX explained that the price would go down.                                                                              
SENATOR  MACKINNON  said  that  is   her  concern,  and  she  has                                                               
expressed that  to the administration.  If a producer  is selling                                                               
in a market  that Alaska hasn't been in before,  and the producer                                                               
already has  contracts and buyers,  for Alaska to  create another                                                               
option and  not go  in jointly would  be negotiating  against the                                                               
state for a lower sale price. She  asked why that is a good thing                                                               
to do.                                                                                                                          
3:58:40 PM                                                                                                                    
MS. WILCOX explained  that the state has stated  a preference for                                                               
a  joint marketing  agreement, but  it  would be  joint with  all                                                               
producers,  and no  agreement has  ever been  reached. There  are                                                               
marketing  organizations.  She said  she  is  not aware  of  them                                                               
actively marketing Alaska gas. There  would be economies of scale                                                               
and  leverage  just having  one  marketer  of Alaska  LNG,  "but,                                                               
obviously,  we can't  prevent other  projects competing  with us,                                                               
whether they be owned by Alaska producers or others."                                                                           
3:59:34 PM                                                                                                                    
SENATOR  MACKINNON said,  "I can  only express  the concern  that                                                               
I've heard  in the  legislature about us  entering into  a market                                                               
that is  very different  from a  Henry Hub that's  in the  US and                                                               
going  in-I  believe it's  called  a  Japanese cocktail,  if  I'm                                                               
recalling  correctly." That  means that  an entity  has to  go to                                                               
each   individual  buyer   that   might  be   regional  and   not                                                               
centralized.  Constituents are  telling  legislators that  Alaska                                                               
does  not have  that expertise,  and the  producers already  have                                                               
those potential buyers out there.                                                                                               
4:00:27 PM                                                                                                                    
REPRESENTATIVE JOHNSON referred to  the supply chart and shipping                                                               
"and so on."  She has heard that the negotiations  with Japan had                                                               
stalled due to plants being  built in Oregon, making the shipping                                                               
costs go down.  "Are those still in the works  or are those being                                                               
stalled as well?"                                                                                                               
4:01:14 PM                                                                                                                    
MS.  WILCOX said  the  Jordan  Cove project  in  Oregon has  just                                                               
resubmitted its  FERC Section 7  application for a  pipeline. The                                                               
previous  pipeline route  was rejected  by FERC  on the  basis of                                                               
eminent  domain,  and FERC  needs  to  be satisfied  that  enough                                                               
demand exists  for the project.  The situation is  different. She                                                               
said she read  the revised application advocacy from  the head of                                                               
the  project, and  she said  there  have been  maybe 56  reroutes                                                               
trying to get the pipeline around  some of the problem areas. The                                                               
project is still  dealing with over 400 private  land owners, and                                                               
about 30  or 40 percent have  signed some letters to  agree. That                                                               
is a  different public process  situation. She said  she believes                                                               
that Jordan  Cove had an LOI  with JERA, a major  Japanese buyer,                                                               
and one  project does  not necessarily  change the  situation for                                                               
them in  2015. A  number of  companies are  working with  AGDC in                                                               
Japan, so the Oregon LNG project won't expressly affect things.                                                                 
4:04:03 PM                                                                                                                    
MR. CRUZ said  ConocoPhillips has clearly stated it  wanted to be                                                               
a wellhead  seller. One  of the  measures that  senior management                                                               
has wanted to see is a  tax-exempt status. When AGDC received the                                                               
status,  Mr. Cruz  got an  email of  congratulations from  senior                                                               
management in  the main headquarters  of ConocoPhillips.  He said                                                               
he took  that as a very  good thing for the  state. The expertise                                                               
that AGDC  is using for gas  marketing is the same  that sold the                                                               
Gorgon project  in Australia  to Tokyo Gas  and Electric.  Are we                                                               
getting in over our head? No,  we are using players that are real                                                               
in this game.                                                                                                                   
4:05:23 PM                                                                                                                    
MS. WILCOX  addressed slide 24,  "Gas Supply," and said  that the                                                               
results  of  the  capacity  solicitation   do  not  preclude  the                                                               
existence  of tollers  other than  AGDC;  all it  does is  grants                                                               
those foundation  customer rights  at the  start of  the process,                                                               
but we  know that most  of the LNG  sold would be  represented by                                                               
the State of  Alaska. The AGDC buys the gas,  and the state could                                                               
potentially  sell  its  own  gas.  The  diagram  shows  how  AGDC                                                               
envisions  calculating the  netback  to present  to  DNR and  the                                                               
upstream  sellers. The  calculation takes  the price  received in                                                               
the market through the sale  and purchase agreements for LNG; the                                                               
price  would be  free on  board in  Nikiski and  account for  the                                                               
shipping  advantage   that  AKLNG   has,  "but  we   would  start                                                               
calculating  from Nikiski,  and we  would subtract  the toll  and                                                               
transfer the netback  to the upstream owner, DNR  or a producer."                                                               
That is  how AGDC is starting  to talk about the  LNG sales. Part                                                               
of what makes the project  competitive is the infrastructure cost                                                               
that  can be  financed-"and  if  we take  advantage  of that  and                                                               
include that in the price, we  can potentially have a very stable                                                               
price,  but  a risk  modification  factor  for  an owner  of  the                                                               
project, the  state or  someone else,  is that  you need  a price                                                               
that potentially  has a floor that  can cover the toll."  It is a                                                               
slightly different  structure, but  it is a  hybrid for  what has                                                               
been  done in  the  LNG industry,  where the  LNG  was sold  oil-                                                               
indexed and it would just vary  with oil. It would sometimes have                                                               
some callers on it, so it  would have some limitations on the top                                                               
and the bottom.  In the Gulf, they have used  a tolling structure                                                               
where the  toll is essentially  guaranteed to the  project owner,                                                               
and then  the upstream  varies with the  index. "We're  trying to                                                               
bring the structure into Alaska; we  realize that our toll has to                                                               
be higher, but  we do have the advantage on  the shipping and, we                                                               
think,  on the  upstream,  to still  meet  a competitive  price."                                                               
Other  projects are  trying to  be  as creative  as possible,  so                                                               
there  have  been  some announcements  about  making  fixed-price                                                               
deals for  a short period  of time, because those  projects can't                                                               
guarantee the Henry Hub to stay where it is.                                                                                    
4:08:57 PM                                                                                                                    
SENATOR MACKINNON  asked if she  is correct that the  reason that                                                               
Mr. Cruz has  stated that it depends on the  buyer is because the                                                               
first buyer will pay the debt service for the long term.                                                                        
MS.  WILCOX explained  that  the first  serious  buyer gives  the                                                               
confidence for the  project to really start  raising capital. She                                                               
said that  is how she  understands it.  Once a project  starts to                                                               
have  some  momentum and  there  is  a  reputable party  that  is                                                               
interested,  that  should  provide confidence  that  selling  the                                                               
entire project is achievable.                                                                                                   
SENATOR MACKINNON  asked for clarification  that the  first buyer                                                               
provides a foundation for debt service or other items.                                                                          
4:10:20 PM                                                                                                                    
MS.  WILCOX  answered  absolutely.   Once  that  package  is  put                                                               
together, the bank  will want to make sure that  all the capacity                                                               
is subscribed, or nearly all.  As far as charging each individual                                                               
buyer, it is done on a nondiscriminatory basis.                                                                                 
4:10:42 PM                                                                                                                    
SENATOR  VON IMHOF  asked  how  the second  bullet  on slide  24-                                                               
netback price  where a  portion of  the LNG  price is  indexed to                                                               
commodity and  passed on to upstream-affects  the yellow portion,                                                               
or gas supply, of the diagram on slide 19.                                                                                      
MS.  WILCOX  explained  that  the   long-term  fixed  price  with                                                               
escalation  can  be  equated  to   starting  at  one  dollar  and                                                               
escalating to  two dollars over the  time of the project.  On the                                                               
netback  price, there  could be  more  upside at  times and  more                                                               
downside, but  that is generally  the range that it  would expect                                                               
to vary in order to compete.                                                                                                    
SENATOR  VON  IMHOF  said  they  had  talked  earlier  about  the                                                               
flexibility in the  range. When taking the  individual slides and                                                               
bringing out  various concepts, it  is important to  finally draw                                                               
them all together in one  diagram and show the flexibility points                                                               
and ranges of  where we have to fall to  be competitive. "You are                                                               
showing  this  gas  supply.  We   are  putting  pressure  on  our                                                               
competitiveness at  the supply wellhead,  which is fine,  but how                                                               
does that affect the overall project?"                                                                                          
4:12:17 PM                                                                                                                    
MS. WILCOX said  AGDC will work on a  one-slide presentation. The                                                               
range for the US Gulf Coast,  at the moment, appears to be around                                                               
$8 for  competing long term.  Some projects are higher,  and some                                                               
are  lower, but  that is  viewed  as the  long-term price,  which                                                               
could change  in the future.  What AGDC  is saying is  Alaska has                                                               
enough advantages to be able to compete with that.                                                                              
4:13:12 PM                                                                                                                    
SENATOR VON IMHOF asked about Gulf Coast pricing.                                                                               
MS. WILCOX  said some  contracts are not  as transparent  as they                                                               
could be,  but their structure  is a  toll, which in  the earlier                                                               
contracts are in the  range of $3 to $3.50. It  is 115 percent of                                                               
Henry  Hub, so  that adds  up to  around $6.50  plus about  $2 in                                                               
shipping. Some are different, and  she has seen some that arrived                                                               
in Asia that  were as high as $12.50 several  months ago, but she                                                               
is not sure how they were structured.                                                                                           
4:14:28 PM                                                                                                                    
SENATOR VON IMHOF said, "If you  think that this panel right here                                                               
is  a tough  customer,"  municipalities  and Native  corporations                                                               
will be very  formidable forces, and they will  want much clearer                                                               
answers  than what  Ms. Wilcox  is providing.  They will  want an                                                               
annual pro forma  to know exactly where the money  is coming from                                                               
and where  it is  going. The  committee is  not asking  that now,                                                               
because  it  is  a  long  presentation. She  told  her  that  the                                                               
transparency  that Ms.  Wilcox  is not  providing  today will  be                                                               
demanded  by Alaskans  from around  the  state, as  they will  be                                                               
contributing 25 percent.                                                                                                        
4:15:54 PM                                                                                                                    
MS. WILCOX said one question  was the significance of non-binding                                                               
agreements, such as memoranda of  understanding (MOU) and letters                                                               
of  intent (LOI).  There  are  "outs," but  they  are taken  very                                                               
seriously by the LNG industry.  A final agreement will likely not                                                               
be  signed until  the pre-final  investment decision.  Both sides                                                               
will want  to know  that regulatory approvals  are well  in sight                                                               
and that more engineering has been  done in order to solidify the                                                               
estimate. However,  those significant  LOIs are from  the parties                                                               
that AGDC  has been talking to  in Asia and they  want the supply                                                               
in  the timeframe  of  the project  and they  could  go for  this                                                               
location.  They think  they can  indicate a  term, a  volume, and                                                               
potentially a price. If the price  is not in the letter of intent                                                               
itself,  it has  frequently been  part of  the discussions.  "So,                                                               
that price has been broken down  for the buyer, and the buyer has                                                               
reviewed the data enough to have  some level of belief in it." It                                                               
is also  important to the  large utility buyers that  the project                                                               
rises to  the level that allows  them to devote resources  to it.                                                               
The  relationship  with  the   marketing  organization  has  been                                                               
established and  tested on a trial  agreement, such as an  LOI or                                                               
confidentiality agreement.  Evidence suggests  that it  takes one                                                               
to two years to get to an LOI.                                                                                                  
4:18:54 PM                                                                                                                    
CO-CHAIR TARR  said that Representative  Saddler asked if  an LOI                                                               
is a  commitment that AGDC  can take to  the bank. He  is getting                                                               
frustrated that  AKLNG success keeps getting  redefined downward.                                                               
Expressions  of  interest,  LOIs,  and  MOUs  are  agreements  in                                                               
principle, but none justify continued  investment or activity. He                                                               
asked for evidence that he is wrong.                                                                                            
4:19:39 PM                                                                                                                    
MS.  WILCOX replied  that the  best  evidence is  that under  the                                                               
project structure  that AGDC is  proposing with a  relatively low                                                               
return  on equity  for  the investment  of a  utility  rate of  8                                                               
percent, this project can be  competitive. She said AGDC has been                                                               
spending the last  several months trying to  get the confirmation                                                               
from the  market itself, and  some progress has been  made. There                                                               
is no final confirmation.                                                                                                       
4:20:26 PM                                                                                                                    
CO-CHAIR TARR noted  that the state had signed a  MOU or LOI with                                                               
Korea   Gas  (Kogas),   and  that   seemed   like  an   important                                                               
announcement, but  [Kogas] had  signed a few  others on  the same                                                               
day. Will  Korea have  a demand  requiring several  contracts, or                                                               
does  it mean  that  they are  just wanting  to  talk to  several                                                               
projects, but not  select them? She asked how Alaska  ranks if it                                                               
is not the only project that Korea is talking to.                                                                               
4:21:43 PM                                                                                                                    
MS. WILCOX  said Kogas is a  state-owned company. At the  time of                                                               
the MOU  with AKLNG as well  as three other projects  on the Gulf                                                               
Coast, South Korean  President Moon was on the  way to Washington                                                               
DC and  had a very large  delegation with him. Part  of the drive                                                               
to sign  all the  MOUs was a  first step toward  a change  in the                                                               
trade direction.  Korea wants to  switch more to natural  gas for                                                               
environmental reasons, and it wanted  to show interest in getting                                                               
it  from the  US. The  fact that  AKLNG was  the only  West Coast                                                               
project is  a very good point  for the state. The  Alaska project                                                               
has differences  with the  Gulf Coast, so  it is  not necessarily                                                               
competing.  Kogas  is  looking  at whether  AKLNG  has  value  or                                                               
doesn't. The  Kogas portfolio has  a large drop off  in contracts                                                               
in that  timeframe. They have  a stable demand  and not a  lot of                                                               
growth, but,  clearly, they  are shopping around.  It would  be a                                                               
step in  the right  direction to  be able to  prove the  value of                                                               
AKLNG to them.                                                                                                                  
4:24:03 PM                                                                                                                    
CO-CHAIR TARR  said she shares some  concerns with Representative                                                               
Saddler. It sounds like it is a case-by-case situation.                                                                         
4:24:56 PM                                                                                                                    
MS.  WILCOX  said  it  is  specific  to  the  buyers.  Texas  and                                                               
Louisiana have several projects  each, so the states, themselves,                                                               
promote  the industry  in  general, and  each  project gets  very                                                               
excited  and makes  all the  announcements they  can, because  it                                                               
adds to  the momentum. The State  of Alaska with one  LNG project                                                               
can do that, and that is part of  the challenge. It is good to be                                                               
fair and reasonable, but AGDC is trying to grab that momentum.                                                                  
4:26:15 PM                                                                                                                    
MS.  WILCOX   said  slide  26   shows  the  count   of  marketing                                                               
activities.  Intensive marketing  has started  recently. Pre-FEED                                                               
has been  completed, and the  FERC application has been  made, so                                                               
the  project has  something to  market with.  Marketing has  been                                                               
intense over the last few months.                                                                                               
4:27:01 PM                                                                                                                    
MS. WILCOX said  slide 27 lists the marketing  focus areas, which                                                               
are large buyers where Alaska  has a shipping advantage. Slide 28                                                               
shows  the number  of confidentiality  agreements and  the buyers                                                               
interested in investing  who want to access  the data-room, which                                                               
is a large  commitment of time. It shows the  number of LOIs that                                                               
AGDC is  negotiating, with  actual drafts  going back  and forth.                                                               
There are three executed documents, she explained.                                                                              
4:28:09 PM                                                                                                                    
MS.  WILCOX  said  slide  29 addresses  the  IRS  private  letter                                                               
ruling,  which the  IRS  published today.  The  letter asked  for                                                               
confirmation that  AGDC is a  government entity whose  revenue is                                                               
not  taxable. The  request described  the potential  structure of                                                               
the project, with private parties  reserving capacity and selling                                                               
the gas to it. The  project was described hypothetically, but the                                                               
specific question  was if  AGDC is  tax exempt.  The IRS  was not                                                               
asked  if the  entire project  would  be tax  exempt, because  we                                                               
don't know  who the  owners of  the project are  yet, but  if the                                                               
project is  set up  as a  tax pass-through  entity to  the extent                                                               
that the state or  AGDC owns a part of the  project, then part of                                                               
the income from the project could  be passed through to the state                                                               
without federal tax.                                                                                                            
4:29:42 PM                                                                                                                    
CHAIR GIESSEL added  that the application for  the private ruling                                                               
is included in the meeting documents.                                                                                           
4:29:53 PM                                                                                                                    
CO-CHAIR TARR  said Representative Saddler would  like a response                                                               
to his  concern that he  has "heard nothing today  that justifies                                                               
continuing with this project."                                                                                                  
MS. WILCOX replied  that the signed LOIs  are confidential, based                                                               
on  the  counterparty's   request.  There  is  a   way  to  share                                                               
confidential  documents  with  legislators,   in  fact,  that  is                                                               
specified  in the  LOIs. As  far  as showing  proof that  further                                                               
investments are justified, it could be in those documents.                                                                      
4:31:07 PM                                                                                                                    
CO-CHAIR JOSEPHSON  surmised that the  confidentiality agreements                                                               
cannot be shared publicly, but AGDC sees signs of progress.                                                                     
MS. WILCOX  said there are  conversations and meeting  notes that                                                               
give AGDC  confidence, and the tempo  of the signing of  the LOIs                                                               
and the tempo of engagement on  this project has been faster than                                                               
almost anything  that the  AGDC marketers  have seen  in previous                                                               
experience, and  they have  decades of  experience. There  is the                                                               
issue of Alaska's credibility as  an LNG exporter-location really                                                               
does  matter. Some  buyers have  experienced Panama  Canal issues                                                               
with Gulf Coast LNG. "I'm not  saying it's going to shut down the                                                               
LNG industry  by any  stretch," but the  general attitude  of the                                                               
meetings is  hard to convey, and  ultimately it all results  in a                                                               
4:32:58 PM                                                                                                                    
CO-CHAIR JOSEPHSON  noted that it  is the duty of  legislators to                                                               
be circumspect and raise tough  questions. He recalled the August                                                               
16 meeting about  a positive revenue ruling, and it  was met with                                                               
great skepticism. He said he  set through that meeting, and there                                                               
were  a number  of legal  briefs presented  in detail.  Some were                                                               
more sanguine  than others,  but as a  body, the  legislature was                                                               
broadly  unconvinced, and  yet AGDC  achieved that.  He commended                                                               
Ms. Wilcox and looks forward to hearing more about it.                                                                          
4:33:54 PM                                                                                                                    
SENATOR MICCICHE said  there is not enough time  in this meeting.                                                               
He noted  that Mr. Cruz walked  into this meeting with  "a lot of                                                               
people  hanging in  there  with  you." He  said  he  is from  the                                                               
district where  the proposed liquefaction  facility ends  up, and                                                               
he  has had  peripheral experience  in  the industry  for a  long                                                               
time. He  is excited about  the project  with the cost  of supply                                                               
that is competitive  with the Gulf Coast and the  Middle East. He                                                               
added that  LOIs and MOUs do  not fund projects. "How  do we hang                                                               
in there  with you?" He  said he  understands where AGDC  is, and                                                               
everyone has  done an incredible  job. "When is a  fair timeframe                                                               
for us  to encourage this project  to the point of  where we say,                                                               
'Now is not the right time?'"                                                                                                   
4:35:31 PM                                                                                                                    
MR.  CRUZ said  he likes  those questions.  He wants  Alaskans to                                                               
understand this  because they  are the  stockholders. He  said he                                                               
has  been involved  since  Day 1,  and when  AKLNG  was an  Exxon                                                               
project, "not once  did they ever talk about a  customer, bring a                                                               
customer to  Alaska, even though  we knew who know  who customers                                                               
were; it  was all  about those three  partners getting  along and                                                               
prosecuting  the  work."  He  added that  AGDC  has  brought  the                                                               
customers and  searched them  out, which has  never been  done in                                                               
the  history of  this project.  There have  been LOIs  agreed to.                                                               
TransCanada said  it was going  to build  a pipeline and  sell it                                                               
down south. He said he has  renewed faith based on all the things                                                               
that are coming together. He  understands that an LOI doesn't get                                                               
Alaska a pipeline, "but an LOI gets  us a heck of a lot more than                                                               
we have  right now for a  confidence level." The fact  that there                                                               
are five LOIs gives him "huge confidence."                                                                                      
MR. CRUZ said, regarding how long  AGDC should hang in there, the                                                               
board has to  have something by the  end of this year.  It has to                                                               
have something that  he can take to Alaskans and  say, "We've got                                                               
an LOI;  we've never had  that before. These companies  have come                                                               
forward  and said  we're interested  in purchasing  X amount  per                                                               
day. We have  checked the dots that we actually  have people that                                                               
want  to sell  their gas,  because they  do." At  that point,  he                                                               
said, the  board has  to determine  what is  best for  the state.                                                               
Legislators are  all welcome to sign  a confidentiality agreement                                                               
and look  at "what we have  here," and that's when  the board has                                                               
to make that decision. It is a  tough time, he said, and he hopes                                                               
he is answering  the question. If AGDC does  not have substantial                                                               
LOIs at the end  of this year or by January 15,  then "we have to                                                               
look at  this and  say that this  is not going  to be  a feasible                                                               
project."  He said  he  doesn't  want to  sit  another two  years                                                               
thinking  that somebody  is  going  to knock  on  the door.  What                                                               
really  drives this  project is  construction, he  added, and  we                                                               
have seven years to build this thing.                                                                                           
4:38:35 PM                                                                                                                    
SENATOR MICCICHE  thanked Mr.  Cruz for his  answer. There  are a                                                               
lot of  people asking that  question and he  thinks it is  a fair                                                               
answer,  and it's  the  most  direct he  has  heard.  He said  he                                                               
understands  Mr. Cruz's  position. There  are things  moving this                                                               
way. That's a fair answer.                                                                                                      
4:38:57 PM                                                                                                                    
SENATOR COGHILL said  he has been as skeptical as  anyone, but he                                                               
is glad to see  what is being focused on. He  asked at what point                                                               
does the project become a taxable entity because of the make-up.                                                                
4:39:32 PM                                                                                                                    
MS. WILCOX  explained that AGDC's  income, to the extent  that it                                                               
is an  owner of the project,  will always be tax  exempt. That is                                                               
the IRS ruling. The extent that  that benefit is passed on to the                                                               
entire project  in the form of  tolls, that is flexible.  Some of                                                               
it could  be passed on  and some of  it couldn't, but  AGDC would                                                               
get a  higher return than  other owners, but that  generally does                                                               
not  land extremely  well  in  the market.  The  degree of  state                                                               
ownership will  determine the benefit  of the  tax-exempt status;                                                               
however,  the  total  potential  impact  is  not  that  material.                                                               
Consultants, "Wood-Mac,"  presented about a $0.45  difference for                                                               
a  ringed-fenced   stand-alone  project.  For  owners   of  other                                                               
projects in the US that  could take advantage of write-offs while                                                               
the  project is  having losses,  the difference  is as  little as                                                               
$0.20 for  the entire tax exemption.  That is because of  the low                                                               
return on equity that was projected.                                                                                            
4:41:18 PM                                                                                                                    
SENATOR COGHILL said that at  one point [the exemption] was shown                                                               
as a key element.                                                                                                               
4:41:31 PM                                                                                                                    
CHAIR GIESSEL asked  Ms. Wilcox to move ahead to  the netback for                                                               
Alaska. Citizens are asking what is in this for them.                                                                           
4:41:43 PM                                                                                                                    
MS.  WILCOX  addressed  slide 35,  "State  of  Alaska  Investment                                                               
Opportunity," which represents the  total potential cash flow. It                                                               
is modeled  as the state  being 100  percent owner. If  the state                                                               
made no  investment in the  project, and  all it received  is the                                                               
netback,  then one  to two  dollars would  give it  $250 to  $500                                                               
million per year.  That is outside of the  $40 billion investment                                                               
decision-if  the project  just happened.  The model  assumes that                                                               
production tax is paid as gas  and there is a royalty percentage.                                                               
Those  are the  two  "thinnest"  bars on  the  chart. The  yellow                                                               
portion of the diagram is the  investment decision, and that is a                                                               
different cash  flow; it  is if the  state actually  takes equity                                                               
going forward on  the project and earns an 8  percent return over                                                               
20 years.  The income is $1.1  billion per year for  the 20 years                                                               
that  the debt  is  being paid  off, and  then  the income  could                                                               
potentially go up if the tolls can be kept at the same level.                                                                   
MS. WILCOX said  that is the $11 billion  investment decision, if                                                               
you will.  In addition, the  operating payments in lieu  of taxes                                                               
would be  considered part of  the state return, even  though some                                                               
of it goes to the municipalities.  It is represented by the light                                                               
blue bar  on the diagram.  If the state  were to own  the project                                                               
and help it  happen, it would start at about  $2 billion per year                                                               
and  rise from  there. The  investment  part is  scalable, so  by                                                               
investing less,  there is  less return.  It is  not a  pro forma;                                                               
"we're using  the data that  we have that  is all rolled  up that                                                               
has quite a bit more detail to it, but it is still an end-of-                                                                   
preFEED projection of capital expenditure  over time and revenues                                                               
over time."  This is not the  time that the $11  billion is being                                                               
requested, she clarified,  this is the time $3  million per month                                                               
is being  spent to de-risk the  project and to get  the customers                                                               
in the door. Then, AGDC  will shift to making detailed, month-by-                                                               
month projections,  because it will  determine the pace  and size                                                               
of the project.                                                                                                                 
4:45:37 PM                                                                                                                    
CHAIR  GIESSEL asked  if the  diagram assumes  no cost  overruns,                                                               
construction  delays,  or  fish  initiatives  that  would  create                                                               
MS. WILCOX answered correct. The  cost estimate of the project is                                                               
about $43 billion, and that has a 16 percent contingency.                                                                       
4:46:16 PM                                                                                                                    
CO-CHAIR  TARR  asked to  clarify  that  if  the state  makes  no                                                               
additional investment,  through the  royalty and  the tax-as-gas,                                                               
it would be around $250 million per year.                                                                                       
MS. WILCOX  said yes, and  that is with the  one-dollar estimated                                                               
netback for three trains.                                                                                                       
CO-CHAIR  TARR said  if Alaska  becomes an  equity investor,  the                                                               
yellow part of the diagram is  all negative cash flow until 2025,                                                               
when the project  comes on line, but then that  brings the return                                                               
closer to  $2 billion per  year. She assumed that  the goldenrod-                                                               
colored portion would  be what the state would have  to pay back,                                                               
so  in the  early years,  Alaska would  still be  looking at  the                                                               
royalty and  tax-as-gas until phasing out  of the 20 to  25 years                                                               
of financing.                                                                                                                   
4:47:30 PM                                                                                                                    
MS. WILCOX replied  that financing is netted out,  so the diagram                                                               
shows the net income.                                                                                                           
SENATOR MACKINNON asked if PILT is included.                                                                                    
MS. WILCOX said PILT is the light blue portion.                                                                                 
SENATOR MACKINNON asked  if PILT is included in  the $250 million                                                               
to $500 million.                                                                                                                
MS. WILCOX said PILT is outside of that.                                                                                        
4:48:13 PM                                                                                                                    
CHAIR GIESSEL said Ms. Wilcox  alluded to three trains. She asked                                                               
about two trains.                                                                                                               
MS.  WILCOX said  she  has  not included  that  model in  detail.                                                               
Generally, LNG  projects try to  start as small as  they possibly                                                               
can, which was  the genesis of the ASAP project  that she started                                                               
working on in 2011. The size  depends on the market. For the two-                                                               
train  model,  there  can  be  a  case  where  the  cost  of  the                                                               
infrastructure  is   largely  similar  to  this   one  with  some                                                               
modifications.   The  modifications   could   be  extending   the                                                               
contracts  that  financing is  based  on  from  20 to  25  years,                                                               
stretching  out   the  depreciation.   Since  they   are  smaller                                                               
investments, potentially  the payment in  lieu of tax  portion of                                                               
the toll could  be reduced until the third  train is constructed.                                                               
The property tax is based on  the level of investment. With that,                                                               
you  could  get  close  to  the   same  tolls.  One  of  the  key                                                               
considerations in  financing is whether  you have the  gas behind                                                               
it, and with two trains, because  the capacity is less, you could                                                               
have that gas stretch for 25 years.                                                                                             
4:49:44 PM                                                                                                                    
SENATOR  MACKINNON  said she  is  a  former assembly  member  for                                                               
Anchorage  and  remembers when  the  Trans  Alaskan Pipeline  was                                                               
built. There  are huge safety concerns  during construction, "and                                                               
huge waves of  people are coming in." It looks  like PILT is only                                                               
being offered  after the  project is  complete, and  the negative                                                               
impacts  are during  construction.  She asked  if  Ms. Wilcox  is                                                               
taking that into consideration at all.                                                                                          
MS. WILCOX  said there is  a construction PILT estimate  in these                                                               
numbers. In the  current model, it is estimated  at an additional                                                               
$200 million,  and that  is to directly  pay the  communities for                                                               
the impacts. She said Resource  Report 5 indicated a net positive                                                               
income  for  the communities  over  the  period of  construction,                                                               
because many communities  have taxes. This project  will not have                                                               
as large an  impact on the state as the  oil pipeline did because                                                               
the  state  is  bigger,  and  the project  is  smaller,  "but  we                                                               
recognize those issues."                                                                                                        
4:51:30 PM                                                                                                                    
SENATOR MACKINNON asked where to find those numbers.                                                                            
MS.  WILCOX replied  that  they are  in the  yellow  part of  the                                                               
diagram, because it is considered part of the capital estimate.                                                                 
CO-CHAIR TARR  said that in  the previous iteration,  the dollars                                                               
before the  project came  on line  were considered  "impact aid."                                                               
That was  different from the PILT,  but it sounds like  those are                                                               
all considered the same pot of money.                                                                                           
4:52:20 PM                                                                                                                    
MS.  WILCOX said  they are  being considered  within the  capital                                                               
estimate, so  the impact aid,  the construction payments  in lieu                                                               
of taxes,  are to  compensate for  impact. It is  not there  as a                                                               
profit-making tool.  That is why it  is not presented as  part of                                                               
the return to  the state, because it's just trying  to offset the                                                               
negative rather than be a positive. It is part of the cost.                                                                     
SENATOR MACKINNON  asked if  Alaska is  going to  capitalize that                                                               
debt. Will there  be an expense and carry out  across the state's                                                               
debt load  to be  able to do  impact aid or  PILT to  advance the                                                               
4:53:10 PM                                                                                                                    
MS. WILCOX replied  that the owners of the project  would pay for                                                               
that. To  the extent that  the state is an  owner and there  is a                                                               
local community impact,  she expects the community  would ask the                                                               
project to compensate.                                                                                                          
4:53:46 PM                                                                                                                    
MS. WLCOX addressed  slide 36, "Netback," and said  it is another                                                               
way  of representing  what the  range  of the  netback would  be.                                                               
There is more detail behind  the blue-shaded area, which included                                                               
the entire  pre-FEED cost estimate  and shipping costs.  The blue                                                               
area is the infrastructure and  shipping costs, and the grey bars                                                               
represent  pricing  projections.  The projections  are  based  on                                                               
Henry  Hub-based LNG,  so the  only  variability in  them is  the                                                               
forecast for Henry Hub in 2025.  The slide shows that in order to                                                               
be  competitive, the  Alaska project  needs to  at least  match a                                                               
competitive market. If the netback  is indexed to something, then                                                               
it would  vary throughout  the project  life, and  if it  is not,                                                               
then it is determined upfront in the contract.                                                                                  
4:55:25 PM                                                                                                                    
MS.  WILCOX turned  to slide  37  and said  that the  "investment                                                               
banker" will  assist AGDC in  defining key  financing objectives,                                                               
such  as what  type  of  investor to  look  for,  what return  is                                                               
expected, and where those investments  could come from. They will                                                               
work  with  AGDC  legal  advisors to  evaluate  and  execute  the                                                               
corporate structure,  so it is  financeable on both the  debt and                                                               
equity side. That means the  corporate and company set-up and all                                                               
the contracts. The  bankers will evaluate and  minimize key risks                                                               
that are  in the contract that  AGDC is working to  negotiate and                                                               
will  interface  with financial  agencies  and  lenders and  help                                                               
raise the  capital for the  project. They  will have the  pen, in                                                               
the end,  for the stack  of documents that  show up at  the final                                                               
investment  decision.   She  said   AGDC  has  taken   some  time                                                               
evaluating the investment  banker. Part of the  issue was brought                                                               
up  by  the  Department  of   Revenue  who  advised  that,  as  a                                                               
municipality, AGDC  requires an independent advisor.  There is an                                                               
issue  related to  Dodd-Frank [Wall  Street  Reform and  Consumer                                                               
Protection Act,  2010], where  AGDC cannot  bring in  a financial                                                               
advisor  who will  be  part of  the pool  of  candidates for  the                                                               
investment banker. To  attract a large entity that  would want to                                                               
participate and  be with the  project upfront, it will  take some                                                               
work  to create  a compliant  structure. She  said there  are two                                                               
very  reputable  entities  in  the   running,  and  a  letter  of                                                               
engagement  is likely  imminent.  The cost  of  the advisor  will                                                               
likely be  fairly low,  tens of thousands  of dollars  per month,                                                               
but once  they actually  start the  capital raise,  it will  be a                                                               
large sum. In the model, it is 5 percent of the debt.                                                                           
4:58:37 PM                                                                                                                    
SENATOR MACKINNON asked about a report on financing.                                                                            
MS. WILCOX said the DOR is shepherding that report.                                                                             
4:59:00 PM                                                                                                                    
CO-CHAIR TARR noted that Mr. Richards was going to provide a                                                                    
list of fish-bearing streams and the monthly financials were                                                                    
going to be made available with the meeting documents.                                                                          
4:59:23 PM                                                                                                                    
CHAIR GIESSEL listed the documents linked to this meeting. Ed                                                                   
King supplied a letter related to royalty-in-kind and in-value.                                                                 
5:00:23 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Giessel adjourned the Joint Resources Committee at 5:00                                                                   

Document Name Date/Time Subjects
AGDC-Q3-2016-Newsletter.pdf HRES 10/16/2017 1:00:00 PM
AGDC-Q2-2017-Newsletter.pdf HRES 10/16/2017 1:00:00 PM
AGDC-Q3-2017-Newsletter.pdf HRES 10/16/2017 1:00:00 PM
AGDC-Q1-2017-Newsletter.pdf HRES 10/16/2017 1:00:00 PM
AGDC-Foundation-Customer-Capacity-Solicitation-Results-3.pdf HRES 10/16/2017 1:00:00 PM
AGDC Joint Resources Presentation October 16 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Capacity Solicitation LOI 6.15.17.pdf HRES 10/16/2017 1:00:00 PM
AGDC IRS PLR 7.18.17.pdf HRES 10/16/2017 1:00:00 PM
AGDC Legislative Report - October 13 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - September 29 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - August 31 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - August 15 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - July 31 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - July 14 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - June 30 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - June 15 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - May 31 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - May 15 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - April 28 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - April 14 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - March 31 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - March 15 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Report - March 6 2017.pdf HRES 10/16/2017 1:00:00 PM
SRES HRES - Letter from Giessel Tarr to AGDC President Meyer - 10 - 16 - 2017.pdf HRES 10/16/2017 1:00:00 PM
SRES HRES -AGDC Application for Private Letter Ruling - 3 - 8 - 2017.pdf HRES 10/16/2017 1:00:00 PM
AGDC Hearing Response from DNR - signed.pdf HRES 10/16/2017 1:00:00 PM
SRES HRES - Feb 2016 Presentation of AGDC to House Finance Committee.pdf HRES 10/16/2017 1:00:00 PM
SRES HRES - Account Activity for LNG Fund - 10 - 13 - 17.pdf HRES 10/16/2017 1:00:00 PM
SRES HRES - Account Activity for AGDC Fund - 10 - 13 - 17.pdf HRES 10/16/2017 1:00:00 PM
AGDC Board-Packet-Aug.-10-2017-1.pdf HRES 10/16/2017 1:00:00 PM
SRES HRES - DOR Response to Joint Hearing Questions - 10 - 20 -17.pdf HRES 10/16/2017 1:00:00 PM