Legislature(2007 - 2008)FBX CARLSON CENTER

06/12/2008 10:00 AM House RULES


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10:16:39 AM Start
10:20:16 AM HB3001|| SB3001
05:04:59 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB3001 APPROVING AGIA LICENSE TELECONFERENCED
Heard & Held
House Special Subcommittee on AGIA
Joint w/Sen Special Committee on Energy
Review of AGIA Findings & Determination;
Natural Gas Pipeline Project as proposed
by TransCanada Alaska Company, LLC and
Foothills Pipelines Ltd (TC Alaska) to
the State of Alaska
-- In State Gas --
Presenters: AK Gasline Port Authority;
AK Natural Gas Development Authority;
Enstar
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
                 HOUSE RULES STANDING COMMITTEE                                                                               
               SENATE SPECIAL COMMITTEE ON ENERGY                                                                             
                       Fairbanks, Alaska                                                                                      
                         June 12, 2008                                                                                          
                           10:16 a.m.                                                                                           
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                              
HOUSE RULES                                                                                                                     
                                                                                                                                
 Representative John Coghill, Chair                                                                                             
 Representative John Harris (AGIA Subcommittee, Chair)                                                                          
 Representative Anna Fairclough                                                                                                 
 Representative Craig Johnson                                                                                                   
 Representative Ralph Samuels (AGIA Subcommittee)                                                                               
 Representative Beth Kerttula (AGIA Subcommittee)                                                                               
 Representative David Guttenberg                                                                                                
                                                                                                                                
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
 Senator Charlie Huggins, Chair                                                                                                 
 Senator Bert Stedman, Vice Chair                                                                                               
 Senator Kim Elton                                                                                                              
 Senator Lyda Green                                                                                                             
 Senator Lyman Hoffman                                                                                                          
 Senator Lesil McGuire                                                                                                          
 Senator Donald Olson                                                                                                           
 Senator Gary Stevens                                                                                                           
 Senator Joe Thomas                                                                                                             
 Senator Bill Wielechowski                                                                                                      
 Senator Fred Dyson                                                                                                             
 Senator Thomas Wagoner                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                              
HOUSE RULES                                                                                                                     
                                                                                                                                
  All members present                                                                                                           
                                                                                                                              
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
  Senator Lyda Green                                                                                                            
  Senator Gary Stevens                                                                                                          
  Senator Fred Dyson                                                                                                            
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                              
House                                                                                                                           
                                                                                                                              
  Representative Chenault                                                                                                       
  Representative Crawford                                                                                                       
  Representative Doogan                                                                                                         
  Representative Edgmon                                                                                                         
  Representative Gardner                                                                                                        
  Representative Hawker                                                                                                         
  Representative Holmes                                                                                                         
  Representative Joule                                                                                                          
  Representative Kawasaki                                                                                                       
  Representative Kelly                                                                                                          
  Representative Neuman                                                                                                         
  Representative Olson                                                                                                          
  Representative Ramras                                                                                                         
  Representative Roses                                                                                                          
  Representative Stoltze                                                                                                        
  Representative Wilson                                                                                                         
                                                                                                                                
Senate                                                                                                                          
                                                                                                                                
  Senator French                                                                                                                
  Senator Therriault                                                                                                            
  Senator Wilken                                                                                                                
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE BILL NO. 3001                                                                                                             
"An Act  approving issuance of  a license by the  commissioner of                                                               
revenue and the commissioner of  natural resources to TransCanada                                                               
Alaska Company,  LLC and  Foothills Pipe  Lines Ltd.,  jointly as                                                               
licensee, under the Alaska Gasline  Inducement Act; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
SENATE BILL NO. 3001                                                                                                            
"An Act  approving issuance of  a license by the  commissioner of                                                               
revenue and the commissioner of  natural resources to TransCanada                                                               
Alaska Company,  LLC and  Foothills Pipe  Lines Ltd.,  jointly as                                                               
licensee, under the Alaska Gasline  Inducement Act; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB3001                                                                                                                  
SHORT TITLE: APPROVING AGIA LICENSE                                                                                             
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
06/03/08       (H)       READ THE FIRST TIME - REFERRALS                                                                        
06/03/08       (H)       RLS                                                                                                    
06/03/08       (H)       WRITTEN FINDINGS & DETERMINATION                                                                       
06/04/08       (H)       RLS AT 9:00 AM CAPITOL 120                                                                             
06/04/08       (H)       Heard & Held; Assigned to Subcommittee                                                                 
06/04/08       (H)       MINUTE(RLS)                                                                                            
06/04/08       (H)       RLS AT 10:00 AM TERRY MILLER GYM                                                                       
06/04/08       (H)       Heard & Held                                                                                           
06/04/08       (H)       MINUTE(RLS)                                                                                            
06/05/08       (H)       RLS AT 9:00 AM TERRY MILLER GYM                                                                        
06/05/08       (H)       Heard & Held                                                                                           
06/05/08       (H)       MINUTE(RLS)                                                                                            
06/06/08       (H)       RLS AT 10:00 AM TERRY MILLER GYM                                                                       
06/06/08       (H)       Heard & Held                                                                                           
06/06/08       (H)       MINUTE(RLS)                                                                                            
06/07/08       (H)       RLS AT 10:00 AM TERRY MILLER GYM                                                                       
06/07/08       (H)       Heard & Held                                                                                           
06/07/08       (H)       MINUTE(RLS)                                                                                            
06/08/08       (H)       RLS AT 1:00 PM TERRY MILLER GYM                                                                        
06/08/08       (H)       Heard & Held                                                                                           
06/08/08       (H)       MINUTE(RLS)                                                                                            
06/09/08       (H)       RLS AT 10:00 AM TERRY MILLER GYM                                                                       
06/09/08       (H)       Heard & Held                                                                                           
06/09/08       (H)       MINUTE(RLS)                                                                                            
06/10/08       (H)       RLS AT 10:00 AM TERRY MILLER GYM                                                                       
06/10/08       (H)       Heard & Held                                                                                           
06/10/08       (H)       MINUTE(RLS)                                                                                            
06/12/08       (H)       RLS AT 10:00 AM FBX CARLSON CENTER                                                                     
                                                                                                                                
BILL: SB3001                                                                                                                  
SHORT TITLE: APPROVING AGIA LICENSE                                                                                             
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
06/03/08       (S)       READ THE FIRST TIME - REFERRALS                                                                        
06/03/08       (S)       ENR                                                                                                    
06/03/08       (S)       REPORT ON FINDINGS AND DETERMINATION                                                                   
06/04/08       (S)       ENR AT 10:00 AM TERRY MILLER GYM                                                                       
06/04/08       (S)       Heard & Held                                                                                           
06/04/08       (S)       MINUTE(ENR)                                                                                            
06/05/08       (S)       ENR AT 9:00 AM TERRY MILLER GYM                                                                        
06/05/08       (S)       Heard & Held                                                                                           
06/05/08       (S)       MINUTE(ENR)                                                                                            
06/06/08       (S)       ENR AT 10:00 AM TERRY MILLER GYM                                                                       
06/06/08       (S)       Heard & Held                                                                                           
06/06/08       (S)       MINUTE(ENR)                                                                                            
06/07/08       (S)       ENR AT 10:00 AM TERRY MILLER GYM                                                                       
06/07/08       (S)       Heard & Held                                                                                           
06/07/08       (S)       MINUTE(ENR)                                                                                            
06/08/08       (S)       ENR AT 1:00 PM TERRY MILLER GYM                                                                        
06/08/08       (S)       Heard & Held                                                                                           
06/08/08       (S)       MINUTE(ENR)                                                                                            
06/09/08       (S)       ENR AT 10:00 AM TERRY MILLER GYM                                                                       
06/09/08       (S)       Heard & Held                                                                                           
06/09/08       (S)       MINUTE(ENR)                                                                                            
06/10/08       (S)       ENR AT 10:00 AM TERRY MILLER GYM                                                                       
06/10/08       (S)       Heard & Held                                                                                           
06/10/08       (S)       MINUTE(ENR)                                                                                            
06/12/08       (S)       ENR AT 10:00 AM FBX Carlson Center                                                                     
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BILL WALKER, Attorney                                                                                                           
Walker & Levesque                                                                                                               
Valdez, Alaska; General Council/Project Manager                                                                                 
Alaska Gasline Port Authority (AGPA)                                                                                            
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Presented a PowerPoint report and answered                                                               
questions on behalf of the Alaska Gasline Port Authority (AGPA).                                                              
                                                                                                                                
CRAIG RICHARDS, Attorney                                                                                                        
Walker & Levesque                                                                                                               
Valdez, Alaska                                                                                                                  
POSITION STATEMENT:  Participated in the presentation and                                                                     
answered questions on behalf of the Alaska Gasline Port                                                                         
Authority (AGPA).                                                                                                               
                                                                                                                                
HAROLD HEINZE, Chief Executive Officer                                                                                          
Alaska Natural Gas Development Authority (ANGDA)                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Presented a PowerPoint report and answered                                                               
questions on behalf of the Alaska Natural Gas Development                                                                       
Authority (ANGDA).                                                                                                              
                                                                                                                                
GENE DUBAY, Senior Vice-President, Chief Operating Officer                                                                      
Continental Energy Systems                                                                                                      
Houston, Texas                                                                                                                  
POSITION STATEMENT:   Presented a PowerPoint  report and answered                                                             
questions representing  the parent company of  ENSTAR Natural Gas                                                               
Company (ENSTAR).                                                                                                               
                                                                                                                                
CURTIS THAYER, Director                                                                                                         
Corporate & External Affairs                                                                                                    
ENSTAR Natural Gas Company (ENSTAR)                                                                                             
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Participated   in  the  presentation  and                                                             
answered questions on behalf of ENSTAR.                                                                                         
                                                                                                                                
ANDREW WHITE, Manager                                                                                                           
Business Development & Revenue Forecasting                                                                                      
ENSTAR Natural Gas Company (ENSTAR)                                                                                             
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:  Participated   in  the   presentation  and                                                             
answered questions on behalf of ENSTAR.                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR JOHN  COGHILL called the  joint meeting of the  House Rules                                                             
Standing Committee and the Senate  Special Committee on Energy to                                                               
order at  10:16:39 AM.   He announced that Senator  Huggins would                                                             
chair the meeting and turned the gavel over to him.                                                                             
                                                                                                                                
SENATOR  HUGGINS  expressed  his  belief  that  the  delivery  of                                                               
natural gas  in-state, as early  as possible, was of  the highest                                                               
importance.  He then discussed  the agendas and schedules for the                                                               
upcoming hearings.                                                                                                              
                                                                                                                                
HB 3001-APPROVING AGIA LICENSE                                                                                                
SB 3001-APPROVING AGIA LICENSE                                                                                                
                                                                                                                                
CHAIR HUGGINS announced that the  only order of business would be                                                               
HOUSE BILL NO.  3001, "An Act approving issuance of  a license by                                                               
the  commissioner  of revenue  and  the  commissioner of  natural                                                               
resources to  TransCanada Alaska Company, LLC  and Foothills Pipe                                                               
Lines  Ltd.,  jointly  as  licensee,  under  the  Alaska  Gasline                                                               
Inducement Act; and  providing for an effective  date" and SENATE                                                               
BILL NO.  3001, "An Act  approving issuance  of a license  by the                                                               
commissioner  of   revenue  and   the  commissioner   of  natural                                                               
resources to  TransCanada Alaska Company, LLC  and Foothills Pipe                                                               
Lines  Ltd.,  jointly  as  licensee,  under  the  Alaska  Gasline                                                               
Inducement Act; and providing for an effective date.                                                                            
                                                                                                                                
10:20:24 AM                                                                                                                   
                                                                                                                                
BILL   WALKER,    Attorney,   Walker   and    Levesque;   General                                                               
Council/Project  Manager, Alaska  Gasline Port  Authority (AGPA),                                                               
thanked  the committees  for the  opportunity to  respond to  the                                                               
previous testimony  on gas pipeline  proposals.  He said  that he                                                               
appreciated the  time to speak  about his concerns and  share his                                                               
experience of the last10years.                                                                                                  
                                                                                                                                
10:22:12 AM                                                                                                                   
                                                                                                                                
MR.  WALKER   explained  that  there  have   been  many  previous                                                               
processes  regarding Alaska's  "stranded gas"  and several  study                                                               
groups [on]  and attempts to  build a  gas pipeline.   The Alaska                                                               
Gasline Port Authority  (AGPA) was created by  a voter initiative                                                               
with the mandate to cause a gas  pipeline to be built.  He opined                                                               
that  this is  a  unique period  of time  given  the high  energy                                                               
prices  that  are  causing  a disparity  between  high  costs  to                                                               
individuals, and  high income  to the  state coffers.  Mr. Walker                                                               
began the PowerPoint presentation with a slide titled "The All-                                                                 
Alaska Project."   He  informed the  committees that  AGPA's all-                                                               
Alaska gas pipeline  project consists of a 48  inch pipeline from                                                               
Prudhoe Bay to  Delta Junction and a 42  inch pipeline continuing                                                               
to  Valdez.   The project  utilizes a  high pressure  dense phase                                                               
pipeline with  gas conditioning at  the North Slope  that removes                                                               
impurities   and   compresses   and  chills   gas   to   pipeline                                                               
specifications.    The  pipeline  is  larger  initially  because,                                                               
ultimately, there will be a spur  line into Canada;  however, the                                                               
all-Alaska line  serves as the  "trunk" line.  In  addition, AGPA                                                               
has entered  into a  memorandum of  understanding (MOU)  with the                                                               
Alaska  Natural Gas  Development Authority  (ANGDA), in  order to                                                               
provide spur  lines to the  Interior at Glennallen, and  at Delta                                                               
Junction  for  the  spur  line   to  Canada.    This  project  is                                                               
indentified as an  LNG project, as the gas would  be liquefied at                                                               
Valdez for shipment to world  markets.  He further explained that                                                               
the  project is  flexible  and  has adjusted  to  changes in  the                                                               
market and to the availability  of gas from Prudhoe Bay, although                                                               
its  purpose has  remained quite  consistent. The  AGPA Board  of                                                               
Directors is made up of  nine representatives, three members each                                                               
from the  City of Valdez,  the Fairbanks North Star  Borough, and                                                               
the North Slope Borough.   Mr. Walker listed the proposed markets                                                               
for AGPA's  gas; Alaska,  Japan, Korea,  Taiwan, the  West Coast,                                                               
and Hawaii.   Of course the foremost, and  most important, market                                                               
is Alaska's  communities.   In fact,  AGPA has  always negotiated                                                               
contracts with  provisions for the  export of gas only  after the                                                               
satisfaction  of  in-state needs.    Moreover,  contracts with  a                                                               
rigid cut-off  point on  the amount of  gas available  for Alaska                                                               
have not been acceptable to AGPA.                                                                                               
                                                                                                                                
10:30:59 AM                                                                                                                   
                                                                                                                                
MR.  WALKER  explained  the  reason   that  the  above  mentioned                                                               
contracts  are  not acceptable  is  because  many communities  in                                                               
Alaska do not have any access  to natural gas, thus, AGPA can not                                                               
predict how  much gas  would be consumed  in-state, and  does not                                                               
want to draw a line in  a contract and predetermine the amount of                                                               
gas needed for Alaska.  Therefore,  AGPA will export only what is                                                               
not needed  within the  state, and  this statement,  although not                                                               
well received,  was ultimately  accepted in  the contracts.   Mr.                                                               
Walker  turned to  the Asian  market for  LNG and  explained that                                                               
Alaska has been  supplying LNG to the Asian  market since October                                                               
of 1969;  in fact,  that export license  was recently  renewed to                                                               
2011.  Discussing the West  Coast market, Mr. Walker informed the                                                               
committees that AGPA is currently  a participant in the expansion                                                               
of the  Sempra Energy  Costa Azul LNG  terminal in  Baja, Mexico,                                                               
located about  30 minutes south of  San Diego, which is  the only                                                               
sanctioned-built  LNG  terminal  operating  on  the  West  Coast.                                                               
Sanctioning gas  for the  start-up came from  Qatar, and  was the                                                               
longest shipment  by the largest  LNG tanker  in the world.   Mr.                                                               
Walker  stated  that AGPA  was  pleased  to also  participate  in                                                               
Sempra  Energy's  open  season.    In  addition,  AGPA  has  been                                                               
contacted  by  five or  six  companies  attempting to  build  LNG                                                               
receiving terminals  on the West  Coast.  He clarified  that AGPA                                                               
is  not basing  its financial  models on  the West  Coast market;                                                               
however, the West Coast will  present opportunities, as terminals                                                               
become available.                                                                                                               
                                                                                                                                
10:33:18 AM                                                                                                                   
                                                                                                                                
MR. WALKER stated  that the Office of  Hawaiian Affairs contacted                                                               
AGPA approximately one  year ago regarding the  conversion of its                                                               
power  generation from  coal-fired to  natural gas.   He  related                                                               
that officials from Hawaii are  very interested in establishing a                                                               
relationship with  AGPA and expressed  their preference for  a 40                                                               
year contract for  LNG from Alaska, over the  importation of coal                                                               
from Australia.   Mr.  Walker then  presented a  PowerPoint slide                                                               
that illustrated the world markets,  including the Asian and West                                                               
Coast markets, that  are available for Alaska's LNG.   He pointed                                                               
out  the  consideration  of these  markets  makes  good  economic                                                               
sense, even though  some of the markets  require the installation                                                               
of gas terminals on the West Coast.                                                                                             
                                                                                                                                
10:20:16 AM                                                                                                                   
                                                                                                                                
MR.  WALKER turned  to the  subject  of export  licenses and  the                                                               
challenges associated  with them.  Previously,  AGPA entered into                                                               
an agreement with the Yukon  Pacific Corporation (YPC) to acquire                                                               
YPC's rights and permits and, prior  to that, a team of attorneys                                                               
and engineers studied the YPC  data collected during 20 years and                                                               
$100 million worth  of work on the all-Alaska pipeline.   As part                                                               
of  that work,  YPC acquired  a 25  year export  license for  the                                                               
export of 14  million tons of gas per year  from Valdez to Japan,                                                               
Korea,   and   Taiwan.     He   acknowledged   that,   prior   to                                                               
implementation, the  license needs additional review  with the U.                                                               
S. Department  of Energy  (DOE).   Nevertheless, he  recalled the                                                               
recent favorable decision on the  extension of the renewal of the                                                               
1967  Kenai  LNG  export  license  and pointed  out  two  of  the                                                               
successful arguments  of that case:   the presumption  of exports                                                               
and "allowing  the market  to work."   The all-Alaska  concept is                                                               
not a  4.5 billion  cubic feet  (bcf) or 6  bcf per  day project,                                                               
with all  of the product  going to  a foreign country.   Although                                                               
the administration  has described  the project as  "a four  and a                                                               
half bcf project,  going into China" in fact, the  AGPA has never                                                               
proposed going  into China.   However,  the project  has proposed                                                               
taking  some  of the  gas,  when  it  becomes available,  to  the                                                               
premium export  markets.   Again, he  pointed out  that arguments                                                               
used  to grant  license  renewals  include the  access  to U.  S.                                                               
ports, and  the availability of gas.   Mr. Walker said  that AGPA                                                               
is encouraged  by these arguments,  and opined that  the project,                                                               
with  the  support   of  the  state,  will  not   be  denied  the                                                               
opportunity to have a portion of  its commodity go into a foreign                                                               
country, similar to timber and fish  exports.  He referred to the                                                               
U.   S.   Department  of   Energy,   Office   of  Fossil   Energy                                                               
Authorization  for  Export  of  Natural  Gas  (Order  350),  that                                                               
authorized YPC  to export  gas to Japan,  Korea, and  Taiwan, and                                                               
opined that the order would be retained.                                                                                        
                                                                                                                                
10:40:01 AM                                                                                                                   
                                                                                                                                
MR. WALKER further  noted that Order 350 has  no expiration date,                                                               
and the  time period of 25  years begins when the  first shipment                                                               
of  gas  takes   place.    Every  project  has   its  issues  and                                                               
challenges,  he said,  and  this  is certainly  one  that can  be                                                               
successfully addressed.                                                                                                         
                                                                                                                                
SENATOR WAGONER  informed the  committees that  when he  met with                                                               
DOE in Washington, D. C.,  in March, officials held similar views                                                               
about  the  export license;  however,  they  cautioned about  two                                                               
areas of  concern.  Firstly,  there must be a  substantial rework                                                               
of  the  environmental  impact  statement.    Secondly,  Mr.  Bob                                                               
Corbin,  Natural  Gas  Regulatory Activities  Manager,  expressed                                                               
doubt that  Congress will  ever allow Alaska  to export  its gas.                                                               
Senator Wagoner asked Mr. Walker to address these issues.                                                                       
                                                                                                                                
10:42:02 AM                                                                                                                   
                                                                                                                                
MR. WALKER recognized  the potential for Congress  to be involved                                                               
in this issue.  However, there  is not precedence that a state is                                                               
precluded free trade  of its natural resources.   Furthermore, he                                                               
suggested   that  there   would  be   support  from   the  Alaska                                                               
Congressional delegation and  opined that a project  that is good                                                               
for Alaska  would not be  taken away by Congress.   Nevertheless,                                                               
it  is true  that the  environmental impact  statement and  other                                                               
permits need to be updated.   He concluded that the real issue is                                                               
that Alaska has the option  of exporting its resources to premium                                                               
markets.                                                                                                                        
                                                                                                                                
10:43:22 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN  observed  that the  project  proposes  to                                                               
move 4.5  billion cubic  feet per  day.  He  asked Mr.  Walker to                                                               
describe the  scale of the  project and  to explain the  scope of                                                               
the Kenai [license] renewal.                                                                                                    
                                                                                                                                
10:44:09 AM                                                                                                                   
                                                                                                                                
MR.  WALKER  clarified  that  the  AGPA project  "Is  a  2.7  bcf                                                               
project, it's  not 4.5."   He further  said, "Two point  seven is                                                               
three  trains, at  five  million  tons per  train.    So, it's  a                                                               
fifteen  million ton  project,  this is  a  fourteen million  ton                                                               
export  license."   The license  for the  Kenai plant  is a  much                                                               
smaller  project, in  fact, the  all-Alaska  pipeline project  is                                                               
about ten times larger.  He  then pointed out that there are some                                                               
in the industry  who believe that the LNG project  is the enabler                                                               
for  a later  highway  project;  that would  be  a  key point  of                                                               
argument  in  the  event  of a  Congressional  challenge  to  the                                                               
exportation of Alaska's  gas.  Further on that  point, Mr. Walker                                                               
referred to  Congressional interference  with exploration  in the                                                               
Arctic   National  Wildlife   Refuge  (ANWR)   and  opined   that                                                               
additional interference  with the export  of gas would lead  to a                                                               
challenge by  the state defending  Alaska's right to  develop its                                                               
resources for the maximum benefit of Alaskans.                                                                                  
                                                                                                                                
10:46:17 AM                                                                                                                   
                                                                                                                                
SENATOR FRENCH  re-stated that  the two point  seven bcf  per day                                                               
project  equals fifteen  million  tons annually.    He asked  for                                                               
confirmation that  the Kenai renewal  was for a total  of between                                                               
ninety-five and ninety-eight bcf, over a period of two years.                                                                   
                                                                                                                                
[Chair Huggins  indicated that the verification  of those numbers                                                               
would be forthcoming.]                                                                                                          
                                                                                                                                
10:47:14 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI  referred  to  the  Alaska  Natural  Gas                                                               
Pipeline  Act  of 2004  (ANGPA)  and  noted  that under  the  $20                                                               
billion loan guarantee,  there is a stipulation that  most of gas                                                               
must be  provided for American markets.   He asked Mr.  Walker to                                                               
address this issue.                                                                                                             
                                                                                                                                
10:47:44 AM                                                                                                                   
                                                                                                                                
MR. WALKER  answered, "When  the energy bill  first came  out, we                                                               
were not  in it."   The provisions for  LNG were added  about six                                                               
months later with the assistance  of Senator Ted Stevens, Senator                                                               
Lisa Murkowski, and  former Governor Wally Hickel.   The language                                                               
of the bill is sufficiently  restrictive that if AGPA accepts the                                                               
terms of  the federal loan guarantees,  it can not ship  gas to a                                                               
foreign   market.     Therefore,   AGPA's   model  reflects   the                                                               
acquisition  of favorable  financing through  the Japan  Bank for                                                               
International Cooperation (JBIC).                                                                                               
                                                                                                                                
MR.  WALKER acknowledged  that obtaining  the export  license is,                                                               
without question,  AGPA's biggest issue.   However, he  said that                                                               
the issue  is "winnable" with  the support  of the state  and its                                                               
residents, and the  support of Alaska's delegation.   The attempt                                                               
to obtain  the [renewal]  will happen after  "all the  pieces for                                                               
the project, and we really need  the support of the state and our                                                               
delegation."  He stressed that  the issue will be resolved within                                                               
the  state and  the federal  government.   Moreover, the  license                                                               
currently held  by AGPA is  one of only two  issued in the  U. S.                                                               
for  the  export of  LNG;  possibly  due  to the  recognition  of                                                               
Alaska's proximity to other markets.                                                                                            
                                                                                                                                
MR. WALKER  turned to  the subject of  Btu content  and expressed                                                               
his surprise  at the amount  of time  given to this  issue during                                                               
the hearings.   He recalled  earlier testimony that "If  you take                                                               
the  liquids out  of, in  Alaska  for value-added,  then the  gas                                                               
would be  too lean and  couldn't go  ... into the  Asian market."                                                               
On the  other hand,  three days later,  there was  testimony that                                                               
AGPA's gas  is too "hot"  to go into the  West Coast market.   In                                                               
fact, AGPA's gas  can go into the Asian market  "hot or lean" and                                                               
into the  West Coast market  at pipeline  grade.  He  opined that                                                               
this challenge  was raised as  a "deal-killer for gas  of Alaska"                                                               
and said that  he is glad for the opportunity  to respond at this                                                               
time.                                                                                                                           
                                                                                                                                
10:52:40 AM                                                                                                                   
                                                                                                                                
CRAIG  RICHARDS, Attorney,  Walker  &  Levesque, reiterated  that                                                               
AGPA  has been  in regular  contact with  potential Japanese  and                                                               
Asian buyers  for years  and the  Btu content  has never  been an                                                               
issue.   He expressed his  belief that this argument was "created                                                               
as an excuse  of why LNG can't create more  value-added jobs than                                                               
a Canadian project."  He remarked:                                                                                              
                                                                                                                                
     In  2005,  the  Canadian   premier  of  Alberta  called                                                                    
     Alaska's liquids  'Canada's pound  of flesh'  that they                                                                    
     were going to  extract out of the  project.  Basically,                                                                    
     Alaska's liquids were  going to be used  to support the                                                                    
     value-added  industry already  existing in  Alberta and                                                                    
     weren't going to  be taken off in Alaska.   So, I think                                                                    
     what you have  here is sort of an excuse  to get around                                                                    
     the  fact that  an LNG  allows for  a lot  more liquids                                                                    
     extraction in Alaska than a Canadian pipeline would.                                                                       
                                                                                                                                
MR. RICHARDS noted  that an applicant could assume  a "lean case"                                                               
or a "wet case" for the  purposes of the AGIA application models.                                                               
The  AGPA was  conservative in  its application  and assumed  the                                                               
"wet case"  of gas which  is a heating  content of 1,084  Btu per                                                               
standard cubic  feet (scf)  as required by  the AGIA  request for                                                               
application (RFA).   Mr. Richards  clarified that the  values are                                                               
an estimate  because the exact  numbers of gas contents  are held                                                               
confidential  by the  owners of  the reserves.   He  continued to                                                               
explain  that an  argument  has  been advanced  that  there is  a                                                               
structural  impediment in  Asia  to prevent  the  receipt of  gas                                                               
below  a certain  energy content.    On that  point, AGPA's  AGIA                                                               
application  does not  propose sending  super  lean shipments  to                                                               
Asia,  even though  the  heating  content of  the  gas  is not  a                                                               
problem.   The application  does provide  for stripping  out two-                                                               
thirds of  the  propanes and  butanes at the terminal  at Valdez,                                                               
which  would produce  about 23,000  barrels  per day  of LPG  for                                                               
export.   This amount, which  is about 30 times  Alaska's current                                                               
LPG consumption, would create a  big pool of propanes and butanes                                                               
available for  in-state use.   Nevertheless, the base  case model                                                               
indicates  that  there  will  be relatively  "wet"  gas,  with  a                                                               
heating content  of about 1060,  available for shipment  to Asia.                                                               
Although that  is the base  case for AGPA's AGIA  application, it                                                               
is not  the best  case because  the ethanes  are included  in the                                                               
exported gas, and,  ideally, the ethanes will stay  in Alaska and                                                               
provide  value-added jobs  for Alaskans.  If, in  fact, AGPA  was                                                               
sending super lean gas to Asia  in its model, although it is not,                                                               
there still  is not a problem.   According to Asian  sources, the                                                               
fact of wet gas going to  Asia is not a capacity requirement, but                                                               
a  factor   of  circumstance,   price,  and   market  conditions.                                                               
Historically,  shippers  did not  extract  liquids  from the  gas                                                               
because the  Asian markets were willing  to  pay a  premium price                                                               
for the  liquids.   However, with rising  oil prices,  the market                                                               
has  shifted  and  now  LNG   suppliers  are  stripping  out  the                                                               
propanes, butanes, and ethanes, prior to  shipping the gas.   Mr.                                                               
Richards  provided a  PowerPoint slide  illustrating LNG  imports                                                               
into Asia  with examples  of gas composition,  such as  very lean                                                               
gas from Kenai  that has heating value levels of  1010 Btu/scf to                                                               
1020 Btu/scf.                                                                                                                   
                                                                                                                                
10:56:45 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SAMUELS recalled  the past  interest in  having a                                                               
take-off at  the Yukon River  for the distribution of  propane to                                                               
Western  Alaska.   He asked  whether  Mr. Richards  had "run  the                                                               
economics of taking it in Valdez and having to ship it around."                                                                 
                                                                                                                                
MR.  WALKER  offered that  expert  testimony  on the  subject  of                                                               
extraction  would come  from Mr.  Harold  Heinz, Chief  Executive                                                               
Officer, Alaska Natural Gas Development Authority (ANGDA).                                                                      
                                                                                                                                
REPRESENTATIVE NEUMAN  observed that  if all of  Alaska converted                                                               
its energy needs to the use  of propane, total use would be about                                                               
10,000 barrels  per day.   He asked  for confirmation  that there                                                               
would be a large capacity  of propane still available for export,                                                               
including butane and ethane.                                                                                                    
                                                                                                                                
10:58:41 AM                                                                                                                   
                                                                                                                                
MR. WALKER  agreed, and added  that if  all of the  propanes were                                                               
extracted in Alaska,  the Btu content of the  remaining gas would                                                               
still be  within an  acceptable range for  shipping to  the Asian                                                               
market.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  KELLY stated  that any  of the  projects proposed                                                               
are dependent  on producer  gas; furthermore,  previous testimony                                                               
indicates that  the producers  are not  interested in  pumping up                                                               
the Pacific  Rim LNG market  from Alaska because they  have other                                                               
opportunities to  feed into  that market.   He asked  whether the                                                               
producers  will  be  cooperative  with   AGPA  on  the  issue  of                                                               
supplying gas for  a project that would not transport  gas to the                                                               
U. S. market through Canada, but to the Pacific Rim.                                                                            
                                                                                                                                
11:00:32 AM                                                                                                                   
                                                                                                                                
MR.  WALKER  emphasized  that AGPA  has  received  no  indication                                                               
leading  it  to  believe  that  producers  have  no  interest  in                                                               
shipping gas  through a LNG  project into  the Asian market.   He                                                               
said that he  did not support the conclusion that  because two of                                                               
the  three  biggest producers  are  interested  in Denali  -  The                                                               
Alaska  Gas  Pipeline  [(Denali  project)],  they  would  not  be                                                               
interested  in  shipping to  an  LNG  project.   He  opined  that                                                               
business  decisions are  based on  opportunities  to receive  the                                                               
highest wellhead value for a company's gas.                                                                                     
                                                                                                                                
                                                                                                                                
11:01:42 AM                                                                                                                   
                                                                                                                                
The committees  took an  at-ease from 11:01  a.m. to  11:17 a.m.,                                                               
due to technical difficulties.                                                                                                  
                                                                                                                                
11:17:32 AM                                                                                                                   
                                                                                                                                
MR.  WALKER   continued  to  address   the  question   raised  by                                                               
Representative Kelly.   He pointed out,  currently, producers are                                                               
taking LNG into the Asian  market due to the significant premiums                                                               
that  are being  paid.    In addition,  AGPA  has researched  the                                                               
Japanese  market  and  has  determined that  it  is  the  fastest                                                               
growing  market  and   the  need  for  additional   LNG  is  very                                                               
significant.   In  fact,  the  growth pattern  is  such that  the                                                               
volume  of LNG  out  of Alaska  will  be at  a  premium and  will                                                               
interest producers.                                                                                                             
                                                                                                                                
CHAIR HUGGINS announced  that Senator French was  correct in that                                                               
the LNG plant at  Kenai is licensed for exports of  98 bcf over a                                                               
two year period.  Mathematically,  this volume equals .13 bcf per                                                               
day, or about 1 million tons per year.                                                                                          
                                                                                                                                
11:19:38 AM                                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  spoke of the  disagreement over  the amount                                                               
of time  necessary to get the  LNG project online.   For example,                                                               
he heard  the administration  testify that  an LNG  project would                                                               
come online  in 2022.   However, AGPA testified that  its project                                                               
would be online in about seven years.   He asked Mr. Walker for a                                                               
brief clarification.                                                                                                            
                                                                                                                                
MR.  WALKER  related that  the  YPC's  permits and  environmental                                                               
impact  statements need  to be  updated,  and the  time saved  by                                                               
purchasing these documents  falls in the range of  between two to                                                               
four  years.   Alaska Gasline  Port Authority's  partner, Bechtel                                                               
Corporation, estimated  a project  time of  six years,  using the                                                               
permits  on  hand.    However,   for  the  purpose  of  the  AGIA                                                               
application,  AGPA  assumed  there   would  be  no  time  savings                                                               
advantage  from the  existing permits,  and  estimated a  project                                                               
time of ten years.                                                                                                              
                                                                                                                                
11:21:40 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN referred  to the  PowerPoint slide  titled                                                               
"LNG  imports into  Asia:  examples  of gas  composition."     He                                                               
pointed out  that the administration  said that the  line between                                                               
lean gas  and wet gas  is [drawn at  the Btu/scf level  of] 1080,                                                               
which includes [gas  from] Kenai and Egypt.   Further, the volume                                                               
of Kenai  gas is  small.   He asked for  the volumes  of Egyptian                                                               
gas.    [According  to  the witness,  this  information  will  be                                                               
revealed  on  the  following  PowerPoint  slide.]  Representative                                                               
Doogan then asked  whether there is a  price differential between                                                               
dry gas and wet gas in the Asian market.                                                                                        
                                                                                                                                
MR. RICHARDS clarified that at  today's market price, the premium                                                               
is essentially the same whether the propane is extracted or not.                                                                
                                                                                                                                
11:23:13 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN  recalled previous testimony that  one gets                                                               
a lot more money for  a bcf of gas in Asia than in  the U. S.  On                                                               
that point,  wet gas is  usually shipped to  Asia and dry  gas to                                                               
the U.  S.   He asked  whether the gap  between the  values would                                                               
close if  the price of  dry gas shipped  to Asia was  compared to                                                               
the price of dry gas shipped to the U. S.                                                                                       
                                                                                                                                
11:23:56 AM                                                                                                                   
                                                                                                                                
MR. RICHARDS  said that  the gap would  grow larger  because more                                                               
money is  made if the  gas is shipped  to Asia after  the liquids                                                               
are extracted.                                                                                                                  
                                                                                                                                
11:24:12 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN re-stated his question.   He said, "If just                                                               
for the gas, [do]  you get paid less for dry gas  than wet gas in                                                               
Asia?"                                                                                                                          
                                                                                                                                
MR. RICHARDS  said yes, because  it has a slightly  lower heating                                                               
content.  In  further response to Representative  Doogan, he said                                                               
that he  would provide quantified  information on  the difference                                                               
in value.                                                                                                                       
                                                                                                                                
SENATOR   ELTON   asked  Mr.   Walker   to   address  the   ocean                                                               
transportation component  of the  project and  its effect  on the                                                               
timing of the project.                                                                                                          
                                                                                                                                
11:25:19 AM                                                                                                                   
                                                                                                                                
MR. WALKER informed the committees  that AGPA has entered into an                                                               
agreement with BGT Co. LDT, and  eight ships will be available to                                                               
transport  shipments  to the  U.  S.  after they  are  reflagged.                                                               
According to  Senator Stevens'  office, the  reflagging of  U. S.                                                               
built  tankers  is  not  a significant  problem.    For  overseas                                                               
shipping, AGPA has  entered into an agreement with  MOL Mitsui O.                                                               
S. K.  Lines.  Mr. Walker  concluded that working with  those two                                                               
companies will assure ample ships are dedicated to this project.                                                                
                                                                                                                                
11:26:27 AM                                                                                                                   
                                                                                                                                
MR. RICHARDS  returned to the  subject of the heating  content of                                                               
gas shipped  into the Asian  market.  In  the example of  the LNG                                                               
base case, after the extraction  of propane and butane in Alaska,                                                               
the remaining  23,000 barrels per  day available for  export will                                                               
hold a heating content of about  1060 Btu per standard cubic foot                                                               
(scf).   This heating  content is  roughly on  par with  gas from                                                               
Qatar,  Abu Dabi,  and Nigeria.    Moreover, if  the ethanes  are                                                               
pulled  out to  develop a  value  added industry  in Alaska,  the                                                               
result is  a leaner gas with  a heating content equal  to that of                                                               
Egypt, Trinidad, and  Kenai;  however, the  lower heating content                                                               
is still not a problem.   Mr. Richards returned to the PowerPoint                                                               
slide   titled  "LNG   imports   into  Asia:   examples  of   gas                                                               
composition" that  illustrated the  market share of  utilities in                                                               
Japan,  and  the heating  content  of  those  gases.   The  slide                                                               
indicated  that ninety-five  percent  of  Japanese utilities  are                                                               
capable of receiving the base case  gas with a heating content of                                                               
1060 Btu/scf.                                                                                                                   
                                                                                                                                
11:28:07 AM                                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  asked whether Japanese  utilities typically                                                               
receive  lean  gas.    He  also  requested  an  estimate  on  the                                                               
percentage of  loss due to  the lower  price paid for  super lean                                                               
gas.                                                                                                                            
                                                                                                                                
MR. WALKER said that AGPA did  not have a specific number for the                                                               
percentage of loss;  however, he pointed out that  if liquids are                                                               
removed from  the gas it  is because  there is a  good commercial                                                               
reason to sell  them elsewhere.  Furthermore, if  the liquids are                                                               
removed in Alaska, lower revenues  from Japan are balanced by the                                                               
creation of value-added jobs and industries in Alaska.                                                                          
                                                                                                                                
CHAIR  HUGGINS clarified  that  the question  was  on the  market                                                               
price  of lean  gas. [The  witness agreed  to provide  the market                                                               
information.]                                                                                                                   
                                                                                                                                
                                                                                                                                
11:29:27 AM                                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI recalled testimony  that emphasized how high                                                               
the market price needed to be for a successful LNG project.                                                                     
                                                                                                                                
11:30:01 AM                                                                                                                   
                                                                                                                                
MR. RICHARDS  opined that the  decision as to whether  to extract                                                               
liquids  at the  point  of  production is  based  on the  pricing                                                               
environment.  The  financial model provided by  AGPA stripped out                                                               
two-thirds  of the  propanes and  butanes, because  that was  the                                                               
most profitable scenario.  The  next PowerPoint slide illustrated                                                               
that 100  percent of  Korean utilities  are capable  of receiving                                                               
super lean gas.                                                                                                                 
                                                                                                                                
11:30:37 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN expressed his  understanding that, in order                                                               
to utilize  lean gas, which is  gas with a heating  content below                                                               
1080 Btu/scf, gas  liquids must be put back in  the gas until the                                                               
heating content is  increased to 1080 Btu/scf.   He asked whether                                                               
Mr. Richards agreed with his statement.                                                                                         
                                                                                                                                
MR. RICHARDS said:                                                                                                              
                                                                                                                                
     My  understanding  is  that it  is  on  a  case-by-case                                                                    
     basis, sometimes they bring  back in liquids, sometimes                                                                    
     they don't need  to.  But, again, you go  there and you                                                                    
     do that  when it  is more economic  to re-blend  in the                                                                    
     liquids as  opposed to shipping  it; ... a  function of                                                                    
     market price.                                                                                                              
                                                                                                                                
11:31:41 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN remarked:                                                                                                 
                                                                                                                                
     My concern would  be, if we're shipping a  bunch of dry                                                                    
     gas, and  they have to  blend it with  liquids, they've                                                                    
     got to get the liquids  somewhere, otherwise they don't                                                                    
     want  our gas.   So  I think,  if that's  the way  that                                                                    
     system works, it's not clear  to me, sitting here, that                                                                    
     you can actually sell from  Alaska, on the volumes that                                                                    
     we're  talking  about,  dry  gas.     Strip  out  those                                                                    
     liquids, and ship dry gas to them, and sell it.                                                                            
                                                                                                                                
11:32:10 AM                                                                                                                   
                                                                                                                                
MR.  RICHARDS  re-stated that  AGPA  will  provide the  requested                                                               
numbers.   He  relayed that  a Japanese  buyer assured  them that                                                               
this does not present a problem.                                                                                                
                                                                                                                                
MR. WALKER clarified  that the project proposed by AGPA  is a 2.7                                                               
bcf [per  day] project.   The "straw" project that  was presented                                                               
by the  administration is a  4.5 [bcf  per day] project  and both                                                               
the administration and AGPA agree that  it is too large in volume                                                               
for   the  market.     He   observed  that,   unfortunately,  the                                                               
administration's base  case analysis  is based on  a 4.5  bcf per                                                               
day  project.    Mr.  Walker pointed  out  that  AGPA's  research                                                               
supported  a  2.7  bcf  per  day project,  based  on  the  market                                                               
acceptance and  that 2.7  bcf per  day is a  better fit  with the                                                               
capacity at  Prudhoe Bay  and with  off-take provisions  from the                                                               
Alaska Oil and Gas Conservation Commission (AOGCC).                                                                             
                                                                                                                                
11:34:07 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE CHENAULT  asked, "Back to  the 2.7 bcf a  day, the                                                               
AOGCC, ... is  that the number that you believe  AOGCC thinks the                                                               
Prudhoe Bay take-off is?"                                                                                                       
                                                                                                                                
11:34:37 AM                                                                                                                   
                                                                                                                                
MR. WALKER confirmed  that currently, that is the  AOGCC "rule 9"                                                               
number.  He  opined  that  subject to  receiving  a  request  for                                                               
increase from  an applicant, AOGCC  can increase the limit.   The                                                               
current limit was  established in the late 1970s  or early 1980s.                                                               
He clarified that  the number is really 2.0, because  0.7 is used                                                               
as in-field gas.  Mr. Walker  was unsure by how much the off-take                                                               
would be increased;  however, it was ruled last  summer that off-                                                               
take over  2.7 would  require an oil  mitigation plan  to address                                                               
the drop  in the throughput  of oil.   He stressed that  the AGPA                                                               
project does not require an oil mitigation plan.                                                                                
                                                                                                                                
REPRESENTATIVE  CHENAULT  acknowledged  that the  AOGCC  will  be                                                               
available to  answer questions during the  hearings in Anchorage.                                                               
He observed that  AGPA will "burn gas for  compression and you're                                                               
also going  to burn gas for  ... the [gas treatment  plant]."  He                                                               
concluded that these  two factors will weigh heavily  on any size                                                               
pipeline that is built.                                                                                                         
                                                                                                                                
11:36:10 AM                                                                                                                   
                                                                                                                                
SENATOR HOFFMAN recalled  previous testimony that a  4.5 [bcf per                                                               
day] project would bring to the  state $66 billion over 25 years.                                                               
He asked  what a  2.7 [bcf  per day] project  would bring  to the                                                               
state.                                                                                                                          
                                                                                                                                
11:36:39 AM                                                                                                                   
                                                                                                                                
MR. WALKER estimated that the number  would be in the $30 billion                                                               
range, or  $29 billion.   He acknowledged that the  revenue would                                                               
be less;   however, in addition to looking at  the wellhead, AGPA                                                               
is looking at the benefits of  in-state use.  Although he did not                                                               
offer a dollar  amount value, he anticipated a  healthy return to                                                               
the state for  its non-renewable resource.  In  fact, the revenue                                                               
for the same amount of gas will be earned over many more years.                                                                 
                                                                                                                                
11:37:41 AM                                                                                                                   
                                                                                                                                
SENATOR  HOFFMAN  opined that,  for  comparison  purposes, it  is                                                               
critical to  define the numbers  for the  legislature's decision-                                                               
making [process].                                                                                                               
                                                                                                                                
CHAIR HUGGINS also asked  representatives from the administration                                                               
for numbers from the administration's analysis.                                                                                 
                                                                                                                                
11:38:24 AM                                                                                                                   
                                                                                                                                
MR. WALKER   presented the PowerPoint  slide titled "Liquefaction                                                               
Cost."    He   expressed  his  concern  about   the  process  the                                                               
administration used  to obtain numbers  for its model.   In order                                                               
to fully  evaluate what the  administration did, it  is necessary                                                               
to look at their model and  AGPA would like its advisor to review                                                               
the state's  model;  however, the  model and input have  not been                                                               
made available.    Mr.  Walker opined that the administration may                                                               
not have  taken AGPA's application and  model into consideration.                                                               
The  administration   may  have  mined  data   from  projects  in                                                               
different parts  of the  world and of  different sizes,  and then                                                               
escalated  costs to  match the  size  of the  project in  Valdez.                                                               
Adjustments  were also  made  for the  costs  of construction  in                                                               
Alaska.    He noted  his  disappointment  that data  specific  to                                                               
AGPA's cost analysis for the  costs of liquefaction was not used.                                                               
Publically available  data causes problems  due to the  fact that                                                               
the information  may not be  specific to  LNG and may  have other                                                               
pipeline  costs included.    In  fact, by  using  this method  of                                                               
evaluation,  the  administration  may  have  missed  the  biggest                                                               
benefit of liquefaction  in Alaska:  cold temperatures.   The gas                                                               
comes in  already   at 2,200  pounds per square  inch (psi)  in a                                                               
high pressure dense base pipeline.  The result of not taking this                                                               
factor  in  consideration may  have  been  that the  project  was                                                               
charged twice because  other projects have to pay to  get to this                                                               
point. Bechtel  Corporation anticipates that this  advantage will                                                               
contribute to  a 40 percent more  efficient project.  A  plant in                                                               
Trinidad,  for  example, may  not  be  comparable to  the  unique                                                               
operations in Alaska.                                                                                                           
                                                                                                                                
11:41:4 AM                                                                                                                    
                                                                                                                                
MR.  WALKER  stated  that AGPA  established  a  partnership  with                                                               
Bechtel Corporation  because they are  the leader in  LNG plants.                                                               
Bechtel's first  plant was in Kenai  and since then it  has built                                                               
LNG plants  around the world with  the best technology.   Data on                                                               
AGPA's project, including the liquefaction  plant, is complied in                                                               
Houston, Texas.  Bechtel spent approximately $8  million dollars,                                                               
between 2000  and 2005, on  putting the application  together and                                                               
updating information;   the  company has  spent an  additional $2                                                               
million  to  complete the  AGIA  application.   Approximately  50                                                               
engineers  have worked  to develop  a cost  estimate specific  to                                                               
Valdez,  Alaska, and  Mr. Walker  opined that  gathering data  in                                                               
this manner  is a superior process  and has resulted in  a better                                                               
estimate for the  Alaska project.  He recalled in  2006, Econ One                                                               
compared the "Y-line"  and, at that time, determined  that if LNG                                                               
precedes  the  highway project  by  three  years, the  all-Alaska                                                               
project will  have a  return superior  to the  highway line.   He                                                               
remarked:                                                                                                                       
                                                                                                                                
     And so  we were  surprised to see  that in  the netback                                                                    
     comparison now,  ... the  LNG was  pushed to  two years                                                                    
     after  a  highway  line when  we're  sitting  with  the                                                                    
     benefit of $100  million of work by  Yukon Pacific over                                                                    
     a  period of  20 years.     We ...  didn't see  the net                                                                    
     present value of it going earlier.   So, we did lose in                                                                    
     that net present  value analysis but we  were two years                                                                    
     behind,  which  I  certainly expect,  if  you're  going                                                                    
     later  you're going  to lose  net  present value  (NPV)                                                                    
     analysis.  ... According  to our  model, our  work, our                                                                    
     application,    we're about  $1.00  per  NCF [net  cash                                                                    
     flow] wellhead  superior to a  highway project.  ... We                                                                    
     think if  the same analysis  was done now, it  would be                                                                    
     even more robust. ... Again,  we would like to ... have                                                                    
     access to all of the data  that was used to analyze our                                                                    
     application  ...  so  we   can  better  understand  the                                                                    
     netback analysis.                                                                                                          
                                                                                                                                
11:44:45 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE COGHILL asked for  a further explanation regarding                                                               
the  estimate of  $7  billion  for construction  of  the 2.7  bcf                                                               
liquefaction plant at  Valdez.  He pointed out  that the estimate                                                               
is exclusive  of ownership and  financing costs.   Representative                                                               
Coghill opined that previous estimates included these costs.                                                                    
                                                                                                                                
11:45:37 AM                                                                                                                   
                                                                                                                                
MR.  WALKER  confirmed  that  those   costs  are  excluded.    He                                                               
explained   that   AGPA   wants    to   better   understand   the                                                               
administration's data  so that the  comparisons are  more "apples                                                               
to apples."                                                                                                                     
                                                                                                                                
11:46:04 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  COGHILL   observed  that  all  of   the  previous                                                               
discussion with regard  to the price per NCF had  to do with, not                                                               
only  the  volume  flow,  but  the  cost  of  transport  and  the                                                               
treatment plant.   He  encouraged witnesses  to provide  a figure                                                               
that includes the  treatment plant, the pipe,  the transport, the                                                               
liquefaction, and the  tariff for each.  In fact,  financing is a                                                               
big  part   of  that.     Representative  Coghill   stressed  the                                                               
importance of models that bring continuity to the discussion.                                                                   
                                                                                                                                
MR. RICHARDS explained that the  reason the owner's and financing                                                               
costs were not included was because  the data put the owner's and                                                               
financing costs in "one  bundle."   He said that  he did not have                                                               
sufficient  information  to  break  out  the  total  finance  and                                                               
owner's  cost  to  attribute  to  liquefaction.    However,  this                                                               
information will be provided in the netback analysis.                                                                           
                                                                                                                                
11:47:19 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  NEUMAN   recalled  that  a   previous  all-Alaska                                                               
pipeline plan  included building a  48 inch line, with  a smaller                                                               
line  down  to  Valdez,  resulting  in  a  Y-line.    Considering                                                               
Alaska's  priority  to get  natural  gas  to Alaskans,  and  that                                                               
developers can  work in unison, he  asked whether there is  a way                                                               
to work on  a line that brings that larger  line into Canada and,                                                               
at the same time, build a spur line to Valdez.                                                                                  
                                                                                                                                
MR. WALKER replied, "We believe so."   He added that because this                                                               
project is  controlled within  the state  and this  country, AGPA                                                               
has the  ability to bring  gas to tidewater  significantly faster                                                               
than through the Canadian project.                                                                                              
                                                                                                                                
REPRESENTATIVE  NEUMAN   commented  that  the   question  remains                                                               
whether  that  can  be  done   concurrently,  without  the  lines                                                               
becoming competing pipelines.                                                                                                   
                                                                                                                                
11:49:32 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SAMUELS noted  that the  netbacks will  drive the                                                               
direction  of the  project. In  the past,  there have  been lower                                                               
volumes and  higher costs;   however, now the market  has boomed,                                                               
which overwhelms the lack of volume and higher cost.                                                                            
                                                                                                                                
11:50:18 AM                                                                                                                   
                                                                                                                                
MR. WALKER agreed.                                                                                                              
                                                                                                                                
REPRESENTATIVE  SAMUELS  recalled previous  testimony  predicting                                                               
that the  market in  Asia, and particularly  in Japan,  will drop                                                               
and return the market to the  scenario of lower volume and higher                                                               
cost.   He asked for  Mr. Walker's  analysis of how  flexible, or                                                               
how firm, the  differential in the market price  will be, knowing                                                               
that there will be higher cost and lower volume.                                                                                
                                                                                                                                
11:50:59 AM                                                                                                                   
                                                                                                                                
MR. WALKER said  that AGPA agrees with  "gas strategies" analysis                                                               
of  the future  market.   In addition,  AGPA's analysis  showed a                                                               
relationship  with the  price of  oil of  about 80  percent.   He                                                               
opined  that an  advantage  of  LNG is  that  there are  multiple                                                               
markets and  premiums for natural  gas even if prices  come down.                                                               
Obviously,  LNG  is  sold  on   long-term  contracts,  but  those                                                               
contracts also  provide diversion rights  so that cargoes  can be                                                               
taken to a higher market.                                                                                                       
                                                                                                                                
11:52:37 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SAMUELS remarked:                                                                                                
                                                                                                                                
      If you have a line going through Canada, whether you                                                                      
       agree with AGIA ... the minute you have that line                                                                        
     built  as  you  get  incremental gas,  it  will  always                                                                    
     behoove the  producer of that  gas to put it  into main                                                                    
     line.  And  you would never accumulate enough  to get a                                                                    
     Y-line, and that was my  thought. ... Do you agree with                                                                    
     that? ...  Since you'd already  have a pipe  going from                                                                    
     Prudhoe  to  Delta,  is that  distance  from  Delta  to                                                                    
     Valdez short  enough to  make a  smaller amount  pay to                                                                    
     actually get the line built with that tariff?                                                                              
                                                                                                                                
11:53:46 AM                                                                                                                   
                                                                                                                                
MR.  WALKER  agreed with  Representative  Samuels'  concern.   He                                                               
opined that AGPA is aware of  the situation; however, that is not                                                               
the driving force to get the LNG in first.                                                                                      
                                                                                                                                
11:54:45 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   DOOGAN   referred    to   testimony   from   the                                                               
administration's  consultants  that  indicated that  one  of  the                                                               
disadvantages  of shipping  to Asian  markets  is that  long-term                                                               
contracts would have  to be signed.  He asked  for an explanation                                                               
of long-term contracts and "market optionality."                                                                                
                                                                                                                                
11:55:36 AM                                                                                                                   
                                                                                                                                
MR. WALKER  replied that long-term  contracts have a  floor price                                                               
and a  ceiling price.   He  gave an example  of the  diversion of                                                               
cargo from  Trinidad to  Tokyo.   All of  the costs  were shared,                                                               
within the fixed price range, and with the security of a long-                                                                  
term contract.                                                                                                                  
                                                                                                                                
11:56:45 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN   asked  whether  the  contracts   are  an                                                               
industry standard contract or are unusual.                                                                                      
                                                                                                                                
11:57:02 AM                                                                                                                   
                                                                                                                                
MR. WALKER responded  that each contract can  be somewhat unique,                                                               
but  a 40  year history  of on-time  deliveries from  Alaska will                                                               
carry a premium when compared to contracts from other locations.                                                                
                                                                                                                                
11:57:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN asked how a  utility in Tokyo can afford to                                                               
allow its gas to be diverted to another market.                                                                                 
                                                                                                                                
MR. WALKER assured Representative  Doogan that the contract would                                                               
be fulfilled by replacement gas from another location.                                                                          
                                                                                                                                
11:58:18 AM                                                                                                                   
                                                                                                                                
SENATOR THERRIAULT  referred to previous testimony  from Econ One                                                               
about the AGPA project time  advantage and the resulting increase                                                               
in net present  value given to the project.   Now, the committees                                                               
have heard a  lot of technical advice that  indicated that AGPA's                                                               
project probably would not be  able to deliver that much earlier.                                                               
He questioned whether  AGPA has the technical ability  to put the                                                               
project into production earlier.                                                                                                
                                                                                                                                
11:59:26 AM                                                                                                                   
                                                                                                                                
MR. WALKER said  that he did not know why  the technical team did                                                               
not  take into  consideration permits  that are  already held  by                                                               
AGPA.   He  re-stated his  disappointment that  $100 million  was                                                               
spent  on obtaining  YPC's permits,  and those  permits were  not                                                               
recognized by  the technical  team.  He  expressed his  hope that                                                               
the model will answer that question.                                                                                            
                                                                                                                                
12:00:15 PM                                                                                                                   
                                                                                                                                
CHAIR  HUGGINS announced  that the  hearing would  [recess] until                                                               
1:30 p.m.                                                                                                                       
                                                                                                                                
CHAIR HUGGINS called the meeting back to order at 1:23:06 PM.                                                                 
                                                                                                                                
1:39:47 PM                                                                                                                    
                                                                                                                                
MR.  WALKER  continued  his presentation  and  pointed  out  some                                                               
positives that should  be considered with the  AGPA project, such                                                               
as  that  it is  100  percent  within the  Trans-Alaska  Pipeline                                                               
System   (TAPS)   corridor   from    Prudhoe   Bay   to   Valdez.                                                               
Additionally, he noted  that the AGPA project is  in a designated                                                               
federal and state conditional right-of-way  (ROW).  He elaborated                                                               
that the TAPS  corridor has been referred to as  the most studied                                                               
piece  of  earth   on  the  earth,  having   submitted  to  three                                                               
environmental impact statements (EIS),  two from Alyeska Pipeline                                                               
Service Company  (Alyeska), and one from  YPC.  He noted  that an                                                               
in-state line avoids foreign issues,  since all the issues can be                                                               
resolved in  Alaska and the United  States.  He opined  that AGPA                                                               
is  very pleased  with  what  YPC has  done,  with probably  five                                                               
different  companies performing  due  diligence on  the work  and                                                               
none  has come  back  and  said the  permits  are without  value.                                                               
Instead,  all reported  the permits  are valuable  and that  they                                                               
have  been updated,  renewed in  a  timely manner,  and have  not                                                               
expired, he stated.   Some reviewers have  said the environmental                                                               
data  is almost  more  important  than the  license  itself.   He                                                               
pointed out  that some of the  permits took seven to  eight years                                                               
to obtain  and that  the process  to update  is much  simpler and                                                               
easier than initiating a new permit.   He offered his belief that                                                               
it saves  years, although  just how  many years  is one  of those                                                               
issues that  no one is  going to know for  sure.  He  noted there                                                               
are  12  permits  in  all  that were  submitted  in  its  initial                                                               
application  and in  prior  submittals to  the  legislature.   He                                                               
referred to the  acceptability of gas and of Alaska's  gas in the                                                               
Asian  market.   He opined  that consultants  can take  different                                                               
positions  on the  same  issue.   He  said  that  what gives  him                                                               
confidence is about a month ago,  he met with Tokyo Gas and Tokyo                                                               
Electric representatives  and discussed  this project  with them.                                                               
He  noted   that  most  of   the  discussion  related   to  their                                                               
satisfaction  with 40  years of  shipments of  on-time deliveries                                                               
from  Alaska.   He elaborated  that these  companies are  getting                                                               
                                       th                                                                                       
ready for  a big celebration  of the 40   year of  that contract.                                                               
He opined  that stability of  supply will  continue to be  a very                                                               
high priority to them.   He pointed out that at  no point did the                                                               
executives discuss  the level  of Btus and  heat content,  or wet                                                               
gas  versus dry  gas.   Mr.  Walker maintained  that the  on-time                                                               
deliveries spanning 40 years "seemed to  be most on their mind in                                                               
our discussions."                                                                                                               
                                                                                                                                
1:43:40 PM                                                                                                                    
                                                                                                                                
CRAIG  RICHARDS, Attorney,  Walker &  Levesque, referring  to the                                                               
slide labeled,  "Canadian Delay -  Bennet Jones  Report", offered                                                               
to  briefly review  concerns  and  issues.   He  stated that  the                                                               
Canadian Northern Pipeline  Act (NPA) was passed in  the 1970s as                                                               
part of  the "push" during that  time period to grant  what might                                                               
be considered an  exclusive license to Foothills  Pipe Lines Ltd.                                                               
(Foothills), now TransCanada, to  arrange for the Alaska pipeline                                                               
to go through Canada.  He  related that the NPA created an agency                                                               
to oversee all the rights  of way and permitting for TransCanada.                                                               
However, much  like the  environmental laws in  the U.  S. during                                                               
the  1970s,  1980s,  and  1990s,  environmental  laws  in  Canada                                                               
matured resulting in regulatory structures  layered on top of the                                                               
NPA.    It's unclear  in  Canada  whether  or not  the  exclusive                                                               
regulatory   authority   of   the  NPA   controls,   or   whether                                                               
[TransCanada] will  also need to  comply with all  the regulatory                                                               
requirements  from the  additional  laws that  have passed  since                                                               
that time, he  stated.  He opined that the  single most important                                                               
information  in the  AGIA findings  is the  Bennet Jones  report,                                                               
which is an 80-page report  that essentially discusses all of the                                                               
issues  of  Canadian  land  rights   and  land  acquisitions  for                                                               
TransCanada.   He elaborated that  the report discusses  not only                                                               
TransCanada's   project,   but    also   highlights   issues   an                                                               
independent,  third party  project, such  as the  Denali project,                                                               
would face.   He  referred to the  next slide  labeled, "Canadian                                                               
Delay" and  stated that  when TransCanada  came forward  with its                                                               
application  it estimated  2017 as  the  date in  which it  could                                                               
bring the first  gas to market, and it allowed  five and one-half                                                               
years for  regulatory compliance  in Canada.   He noted  that the                                                               
Bennet Jones  report indicated  that five  and one-half  years is                                                               
simply  the  best that  could  happen,  which  he opined  is  not                                                               
likely.   He offered  that a  more likely  timeframe is  seven to                                                               
eight  years,  which  he  surmised   is  why  the  administration                                                               
probably pushed  TransCanada from 2017  to 2020.  He  stated that                                                               
the  AGPA application  came  in  with about  the  same 2017  time                                                               
period,  ignoring  the advantages  of  the  YPC's licenses.    He                                                               
opined that the  AGPA believes the time period  could actually be                                                               
one  or  two  years  earlier.     However,  he  noted  that  AGPA                                                               
conservatively is using the 2017  time frame.  However, he opined                                                               
that  AGPA immediately  has a  two to  three year  advantage over                                                               
TransCanada's    project   since    the   administration    moved                                                               
TransCanada's start date forward two  to three years based on the                                                               
Bennet Jones report.  He opined  that the main issue in Canada is                                                               
that TransCanada  does not have  a legal right-of-way (ROW).   He                                                               
explained that the  route is not clearly  identified, which means                                                               
that  TransCanada, according  to Bennet  Jones, will  need to  go                                                               
through a  lengthy ROW  project similar  to the  Mackenzie Valley                                                               
Gas Project.   The  second source of  delay that  the TransCanada                                                               
project  suffers from  is  the risk  of  [negotiations with  the]                                                               
First Nations  which is  more difficult  to quantify,  he opined.                                                               
He  explained  that  approximately  40  aboriginal  First  Nation                                                               
groups  within the  British Columbia,  Yukon,  and Alberta  areas                                                               
were identified by TransCanada in  its application, which it must                                                               
independently consult.                                                                                                          
                                                                                                                                
1:47:48 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS continued  by stating, "This is what  really put the                                                               
halter  on the  Mackenzie  Valley Project.    In 2005,  Mackenzie                                                               
Valley   basically   stopped   all  implementation   and   design                                                               
activities  and  turned  the project  solely  into  a  regulatory                                                               
compliance  mode."   He  opined that  Mackenzie  Valley needs  to                                                               
resolve the First  Nations issues and get  through the regulatory                                                               
process before it  can resume.  He surmised  that "essentially it                                                               
came  down to  money."   He noted  that the  Bennet Jones  report                                                               
highlights that legal challenges  to TransCanada by First Nations                                                               
for a  failure to consult,  or alternatively,  consulting without                                                               
arriving  at  an  acceptable  outcome,   could  result  in  legal                                                               
challenges.  He  speculated that litigation to  resolve the First                                                               
Nations issues might take from three to ten years to resolve.                                                                   
                                                                                                                                
1:50:30 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS, in response  to Representative Guttenberg, answered                                                               
that  he  did  not  know  whether  the  relationships  that  were                                                               
developed in  the Mackenzie Valley  process could  be transferred                                                               
to TransCanada.                                                                                                                 
                                                                                                                                
CHAIR  HUGGINS  suggested  that  the  committees  would  have  an                                                               
opportunity   to  hear   testimony  from   TransCanada  and   the                                                               
administration, which could address that matter directly.                                                                       
                                                                                                                                
1:51:16 PM                                                                                                                    
                                                                                                                                
SENATOR  WAGONER opined  that his  information is  different than                                                               
Mr. Richards'.   He inquired as to whether he  could confirm that                                                               
the administration is using the  completion date of 2020 based on                                                               
the Bennet Jones report.                                                                                                        
                                                                                                                                
MR. RICHARDS  said he  thought the  administration is  basing the                                                               
completion date on the Bennet Jones report.                                                                                     
                                                                                                                                
CHAIR HUGGINS  interjected that the administration  could clarify                                                               
that  matter   when  its   representatives  testify   before  the                                                               
committees.                                                                                                                     
                                                                                                                                
1:52:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON inquired  as to  whether the  Bennet Jones                                                               
report  differentiates between  timelines  for  a Canadian  group                                                               
versus a group outside of Canada.                                                                                               
                                                                                                                                
MR.  RICHARDS recalled  that the  Bennet  Jones report  estimated                                                               
that the  NPA single  window provision  would give  TransCanada a                                                               
one-year advantage over a third party project.                                                                                  
                                                                                                                                
1:53:12 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS  related that one  of the  four major delays  is NPA                                                               
exclusivity.   He  explained that  a  third party  is allowed  to                                                               
build  just outside  the  regulatory framework.    Thus, a  third                                                               
party could build  "outside of the Northern Pipeline  Act and any                                                               
exclusivity that TransCanada  has there."  Thus,  this is "teeing                                                               
up as a  big challenge and a big fight"  since the Denali project                                                               
must  argue  that  it  is   not  exclusive  of  TransCanada,  and                                                               
TransCanada will  have to "defend its  turf" to assert it  is the                                                               
only one  that can  move forward with  the Alaska  Highway route.                                                               
He opined that  the final source of delay is  the repeated public                                                               
statements  by producers  that the  "Mackenzie Valley  has to  go                                                               
first."    He  referred  to  a quote  from  a  representative  of                                                               
ConocoPhillips  Alaska,  Inc.,  that Mackenzie  Valley's  project                                                               
must  go before  Alaska's project.   He  further opined  that the                                                               
reason for that  is that as Alberta matures and  its basin begins                                                               
to  decline, the  plan,  from the  producers'  standpoint, is  to                                                               
bring  Mackenzie Valley  on  line  to offset  the  gas no  longer                                                               
available from  Alberta, in  order to  capture the  difference in                                                               
market growth.   Once Mackenzie Valley matures,  Alaska gas could                                                               
come in and offset reductions for that field, he predicted.                                                                     
                                                                                                                                
CHAIR HUGGINS offered  that the committees will seek  to hear the                                                               
perspective from the Denali project members on that issue.                                                                      
                                                                                                                                
1:55:43 PM                                                                                                                    
                                                                                                                                
MR.  RICHARDS  referred  to his  next  slide  labeled,  "Canadian                                                               
Delay".  He  explained that this is a hypothetical  model for the                                                               
timing   profile  that   attempts  to   fit  a   reasonable  risk                                                               
distribution for the timing elements  of the project based on the                                                               
Bennet Jones  report.  He  explained that  the slide is  based on                                                               
the estimated  timeframe of  five and  one-half years  to resolve                                                               
all land  issues for TransCanada's  application.  He  pointed out                                                               
that  the  more  likely  seven  to  eight  year  time  period  is                                                               
represented  on the  graph  at "P  50" and  the  ten year  period                                                               
represents  the timeframe  that  exclusivity runs  out under  the                                                               
AGIA  license.    He  related   that  this  graph  represents  an                                                               
artificial  distribution   curve  around   the  three   dates  to                                                               
highlight  the "tail  distribution."   He  opined  that one  must                                                               
recognize  that some  probability  exists  that the  right-of-way                                                               
(ROW),  Mackenzie Valley,  and  First  Nations issues  previously                                                               
identified may take  from 10 to 15 years, or  beyond, to resolve.                                                               
He highlighted  that until the  process begins and  the producers                                                               
react with  respect to exclusivity provisions,  it isn't possible                                                               
to  accurately assess  the  risk distribution,  or  how long  the                                                               
process will actually take.                                                                                                     
                                                                                                                                
1:57:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN  asked Mr. Richards  to comment on  using a                                                               
hypothetical assumption of demand for gas at 2018.                                                                              
                                                                                                                                
MR.  RICHARDS responded  that the  graph outlines  the number  of                                                               
years it  would take to  get permitting  in Canada "once  you get                                                               
the ball  rolling."  He  related his understanding that  the five                                                               
and   one-half   years    [for   permitting]   corresponds   with                                                               
TransCanada's  2017 date.   He  further commented  that the  most                                                               
aggressive [permitting]  scenario that  Bennet Jones  predicts is                                                               
2017, which  is represented on  the graph  at the point  the line                                                               
begins  to sharply  rise up  [between years  five and  six].   He                                                               
opined  that the  Bennet Jones  report outlines  the issues  very                                                               
thoroughly and he encouraged members to read the report.                                                                        
                                                                                                                                
1:58:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON asked whether  gas that comes online before                                                               
the Mackenzie  Valley gas  would be used,  should any  project be                                                               
completed ahead of schedule.                                                                                                    
                                                                                                                                
MR.  RICHARDS answered  that  he  thought that  would  be a  good                                                               
question to ask the Denali project representatives.                                                                             
                                                                                                                                
1:59:28 PM                                                                                                                    
                                                                                                                                
MR.  WALKER  referred  to  the next  slide  labeled,  "Risk"  and                                                               
offered AGPA's  view on the risk  about LNG versus pipeline.   He                                                               
noted that AGPA was advised  by its consultant contractor Bechtel                                                               
Corporation, with respect to the  all-Alaska project, that higher                                                               
risk  exists  for  the  pipeline   than  for  liquefaction.    He                                                               
explained  that   liquefaction  is   well  developed,   that  the                                                               
technology that  would be  used was  developed in  other projects                                                               
around  the world,  and  that the  risk  factors associated  with                                                               
liquefaction would be  of a lesser percentage than  the risk with                                                               
the pipeline portion of the  project.  He offered that discussion                                                               
has transpired in  the past10days with respect  to the commercial                                                               
pieces associated with  the LNG project.  He  recognized that the                                                               
gas pipeline, the gas inlet,  liquefaction, shipping, and re-gas,                                                               
are all pieces that would need  to be negotiated.  He pointed out                                                               
that this is  not the first liquefaction project,  as the Nikiski                                                               
LNG  plant came  first.   He opined  that AGPA  is not  concerned                                                               
about  the commercial  negotiation  between willing  participants                                                               
and that AGPA's  consultants have advised them  that success will                                                               
require  a  number of  contracts  to  come  into place  but  that                                                               
doesn't  represent  a particular  downside  or  a threat  to  the                                                               
project.                                                                                                                        
                                                                                                                                
2:01:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL inquired as  to whether AGPA could provide                                                               
modeling  for  the   proposed  project  and  for   costs  of  the                                                               
components of  liquefaction, shipping, and gas  conditioning with                                                               
timelines in present dollars.                                                                                                   
                                                                                                                                
MR.  WALKER  answered  that  its   AGIA  application  contains  a                                                               
complete working  model with  every piece  of the  project model.                                                               
While he acknowledged  that the model itself  is confidential, he                                                               
offered that  AGPA could provide a  summary of the modeling.   He                                                               
further answered  that AGPA  has been continuing  to work  on the                                                               
liquefaction piece of  this project and that he  believes it will                                                               
be accomplished.   He opined that AGPA believes,  with respect to                                                               
the pipeline and  gas conditioning, that TransCanada  is the best                                                               
option  per  the  qualifications  and experience  in  a  northern                                                               
climate.   He noted that  AGPA has previously  reviewed different                                                               
companies on  the pipeline component,  and that it  has undergone                                                               
memorandums  of understanding  (MOU)  with  some companies,  AGPA                                                               
"would  be absolutely  thrilled to  work with  TransCanada."   He                                                               
further noted that if one project  is ready to go sooner and it's                                                               
the all-Alaska route,  that "we would like to do  that, our first                                                               
choice; we would do it in some way under AGIA with TransCanada."                                                                
                                                                                                                                
2:05:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH related her  understanding that AGPA is                                                               
attempting  to  convince the  committees  that  LNG is  good  for                                                               
Alaska.     However,  before  the  legislature   is  a  licensing                                                               
application  for TransCanada,  she stated.   Therefore,  she said                                                               
she would like  to know from AGPA how  its [application] complies                                                               
or  does  not  comply  with  AGIA.   She  pointed  out  that  the                                                               
committees  are  not  considering   an  in-state  route,  but  is                                                               
currently  only  considering  TransCanada   as  the  licensee  to                                                               
operate  a pipeline  through Canada.    She noted  that AGPA  has                                                               
raised some  questions, specifically that the  legislature should                                                               
challenge [TransCanada]  on its  methodology for  a cost-modeling                                                               
scenario.   She recalled slides  that showed variables  for costs                                                               
in constructing an  LNG plant, but did not  provide any specifics                                                               
on a  timeline and provided  a wide range  of costs with  the top                                                               
figure  at $40  billion.   Secondly, she  further inquired  as to                                                               
whether AGPA  wants the legislature to  consider AGPA's proposal,                                                               
and  if  so,  why  is  its  proposal  better  than  TransCanada's                                                               
proposal.   She noted that with  the modeling on the  net present                                                               
value  (NPV),  she  questioned  whether  the  administration  has                                                               
modeled  it  correctly  if  AGPA was  the  first  project  moving                                                               
forward  versus   the  second   following  the   major  pipeline.                                                               
Thirdly, she further  inquired as to what  the administration has                                                               
not considered, from AGPA's  perspective, in the administration's                                                               
analysis  of   advancing  TransCanada  before   the  legislature.                                                               
Finally,  she  inquired as  to  what  the legislature  should  be                                                               
cautious about  since she  scanned the  presentation and  did not                                                               
see those  issues raised.   She  said she  hoped that  instead of                                                               
continuing  with an  in-state conversation  over  the next  month                                                               
that  AGPA  could  formulate  and model  some  of  these  issues.                                                               
Representative Fairclough  reiterated that " ...  I'm considering                                                               
a yes or no vote on TransCanada  and questions that I need to ask                                                               
to make that evaluation."                                                                                                       
                                                                                                                                
MR. WALKER  answered that TransCanada's application  provided for                                                               
an open  season for  an LNG  project in Valdez.   He  stated that                                                               
AGPA is  not asking  the legislature to  choose its  project over                                                               
another project.   However, he opined that the  AGPA project will                                                               
be ready  to go first.   He  expressed concern about  waiting for                                                               
another  project before  the  all-Alaska line  can  proceed.   He                                                               
noted that AGPA  is pleased the pipeline company  would bring the                                                               
gasline to the  inlet of the [proposed]  liquefaction facility in                                                               
Valdez, which  he offered is  "pretty clear in  the application."                                                               
He reiterated  that AGPA is  not trying  to compete, but  that it                                                               
would like to keep all the options open.  He continued:                                                                         
                                                                                                                                
     And all  we're saying  is that  if the  all-Alaska line                                                                    
     can work  within AGIA  - we're not  trying to  come and                                                                    
     ask  them, we've  been through  whole  process -  we're                                                                    
     looking  at  an applicant,  a  good  applicant, a  good                                                                    
     application,  that  is  referencing,  make  a  specific                                                                    
     reference to  being able  to, and  would be  willing to                                                                    
     bring a line to build the all-Alaska line.                                                                                 
                                                                                                                                
2:10:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH,  as a follow-up question,  inquired as                                                               
to the  source of the  gas.   She related her  understanding that                                                               
AGPA considers the source from Prudhoe Bay.  She said:                                                                          
                                                                                                                                
     We've  asked specifically  whether the  Alaska Oil  and                                                                    
     Gas  [Conservation]  Commission  (AOGCC)  is  going  to                                                                    
     advance a letter for more  withdrawal because, at least                                                                    
     those  of  us who  served  [on  the House]  Resource[s]                                                                    
     [Committee] heard from Cathy  Foerster saying that that                                                                    
     number would be reduced, not increased.                                                                                    
                                                                                                                                
MR.  WALKER responded  that  the  gas would  come  from the  same                                                               
source that  it would  for a  Canadian project.   He  pointed out                                                               
that if the  [projected] amount is going to be  reduced, that the                                                               
AGPA  is the  smaller  project  and does  not  have  to wait  for                                                               
additional discoveries or gas to  be proved.  He highlighted that                                                               
if AGPA is within the limits  of the offtake of AOGCC, given that                                                               
the project is  ready to proceed, AGPA hopes it  would be allowed                                                               
to go  first with the  all-Alaska line while other  explorers are                                                               
queuing up to provide additional  reserves.  He expressed concern                                                               
for  delays  to  resolve  issues associated  with  a  project  in                                                               
Canada.     He   highlighted  and   quoted  TransCanada   in  its                                                               
application  as stating,  "We  think it's  a  wonderful thing,  a                                                               
wonderful opportunity."  He  further highlighted that TransCanada                                                               
said it will hold an open season for the all-Alaska line.                                                                       
                                                                                                                                
2:11:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH said:                                                                                                 
                                                                                                                                
     Respectfully,  I haven't  been convinced  that we  have                                                                    
     enough gas to do the  full pipeline let alone some kind                                                                    
     of a "Y-line" that would go  down to Valdez, so I guess                                                                    
     that   is   where   you  need   to   lobby   me   from.                                                                    
     Representative Samuels specifically  spoke to and asked                                                                    
     questions in  Juneau on the  fiscal economies  of being                                                                    
     able - for a producer to  commit - to move off the main                                                                    
     line once  the main  line went in  so if  your proposal                                                                    
     from  my perspective  right now  is  not successful  as                                                                    
     being the  winner in-state, to  bring the gas  right to                                                                    
     you, it will  be years and years, if ever,  that we can                                                                    
     provide the "Y" coming off of it  or go to LNG if we go                                                                    
     through TransCanada.   The 4.5 route, won't  be able to                                                                    
     take 2.7 off of it.                                                                                                        
                                                                                                                                
2:12:39 PM                                                                                                                    
                                                                                                                                
CHAIR HUGGINS  offered to get  further clarification  from AOGCC.                                                               
He  stated that  the committees  anxiously await  that projection                                                               
since it has a major bearing on the matter.                                                                                     
                                                                                                                                
2:12:56 PM                                                                                                                    
                                                                                                                                
MR. WALKER continued.   He maintained that AGPA is  not trying to                                                               
stop another  project.  He stated  that if a project  is ready to                                                               
proceed, that is  within the limits of AOGCC offtake  and is good                                                               
for Alaska,  that project  should not be  delayed and  we "should                                                               
get gas  moving as quickly as  possible."  He offered  to present                                                               
AGPA's economic model as it did  two years ago during a three day                                                               
presentation in  Juneau.  He  explained that AGPA did  not tailor                                                               
its  presentation  to  include  its  economic  model,  which  was                                                               
created  by a  Washington  D.C. company  that  prepared the  cost                                                               
analyses  on a  number  of LNG  projects around  the  world.   He                                                               
reiterated his support for AGPA's economic model.                                                                               
                                                                                                                                
MR. WALKER  noted that AGPA  examines its project's risks  and he                                                               
said  he feels  that it  does control  the risks  associated with                                                               
AGPA's project, which  he said he thought was  important to note.                                                               
In response  to Representative Doogan,  Mr. Walker  answered that                                                               
he is referring to permitting risks.                                                                                            
                                                                                                                                
2:14:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN  inquired as to whether  the Federal Energy                                                               
Regulatory Commission  (FERC) will be involved  in permitting the                                                               
AGPA's project.                                                                                                                 
                                                                                                                                
MR. WALKER responded  that the board met with FERC  in Valdez and                                                               
reached a  decision that AGPA  would go through the  FERC process                                                               
due  to concern  that delay  that would  be caused  in trying  to                                                               
avoid  the FERC  review.    He highlighted  that  the benefit  of                                                               
submitting  to the  FERC  process  is that  AGPA  would have  the                                                               
market "optionality" of going to  Hawaii, the West Coast, and the                                                               
Asian market.  He opined that if  AGPA did not submit to the FERC                                                               
process,  that it  would be  limited  to just  the Asian  market.                                                               
Thus,  he  noted,  AGPA's  preference  is to  submit  to  a  FERC                                                               
process.                                                                                                                        
                                                                                                                                
2:15:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN  clarified and  surmised that  all pipeline                                                               
groups must go through FERC review.                                                                                             
                                                                                                                                
MR. WALKER answered that Representative Doogan is correct.                                                                      
                                                                                                                                
2:16:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  THOMAS  noted  that "timing  is  everything"  and                                                               
related  his   understanding  that   the  potential   exists  for                                                               
TransCanada to build  a line to Valdez.  He  noted that he agrees                                                               
with Mr.  Walker, if the  state is  limited in the  gas resource,                                                               
that AGPA is  a smaller offtake, which potentially  "gets the gas                                                               
moving."    However, he  also  pointed  out  that "we  have  this                                                               
looming  situation  of  supply  and  energy for  the  U.S."    He                                                               
inquired  if  Canadian  production  drops off  whether  AGPA  has                                                               
examined  the   potential  of  West  Coast   receiving  stations,                                                               
particularly  "due  to   the  lack  of  the   Alaska  line  being                                                               
economical with  4.5 bcf going  down [the pipeline]  because it's                                                               
limited from  Prudhoe."   He further inquired  as to  whether Mr.                                                               
Walker foresees  that the  receiving stations  on the  West Coast                                                               
"picking up that slack" to at  least put gas into the West Coast.                                                               
He noted  that California has  a big  market that might  lose its                                                               
supply going through Canada.                                                                                                    
                                                                                                                                
MR. WALKER answered  that many have reviewed this,  in fact, AGPA                                                               
has  a  relationship with  Sempra  Energy  and  is bidding  on  a                                                               
capacity of their existing terminal.   He explained that AGPA has                                                               
had numerous  meetings with those that  hold a permit for  a port                                                               
facility in Kitimat,  British Columbia.  He  speculated that some                                                               
companies  in  Oregon and  Washington  believe  they will  get  a                                                               
permit as well.   However, AGPA has a relationship  with "the one                                                               
that does have  the only receiving terminal and one  that has the                                                               
permit to build  one," he said.  He stated  that if the situation                                                               
and circumstance required it, that  shipment could be diverted to                                                               
those locations.  He offered that  AGPA is aware of the issues of                                                               
the Jones  Act and have located  tankers that would be  Jones Act                                                               
compliant.  He opined that  AGPA could accommodate that scenario.                                                               
He further  opined that a benefit  of LNG is that  one can divert                                                               
from  one location  to another  as long  as one  is covering  the                                                               
market obligations.                                                                                                             
                                                                                                                                
2:19:37 PM                                                                                                                    
                                                                                                                                
SENATOR WAGONER inquired  as to why representatives  from BG Gas,                                                               
Bechtel Corporation,  Sempra Energy,  and others are  not present                                                               
at this  hearing if these companies  plan to be an  integral part                                                               
of the project.                                                                                                                 
                                                                                                                                
MR.  WALKER  answered  that   representatives  from  the  Bechtel                                                               
Corporation have appeared in Juneau  to provide cost analyses and                                                               
cost  estimates in  the past.    However, he  noted that  Bechtel                                                               
Corporation has  concluded its role  in terms of  the application                                                               
process.    He offered  to  prepare  an  analysis of  their  cost                                                               
estimates.    He related  that  AGPA's  relationship with  Sempra                                                               
Energy  was terminated  due to  the lack  of the  availability of                                                               
gas.   He opined "that's really  what this comes down  to, is gas                                                               
going  to become  available?"   He highlighted  that AGPA  has an                                                               
ongoing relationship with Sempra Energy  in terms of the terminal                                                               
in Costa Azul.  He noted that  AGPA has had a number of companies                                                               
it has  worked with for  a period of time.   However, no  one has                                                               
departed  due to  the  economics of  the  project, he  explained.                                                               
Instead, the  reasons for  their departure  are for  other issues                                                               
such as gas  acquisition, he related.  He opined  that this is an                                                               
unusual structure, that  TransCanada is in the  same situation of                                                               
"trying  to  put  together  a   project  without  gas  is  pretty                                                               
challenging."  However, LNG is  an economic option.  He explained                                                               
that AGPA's  purpose is to make  sure that people are  aware that                                                               
the  all-Alaska  line  has  the   economics  and  the  structural                                                               
advantages to go first, and  not necessarily wait an undetermined                                                               
period of time  for another project to happen first.   He offered                                                               
that  AGPA  believes  that  "getting   gas  to  Alaskans  now  is                                                               
critical."                                                                                                                      
                                                                                                                                
2:23:08 PM                                                                                                                    
                                                                                                                                
SENATOR  HOFFMAN  posed  a  scenario  in  which  the  legislature                                                               
desires  more  than  one  competitive  applicant  and  votes  the                                                               
license down.   He inquired as to what the  modifications to AGIA                                                               
would be required in terms of the all-Alaska project.                                                                           
                                                                                                                                
MR. WALKER answered,  "That is a tough question because  a lot is                                                               
riding on  this issue."   He  stated that  AGPA has  not examined                                                               
AGIA from  the standpoint  of how  to amend it  to help  the all-                                                               
Alaska project.   He opined that  AGPA has viewed the  project in                                                               
terms of how it can work within the provisions of AGIA.                                                                         
                                                                                                                                
2:24:28 PM                                                                                                                    
                                                                                                                                
SENATOR   THERRIAULT   related   his   understanding   that   the                                                               
administration has received some  criticism for the modeling that                                                               
it prepared for  an LNG project because of the  size.  He offered                                                               
that a model  exists that can be sized  to different throughputs.                                                               
Senator  Therriault expressed  interest in  obtaining models  for                                                               
the  LNG and  asked what  capacity should  be requested,  such as                                                               
1.5, 1.8, or some other capacity.                                                                                               
                                                                                                                                
MR.   WALKER   answered   that  he   would   suggest   that   the                                                               
administration  model be  based on  2.7, but  that they  may have                                                               
already run  that model, and  if so,  he offered that  AGPA would                                                               
like to have access to the model.                                                                                               
                                                                                                                                
2:25:16 PM                                                                                                                    
                                                                                                                                
SENATOR  THERRIAULT  recalled  that  Mr. Walker  noted  that  the                                                               
models  and cells  have been  shown.   However, he  also recalled                                                               
that  Mr. Walker  also mentioned  confidentiality of  the models.                                                               
He inquired  as to whether the  AGPA's model is available  or has                                                               
been available to the administration  or to TransCanada to review                                                               
and examine the mathematics of the model.                                                                                       
                                                                                                                                
MR. WALKER answered  that the entire model was  made available to                                                               
the administration.                                                                                                             
                                                                                                                                
2:25:52 PM                                                                                                                    
                                                                                                                                
SENATOR THERRIAULT  asked,  "If  TransCanada has committed  to an                                                               
open season for LNG,  is there a way to just  let the market sort                                                               
this  out?",   He opined  that if  AGPA put  together all  of the                                                               
pieces for  an LNG project  and has a source  of gas and  the end                                                               
market, AGPA  could participate  during the  open season,  bid on                                                               
the capacity for the line to  tidewater, and if all those "pieces                                                               
fall into  place then you're  the winner."   He surmised  that if                                                               
the pieces  "fall into  place in conjunction,  at the  same time,                                                               
with  the  overland,  then  fine."     However,  he  related  his                                                               
understanding that TransCanada  made a commitment that  if LNG is                                                               
"the  only thing  that  shows up"  that  TransCanada will  follow                                                               
through with developing the LNG project.                                                                                        
                                                                                                                                
MR. WALKER  answered, "We're almost there  as far as the  way you                                                               
describe  it."   He offered  that AGPA  looks forward  to putting                                                               
together the pieces necessary to  meet TransCanada's open season.                                                               
However, he  maintained that  AGPA does  not want  to wait  for a                                                               
Canadian  line to  go  before  it can  participate.   He  further                                                               
maintained that once it is ready  to proceed and has the shipping                                                               
commitment, that AGPA will want to be able to participate.                                                                      
                                                                                                                                
2:27:29 PM                                                                                                                    
                                                                                                                                
MR.  WALKER referred  to his  last slide,  labeled, "Way  Forward                                                               
Options."   He opined that many  of the risks can  be shifted and                                                               
shared among  the value chain.   "This is  one that can't  be, we                                                               
don't think."  He expressed  that he's observed what has happened                                                               
to the cost of  energy in the past 12 to  24 months and cautioned                                                               
that if nothing  happens, that it represents a huge  risk for the                                                               
state.  He  highlighted that he compiled a book  of 162 articles,                                                               
including  ribbon  cutting  ceremonies, studies,  and  incentives                                                               
between  1987  and  2004,  that provides  a  snapshot  of  AGPA's                                                               
process.  He  noted the lengthy process was  troubling since AGPA                                                               
expected a project  would "start the vehicle and off  we go.  And                                                               
it didn't."   He  related that  AGPA wants  to make  certain that                                                               
this  process  is  successful  and  that it  thinks  it  has  the                                                               
solutions to move  forward within AGIA.  He  reiterated that AGPA                                                               
is not trying to disrupt the  process or proceed ahead of anyone,                                                               
but is just trying  to bring gas to Alaska.  He  opined that if a                                                               
project does not bring gas to  Alaska, there won't be anyone left                                                               
to  benefit from  it.   He urged  legislators to  proceed with  a                                                               
project  that is  "right-sized" right  now  and not  to wait  for                                                               
someone else  with a bigger  project.  He  offered that a  lot of                                                               
work has  been expended,  with failed efforts  going back  to the                                                               
late 1980s.  He stated that AGIA  is a good process.  He recalled                                                               
that Commissioner Irwin  said, "We need one good  applicant."  He                                                               
opined  that  "we   have  a  great  applicant."     He  cautioned                                                               
legislators to not let the  process prevent a project from moving                                                               
forward.                                                                                                                        
                                                                                                                                
2:31:44 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI offered  his appreciation  for the  efforts                                                               
that AGPA has made to work to  supply gas to Alaska.  He inquired                                                               
as  to whether  a  vote to  approve  TransCanada's license  would                                                               
effectively  preclude  any  other gasline  because  realistically                                                               
Alaska does not have sufficient gas offtake for other projects.                                                                 
                                                                                                                                
MR. WALKER  answered that  it could, but  he did  not necessarily                                                               
think  it would.    He  offered that  AGPA  is  working with  the                                                               
administration.  He said that he  hopes that a way exists for the                                                               
state to  move forward with  TransCanada and minimize risks.   He                                                               
opined that if  AGPA can reach that understanding,  that he would                                                               
recommend  to the  board to  give unconditional  support for  the                                                               
AGIA  process.   However, if  approving TransCanada's  license is                                                               
going to delay the process, he  opined that he did not think that                                                               
the board could agree to the project.                                                                                           
                                                                                                                                
2:33:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON  inquired as  to  the  "decision tree"  to                                                               
decide  whether or  not the  AGPA  project would  be included  or                                                               
excluded.   She  related her  belief that  many Alaskans  look to                                                               
AGPA to  push, challenge,  and ask the  critical questions.   She                                                               
asked  Mr. Walker  to advise  the legislature  with respect  to a                                                               
decision tree prior to a vote on the TransCanada license.                                                                       
                                                                                                                                
MR. WALKER explained AGPA's decision  tree such that AGPA desires                                                               
to work with  the administration and TransCanada  and will report                                                               
back to  the legislature its  efforts.   He pointed out  his good                                                               
working relationship with both entities.                                                                                        
                                                                                                                                
2:37:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI,  with respect to a  "Y-line" concept and                                                               
whether  the  AGIA  application would  preclude  the  AGPA  line,                                                               
related that  TransCanada, in its  AGIA application,  expressed a                                                               
willingness to examine  a third party LNG  terminal if sufficient                                                               
interest  is expressed  by shippers  in an  initial open  season.                                                               
Secondly, he inquired  as to whether Mr. Walker  could comment on                                                               
the possibility of a TransCanada  LNG terminal at Valdez and also                                                               
on  TransCanada's  assumption  of  an  increase  in  the  initial                                                               
project to 6.5 Bcf if 4.5 Bcf were committed to Valdez.                                                                         
                                                                                                                                
MR.  WALKER  recalled  TransCanada's  application  and  expressed                                                               
concern  that  it  would  constitute  a  problem  if  a  6.5  Bcf                                                               
commitment  was required  at  an  open season.    He opined  that                                                               
Representative  Fairclough was  correct, that  there will  not be                                                               
6.5 Bcf at an open season.  He said:                                                                                            
                                                                                                                                
       What we are saying is if there's two, two and one-                                                                       
     half, or  three [Bcf],  that there's  not enough  for a                                                                    
     Canadian  line,  but  enough for  an  all-Alaska  line;                                                                    
     that's what we  want, we would like to  have them build                                                                    
     a  pipeline to  the  terminal  at that  point.   If  we                                                                    
     participated and  had the pieces  of the  consortium of                                                                    
     liquefaction,  and all  those  pieces;  I guess  that's                                                                    
     what we're trying to sort out.                                                                                             
                                                                                                                                
2:39:35 PM                                                                                                                    
                                                                                                                                
MR. WALKER  referred to  the slide  labeled, "Which  Project Goes                                                               
First."  He said he  believes that the administration thinks that                                                               
the  TransCanada  line will  go  first.    He related  that  AGPA                                                               
disagrees and maintains  that the all-Alaska line  will go first.                                                               
He opined  that the  market will decide  and should  decide which                                                               
goes first.                                                                                                                     
                                                                                                                                
MR. WALKER referred to the  slide labeled, "Way Forward Options."                                                               
He said  he believes  that if  AGIA is  not successful,  that the                                                               
state should become very involved  in the process as the pipeline                                                               
owner.  He  related that he spent last summer  in Houston, Texas,                                                               
and that  companies there  felt the most  productive model  for a                                                               
gasline is for the state to step  forward as the owner.  He said,                                                               
"When the host government - their  terms not mine - steps forward                                                               
with an open season, you nominate."   He opined that if this were                                                               
a gold mine  that needed a road, the state  would build the road.                                                               
He related that Alaska is unique.   He offered his belief that if                                                               
the AGIA  process fails,  that the most  successful model  is for                                                               
the state,  which has the  financial resources and the  equity to                                                               
build the pipeline.   He opined that it is  not the obligation of                                                               
the producers under  the leases to build the pipeline.   He said,                                                               
"If a  pipeline is available  through an open season  process, we                                                               
believe  there is  a strong  obligation for  them to  ship."   He                                                               
offered his  belief that the  best scenario  is for the  state to                                                               
become  a majority  owner  in  a pipeline  project  and "get  gas                                                               
moving in Alaska."                                                                                                              
                                                                                                                                
2:44:14 PM                                                                                                                    
                                                                                                                                
The committees took an at-ease from 2:44 p.m. to 2:50 p.m.                                                                      
                                                                                                                                
2:50:43 PM                                                                                                                    
                                                                                                                                
CHAIR HUGGINS announced that the  next order of business would be                                                               
to  hear a  presentation by  Harold Heinze,  the Chief  Executive                                                               
Officer  from  the  Alaska   Natural  Gas  Development  Authority                                                               
(ANGDA).                                                                                                                        
                                                                                                                                
                                                                                                                                
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority  (ANGDA),  introduced Tony  Izzo,  who  is                                                               
under contract  with the ANGDA  for one  year to assist  with gas                                                               
issues related to  electric utilities.  He offered  that ANGDA, a                                                               
public  corporation of  the state,  is comprised  of seven  board                                                               
members, who just held a  board meeting yesterday in Anchorage in                                                               
order  to  apprise  members  on the  gasline  issues  before  the                                                               
legislature.                                                                                                                    
                                                                                                                                
2:51:43 PM                                                                                                                    
                                                                                                                                
MR.  HEINZE  advised  that  ANGDA was  created  through  a  voter                                                               
initiative  and  was  established  by  statute  AS  41.41.    The                                                               
organization  has  a broad  grant  of  power and  authority  over                                                               
natural gas and "getting it to  market" in a manner that benefits                                                               
Alaskans.  Since 2003, ANGDA  has been working towards that goal.                                                               
He noted that  he will appear before the body  again in Anchorage                                                               
to present  more detail.   He further  noted his  presentation is                                                               
focused on  several issues of  importance to  Fairbanks including                                                               
propane and natural gas.  He continued:                                                                                         
                                                                                                                                
     ANGDA  believes  the  best   decision  that  you  as  a                                                                    
     legislature can  make, is to promptly  approve the AGIA                                                                    
     license  granted to  [TransCanada].    We believe  that                                                                    
     will result  in a circumstance  where we have  at least                                                                    
     two  pipelines competing  to build  a big  pipe through                                                                    
     and out  of Alaska.  And  we believe, that in  the long                                                                    
     run, all  the other issues  that we can see  related to                                                                    
     in-state  gas can  be most  successfully resolved  in a                                                                    
     commercial  sense   by  dealing  with  both   of  those                                                                    
     pipelines through negotiation and moving forward.                                                                          
                                                                                                                                
2:53:59 PM                                                                                                                    
                                                                                                                                
MR. HEINZE referred to the first  slide which is a map of Alaska.                                                               
He pointed  out a  series of  lines that  are intended  to convey                                                               
ANGDA's long  term point of  view that  the issue of  natural gas                                                               
from the North Slope  is not an issue of one  pipeline.  He said,                                                               
"It is  an issue of many  lines feeding in, feeding  off, lots of                                                               
destinations, lots  of entry points."   He opined that  one vital                                                               
consideration for Alaska is to  think of the North Slope resource                                                               
as  a source  of fuel.   He  surmised that  when the  pipeline is                                                               
carrying  about 4.5  billion cubic  feet  (Bcf) of  gas, it  will                                                               
provide an excess  of 50,000 barrels a day of  propane.  He said,                                                               
"If we can  think of everything we could ever  think of in Alaska                                                               
to do with  propane, we might need 10,000 barrels  a day, and the                                                               
number might be closer to 5,000 [barrels] per day."                                                                             
                                                                                                                                
MR.  HEINZE  referred  to the  next  slide  labeled,  "Connecting                                                               
Alaskans  To Their  Natural Gas"  and stated  that yellow  on the                                                               
chart shows the estimated transportation  of propone to Alaskans,                                                               
who are not on  a pipeline, but may be on a  road system, a river                                                               
system, or  along the coast.   He explained that as  the pipeline                                                               
would extend  from the  North Slope through  the Brooks  Range to                                                               
the Yukon  River, which is  a likely  avenue of commerce  to move                                                               
propane.  Once  the gas reaches the tide water  it can be shipped                                                               
along  the  coast  to  points  such  as  Juneau,  Ketchikan,  and                                                               
Kotzebue,  he stated.   He  surmised that  access to  propane can                                                               
offset residential energy  costs.  He opined that  propane may be                                                               
a good  alternative fuel for  rural Alaskans.  He  further opined                                                               
that  the  reason  to  highlight  this at  this  juncture  is  to                                                               
illustrate that  Alaskans don't  have to wait  for a  pipeline to                                                               
bring propane  to those communities.   He pointed out  that those                                                               
legislators  who  have examined  the  North  Slope are  aware  in                                                               
handling  8.5 Bcf/d  on the  North  Slope, that  an abundance  of                                                               
propane will be available.  He  noted that propane is used in the                                                               
gas conditioning process  as a refrigerant.  He stated  that if a                                                               
wholesale facility on the North  Slope was established, that some                                                               
entrepreneurs  might "find  a way  to very  economically haul  it                                                               
down into  this area and  make it  available."  He  surmised that                                                               
alternative fuel  might be very  attractive, such  that currently                                                               
some  companies  have  concluded  gas  contracts  with  Fairbanks                                                               
Natural Gas, along  with plans to build a  liquefaction plant and                                                               
bring gas to  the Fairbanks area.  He further  surmised that "the                                                               
economics  have to  be  there  to make  propane  work  in a  very                                                               
similar  sort of  way."   He  highlighted that  propane does  not                                                               
require "quite the level of sophistication to handle and move."                                                                 
                                                                                                                                
2:58:07 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI inquired  as  to whether  Mr. Heinze  could                                                               
provide a  cost estimate  to heat  a home  with propane  in areas                                                               
such as Fairbanks or Bethel.                                                                                                    
                                                                                                                                
MR. HEINZE  responded that  ANGDA is  currently working  with the                                                               
City of  Tanana on  a demonstration project  to determine  how to                                                               
use propane in  their community.  He opined that  a community may                                                               
decide the best use is to  use propane to provide cogeneration in                                                               
the schools.  He admitted that he  did not know if propane is the                                                               
best fuel to  heat a home in Fairbanks.   However, he pointed out                                                               
that  it  may  be the  best  thing  to  cook  with or  for  power                                                               
generation.   He  explained that  the  basis for  economics on  a                                                               
British Thermal  Unit (BTU)  basis is that  propane is  like gas.                                                               
He stated that  in examining the value of gas  in the North Slope                                                               
compared to oil that the  value is significantly lower, perhaps a                                                               
50  percent discount.    He opined  that if  the  propane can  be                                                               
transported reasonably and efficiently,  "you can capture a large                                                               
amount of  that discount."   Thus, the  opportunity exists  for a                                                               
significant reduction in  the total energy cost in  terms of that                                                               
alternative.                                                                                                                    
                                                                                                                                
2:59:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS  stated  that   he  would  ask  the  same                                                               
question that  he asked  of Mr.  Walker [the  representative from                                                               
AGPA].   He inquired as  to whether it  would be better  to build                                                               
one plant at  the Yukon, in Fairbanks, or in  Valdez, and pay the                                                               
distribution costs, or to build a plant in each location.                                                                       
                                                                                                                                
MR. HEINZE  responded that propane  is very easy to  separate out                                                               
of  the natural  gas  stream.   He explained  that  a small  side                                                               
stream off  the pipeline  would offer the  ability to  "sieve the                                                               
molecules out,  in that sense,  by just simply cooling  the gas."                                                               
He elaborated that it is a liquid  and that it is not hard to get                                                               
in  that form.   He  said,  "Every compressor  station along  the                                                               
pipeline; there will be propane  available there because it's one                                                               
of the first steps in conditioning  the fuel to the turbine is to                                                               
basically drop  out hydrocarbon liquids."   He surmised  that the                                                               
plants are  fairly inexpensive.   He highlighted that  ANGDA will                                                               
be working on  a business plan and a technical  plan to install a                                                               
facility at Prudhoe  Bay with the intent of  creating a wholesale                                                               
propane point.  He continued:                                                                                                   
                                                                                                                                
     That plant  may come from West  Texas.  We may  be able                                                                    
     to find  a plant  that is used  to straddle  a pipeline                                                                    
     right now  and would be  very usable for  this purpose.                                                                    
     It  is  a  fairly  common   practice  to  do  what  I'm                                                                    
     describing in terms of propane.                                                                                            
                                                                                                                                
3:01:43 PM                                                                                                                    
                                                                                                                                
MR.  HEINZE  referred  to  slide   three,  labeled,  "2006  Study                                                               
Conclusions" and  stated that the  potential exists for a  lot of                                                               
petrochemicals since  with a natural  gas stream of  an estimated                                                               
4.5   Bcf/d,  over   50,000  barrels   a  day   of  propane   and                                                               
approximately 200,000  barrels of  ethane, coupled  with methane,                                                               
are  also  produced.   He  referred  to  a study  ANGDA  provided                                                               
members,  prepared   by  the   noted  consulting   firm,  Science                                                               
Applications International Corporation  (SAIC), under contract by                                                               
the  U.S. Department  of Energy.    He explained  that the  study                                                               
detailed  Alaska's   gas  supply   and  demand  and   focused  on                                                               
residential and commercial,  use as well as  the potential value-                                                               
added type of industries that might  be achievable in Alaska.  He                                                               
noted that the  conclusion is shown on the graph  in slide three.                                                               
He  further  explained  that  the  height of  each  of  the  bars                                                               
represents the  highest price  that an entity  could pay  for gas                                                               
and still  make a  reasonable decision.   He highlighted  that in                                                               
the case  of commercial residential,  at the price shown,  one is                                                               
better off to  use gas than, for  example, to burn fuel  oil.  He                                                               
noted that  those industries  that fall  below the  "market price                                                               
bar" are industries that could not afford to remain in business.                                                                
                                                                                                                                
MR. HEINZE referred to slide  four, labeled, "2008 Updated Study"                                                               
and stated  that ANGDA hired the  same team to rerun  the results                                                               
using current oil  prices.  He pointed out that  the results show                                                               
a dramatic change.  He continued:                                                                                               
                                                                                                                                
     Nobody  is  going to  build  a  petrochemical plant  in                                                                    
     Alaska  based on  that portrayal,  but  what it  should                                                                    
     make clear  to you is  the assessment of  whether there                                                                    
     is  a  potential  for  the   use  of  ethane,  methane,                                                                    
     propane, butane,  in Alaska in a  value-added sense, or                                                                    
     even  methane in  a value-added  sense,  you should  be                                                                    
     willing to think about the  fact, that in a high priced                                                                    
     world, a  high oil priced world,  it's very attractive.                                                                    
     And the  other part of  that graph you might  notice is                                                                    
     that all of  a sudden the things  that are commercially                                                                    
     attractive  now are  adding up  to a  number of  over a                                                                    
     billion cubic feet per day.                                                                                                
                                                                                                                                
3:05:27 PM                                                                                                                    
                                                                                                                                
MR. HEINZE noted that ANGDA's  consultant will be in Anchorage to                                                               
answer questions in more detail.                                                                                                
                                                                                                                                
MR. HEINZE then remarked:                                                                                                       
                                                                                                                                
     The important thing to realize  is that this represents                                                                    
     an opportunity measured in many  billions of dollars of                                                                    
     investment  in tax  base  for a  local  community.   It                                                                    
     represents   thousands  of   jobs  and   it  represents                                                                    
     billions  of dollars  of annual  income  so the  stakes                                                                    
     here,  in  terms  of  making  sure  we  preserve  these                                                                    
     opportunities for the future, is key.                                                                                      
                                                                                                                                
MR.  HEINZE  recalled  Representative  Neuman's  questions  about                                                               
"value-added" and stated  that one of the  big concerns expressed                                                               
was to ensure the state does  not lose control of the natural gas                                                               
liquids  (NGL).   He  stressed that  retaining  NGL is  important                                                               
"even  if it  is not  for  another 10  years  or 20  years."   He                                                               
continued:                                                                                                                      
                                                                                                                                
     Basically,  the answer  to that  is, it's  going to  be                                                                    
     done through  the commercial arrangements and  the best                                                                    
     way to  make those  commercial arrangements is  for the                                                                    
     state  through  an  entity,  some  sort  of  commercial                                                                    
     entity, it may  not be us, but some  sort of commercial                                                                    
     entity  to participate  in the  design and  building of                                                                    
     the pipeline to assure  that we preserve the processing                                                                    
     rights in the state.                                                                                                       
                                                                                                                                
MR. HEINZE  offered that  then the state  would need  to purchase                                                               
the "molecules" from  "people who have the gas."   He highlighted                                                               
that ANGDA  intends over the  next six months  to a year,  to use                                                               
its  funding  to  study  in-state   issues  to  "flesh  out"  the                                                               
potential  for these  industries  and locations.   Although  this                                                               
study  was  performed  for  Cook  Inlet,  he  surmised  that  [a]                                                               
petrochemical [industry]  might very well work  for Fairbanks due                                                               
to  the proximity  of the  pipeline  and the  Alaska Railroad  to                                                               
transport  the resulting  product to  the Port  of Anchorage  for                                                               
further shipment.   He acknowledged that  the legislature engaged                                                               
a consultant  to examine the potential  gas-to-liquids conversion                                                               
on the North Slope.                                                                                                             
                                                                                                                                
3:08:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  related  her  understanding  that  ANGDA                                                               
supports  the  TransCanada  proposal  under AGIA  and  urges  the                                                               
legislature  to endorse  it,  and that  the  state should  retain                                                               
processing rights  to the NGLs.   She inquired as to  whether Mr.                                                               
Heinze  could  speak  to  how the  current  proposal  before  the                                                               
legislature helps the state to  retain processing rights or if it                                                               
interferes with that effort.                                                                                                    
                                                                                                                                
3:09:18 PM                                                                                                                    
                                                                                                                                
MR.  HEINZE  responded,  "The encouragement  to  grant  the  AGIA                                                               
license  is in  the belief  that  the best  commercial terms  are                                                               
going to  be struck  if there  are two  pipelines both  trying to                                                               
move North  Slope gas off."   Mr.  Heinze stressed that  ANGDA is                                                               
"very comfortable working  with both of the sponsor  groups."  He                                                               
opined  that   some  advantage  exists   in  having   two  groups                                                               
competing.   He  highlighted his  belief  that it  is normal  for                                                               
pipelines  to  allow  themselves  to  "straddle."    He  posed  a                                                               
scenario  in which  a company  builds a  plant, perhaps  in Delta                                                               
Junction, in  which a  side stream is  "pulled off  the pipeline,                                                               
certain molecules  are removed; the  rest are  put back in."   He                                                               
suggested that  the state would  only need to ensure  the tariffs                                                               
and other specifications of the  pipeline allowed that to happen.                                                               
He further opined that if the  state can get one of the pipelines                                                               
to agree, that the  other one would agree, too.   He said, "It is                                                               
our intention, once  the license is granted to  engage both these                                                               
pipelines as closely as we can,  and try to find commercial terms                                                               
on the  volumes of in-state gas."   He noted that  ANGDA has been                                                               
working with the  utilities to prepare for a  "soon" open season.                                                               
He said,  "And that's the key  when you have to  strike, in terms                                                               
of  all these  relationships.   If  at the  open  season you  are                                                               
prepared to  make long term  commitments for volumes, you  can do                                                               
it and the deal will work out."                                                                                                 
                                                                                                                                
3:11:09 PM                                                                                                                    
                                                                                                                                
SENATOR HOFFMAN  recalled discussing  utilizing propane  in rural                                                               
Alaska.   He offered  that the Institute  of Social  and Economic                                                               
Research  (ISER) has  just completed  a study  that examined  the                                                               
high cost  of diesel to  provide heating  oil in rural  areas and                                                               
showed that  the largest  cost is for  transportation costs.   He                                                               
expressed  interest in  analysis  of the  market  price in  rural                                                               
Alaska as  compared to the use  of LNG.  He  recalled Mr. Heinz's                                                               
comments on propane's  use in cooking and said, "I  know that can                                                               
be  done."   However, the  problem in  rural Alaska  is obtaining                                                               
reliable, consistent  low-cost energy.   He recalled  Mr. Heinz's                                                               
comments on  connecting all of  Alaska to natural gas  and opined                                                               
that  goal  is achievable.    However,  the transportation  costs                                                               
remain a problem,  he related.  He opined that  rural Alaska will                                                               
face  the  same  transportation  costs  for  natural  gas  as  it                                                               
currently does  for propane and  diesel.  He pointed  out another                                                               
problem to consider in using  propane in rural Alaska for heating                                                               
homes  is  storage  capacity  in   many  of  the  villages.    He                                                               
speculated  that  it  would  be cost  prohibitive  to  build  the                                                               
infrastructure necessary  for storage capacity.   He related that                                                               
the fuel plant  in Bethel was just expanded for  over $10 million                                                               
dollars.   He inquired as to  whether Mr. Heinz would  comment on                                                               
propane as a viable source for heating homes in rural Alaska.                                                                   
                                                                                                                                
MR.  HEINZE   recalled  ANGDA  performed   its  own   study,  not                                                               
dissimilar  to the  ISER  recently completed.    He offered  that                                                               
ANGDA found  that each community  was different.  He  opined that                                                               
in  some communities  "you  are  not going  to  have an  impact."                                                               
However,  he   noted  that  in  some   smaller  communities,  the                                                               
potential existed to  change the paradigm with  respect to energy                                                               
and energy costs.   He further opined that could  happen with the                                                               
introduction  of  an  efficient  propane  transportation  storage                                                               
system.   He related that  a system might be  as simple as  a big                                                               
tank fitted inside  a frame that is moved just  like a container,                                                               
and is  rotated when  it becomes  empty.   He related  that ANGDA                                                               
believes  that  the  issue  will  be  successfully  addressed  by                                                               
entrepreneurs.   He  said, "If  there  is a  plentiful supply  of                                                               
propane, at a reasonable price,  we believe that people will find                                                               
a way to move  it and move it very efficiently."   He related his                                                               
own  experience  with a  cabin  in  Talkeetna and  three  vendors                                                               
compete to  provide his propane needs.   He opined it  may take a                                                               
generation  to  accomplish the  goal  of  connecting Alaskans  to                                                               
their natural  gas, the  "yellow lines" [depicted  on the  map in                                                               
slide two].                                                                                                                     
                                                                                                                                
3:16:01 PM                                                                                                                    
                                                                                                                                
MR.  HEINZE,  in  response  to   a  question  by  Senator  Elton,                                                               
responded that when he spoke  of two competing pipeline projects,                                                               
he was  referring to the  competition between the  Denali project                                                               
and TransCanada.                                                                                                                
                                                                                                                                
SENATOR ELTON  observed that  the demand for  gas in  Alberta may                                                               
force the state to ship "the liquids" outside Alaska.                                                                           
                                                                                                                                
MR. HEINZE agreed.  He predicted  that gas prices will be cheaper                                                               
in  Fairbanks  than  in  Anchorage once  the  large  pipeline  is                                                               
flowing,  and prices  may even  be  lower than  propane costs  in                                                               
Juneau.    He opined  that  the  location  for  NGL plants  is  a                                                               
commercial decision.   He offered  that if  sufficient quantities                                                               
of ethane,  propane, butane,  in addition  to the  methane exist,                                                               
that there  comes a  point when  the pressure  in that  system in                                                               
Alberta will  drop to 1,000 pounds.   At that point,  the propane                                                               
certainly has  to come out  of the  pipeline, he surmised.   "You                                                               
have to get to  a lower BTU value gas and you have  to be able to                                                               
operate  faithfully  at  that  lower  pressure,"  he  said.    He                                                               
acknowledged that  there are people  who want to use  the ethane,                                                               
for instance, in petrochemicals.   He noted that those people may                                                               
want to  bid, but it  doesn't mean  that they can't  compete with                                                               
those prices.  He referred to the chart on slide four and said:                                                                 
                                                                                                                                
     What  is interesting  on  the chart  is  that the  bars                                                                    
     extend so  far above  some perception  of price.   Now,                                                                    
     again, I'm  not arguing  whether any specific  price on                                                                    
     there is  right, but, that's  not marginal.   There's a                                                                    
     lot of room  to work with on that chart  and that's the                                                                    
     part   that  we   find  very   encouraging,  is   that,                                                                    
     certainly, if  Alaska, at some  point was faced  with a                                                                    
     decision [to  pay] a few  cents more in  Alberta versus                                                                    
     having  an  industry that  was  thousands  of jobs  and                                                                    
     billions of dollars on the  tax rolls, I think we could                                                                    
     probably get  to the  right answer on  that one.   But,                                                                    
     again,  we don't  have to  make that  decision now  and                                                                    
     we're not  going to  know what  that decision  is, till                                                                    
     people like the DOW Chemicals  of the world ... show up                                                                    
     here to  build a  plant.   Because, remember,  the idea                                                                    
     here is  we're not exporting  the raw material.   We're                                                                    
     building  the plant  here in  Alaska  and creating  the                                                                    
     jobs  and adding  to the  tax  base.   And under  those                                                                    
     kinds  of circumstances,  I  think  the calculation  of                                                                    
     value is not going to be that difficult.                                                                                   
                                                                                                                                
3:20:53 PM                                                                                                                    
                                                                                                                                
SENATOR  WAGONER   related  his  understanding  that   ANGDA  was                                                               
supposed to  provide an  all-Alaska pipeline  project as  well as                                                               
LNG.  He pointed out that Mr.  Heinze is now talking about a spur                                                               
line off a pipeline, using  propane to energize rural Alaska, and                                                               
to use ethane in other  petrochemical industries.  He inquired as                                                               
to the reason that ANGDA has veered from its original purpose.                                                                  
                                                                                                                                
MR.  HEINZE answered  that ANGDA  was given  a "first  year task"                                                               
under the  ballot initiative to  determine the feasibility  of an                                                               
LNG project, which it did, although  it took 18 months instead of                                                               
a  year  complete.    He  noted ANGDA  published  a  report  that                                                               
basically  concluded  that  LNG was  economic,  competitive,  and                                                               
feasible.  That's usually at  least three measures of whether you                                                               
ought  to think  about doing  something or  not, he  opined.   He                                                               
explained  that  ANGDA  also  concluded that  a  project  of  the                                                               
magnitude  of   2.0  Bcf/d   was  a   bigger  project   than  the                                                               
organization  could tackle.   Thus,  ANGDA reviewed  some smaller                                                               
projects, some of which are still  viable, such as a spur through                                                               
Glennallen.  He  further opined that that type  of project leaves                                                               
open the possibility  in the future of a short  extension down to                                                               
Valdez, which is  in the best interest of  the Alaskan consumers.                                                               
He explained that  in reviewing the analysis of a  spur, which he                                                               
said  he'd  later  discuss,  that ANGDA  continued  the  spur  to                                                               
Beluga, across from  the Kenai LNG plant.  He  opined that if gas                                                               
is plentiful in Cook Inlet,  it is possible the commercial owners                                                               
of that  plant would decide to  expand.  He explained  that under                                                               
the statute, the acquisition of  natural gas from the North Slope                                                               
and  its delivery  to tidewater  for  shipment to  market by  the                                                               
authority is an  essential government function of the  state.  He                                                               
related  the law  supports the  ANGDA mission  as being  of great                                                               
importance to  the state.   He highlighted  that ANGDA's  plan on                                                               
LNG  recognizes the  fact that  the AGPA  has been  "carrying the                                                               
ball" on  LNG and  has worked with  numerous companies  and sense                                                               
their interest in  building an LNG plant in Valdez  or Kenai.  He                                                               
related  that   ANGDA  has  discussed  with   ConocoPhillips  and                                                               
Marathon Oil  Corporation about the  potential of  expanding that                                                               
plan.   "I  hope when  we have  an open  season; I  hope somebody                                                               
shows up from that  side of the world, but if  they don't show up                                                               
we'll just go on and do the best we can," he said.                                                                              
                                                                                                                                
3:23:11 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  expressed his  surprise to hear  a "ringing                                                               
endorsement"  for the  legislature  to support  TransCanada.   He                                                               
asked for the  reasons for ANGDA's support  for TransCanada given                                                               
the length  of time to  obtain in-state gas from  the TransCanada                                                               
proposal, which he related is when  the full line is completed in                                                               
12 to  15 years or  longer, and  given the treble  damages, which                                                               
prevents the state from supporting  more than a 500 million cubic                                                               
feet (mmcf) line per day.                                                                                                       
                                                                                                                                
MR. HEINZE  related discussions  ANGDA had  at its  board meeting                                                               
about the treble  damage issue.  He said, "That  is the assurance                                                               
that is  in the AGIA law  that, when the state  grants a license,                                                               
it really  intends to be  a good partner and  it is not  going to                                                               
'support  any  competing  projects.'"   He  related  that  raises                                                               
concern since ANGDA is funded by the legislature.                                                                               
                                                                                                                                
3:24:53 PM                                                                                                                    
                                                                                                                                
MR. HEINZE  explained that  ANGDA filed  an AGIA  application for                                                               
in-state  portion.   Additionally,  ANGDA filed  a proposal  that                                                               
would tack onto the TransCanada  proposal, and "we also filed one                                                               
that turned  out to be the  port authority's proposal."   He said                                                               
he  thought  that  the  TransCanada   and  Denali  projects  both                                                               
recognize  the proposed  ANGDA spur  line project  enhances their                                                               
big  project   by  creating   additional  markets   and  creating                                                               
circumstances  that are  very favorable  for the  construction of                                                               
their project.   He  said he  believes that  once the  license is                                                               
granted,  TransCanada  would  stipulate  that  ANGDA  is  not  in                                                               
competition with  their project.   He said, "That's  my approach,                                                               
my thinking  if you  will, to handling  that is to  do that  on a                                                               
commercial letter of understanding basis between the parties."                                                                  
                                                                                                                                
SENATOR WIELECHOWSKI  inquired as to  whether ANGDA would  not be                                                               
in competition [with  TransCanada] if it stays under  500 mmcf or                                                               
did Mr. Heinze think that the  ANGDA project would go higher than                                                               
that.                                                                                                                           
                                                                                                                                
MR. HEINZE answered:                                                                                                            
                                                                                                                                
     I  don't believe  I'm in  competition.   I believe  I'm                                                                    
     enhancing  their project  if I  use up  their expansion                                                                    
     capacity in the  State of Alaska.  If instead  of a 4.5                                                                    
     Bcf/d project from  Prudhoe Bay to Canada,  they end up                                                                    
     with a 6.0 Bcf/d project  to Delta Junction, and 4.5 on                                                                    
     into Canada, their  project is better.   They make more                                                                    
     money; we  all pay lower  rates.   I think it's  a win,                                                                    
     win,  win.  ...    All   I'm  arguing  is  that,  in  a                                                                    
     commercial sense,  I believe  that people act  in their                                                                    
     own self-interest  and every way  I have looked  at the                                                                    
     issue it is  in their self-interest to work  with us in                                                                    
     that regard.                                                                                                               
                                                                                                                                
MR. HEINZE continued.  He opined  that the spur line can be built                                                               
as a "free  built" and that it could be  built in Delta Junction.                                                               
He  further opined  that the  only reason  the project  cannot be                                                               
built immediately  is that it depends  on if, and when,  the "big                                                               
project" will  be built.  He  said, "As a number  of bankers have                                                               
observed to  me at times, there  is no gas in  Delta Junction and                                                               
that's  absolutely right."   However,  once people  believe there                                                               
will be  gas in  Delta Junction,  then it  is "not  illogical" to                                                               
build a small pipeline from  Anchorage to Glennallen and north to                                                               
Delta Junction, he noted.  He  opined that it is possible to gain                                                               
advantages by starting first.                                                                                                   
                                                                                                                                
MR. HEINZE said:                                                                                                                
                                                                                                                                
     If ANGDA is able to bring  to the table a pretty strong                                                                    
     marketplace in  the Cook Inlet  area then I  think it's                                                                    
     entirely appropriate  to take  TransCanada up  on their                                                                    
     offer  of  equity ownership  even  if  people make  the                                                                    
     shipping commitments.   And again, our  objective is to                                                                    
     try to position things so  that our local utilities are                                                                    
     making the  shipping commitments  and as such,  I think                                                                    
     we ought to  play the 'be involved card' and  if for no                                                                    
     other  reason than  to  try to  influence  some of  the                                                                    
     design and  other issues so  that the northern  part of                                                                    
     the pipeline is built first and we accelerate.                                                                             
                                                                                                                                
MR.  HEINZE continued.   Additionally,  with  respect to  timing,                                                               
once   the   project   is  moving   forward,   enhancements   and                                                               
improvements  can always  be made,  he  noted.   He offered  that                                                               
providing propane in  Fairbanks may not be  a long-term solution,                                                               
but it could be a good bridge.                                                                                                  
                                                                                                                                
3:30:20 PM                                                                                                                    
                                                                                                                                
SENATOR  MCGUIRE related  her understanding  that the  law voters                                                               
passed  that created  ANGDA was  done so  to essentially  provide                                                               
Alaskans  with   natural  gas.    However,   AGIA  establishes  a                                                               
statutory  framework such  that  once the  license  is issued  to                                                               
TransCanada, the state is prohibited  from offering assistance to                                                               
competing projects above 500 mmcf.   She pointed out that nothing                                                               
has been reduced  to writing specifically for the 500  mmcf.  She                                                               
related  a  scenario  in  which   the  legislature  approves  the                                                               
license, and  a company approaches  Mr. Heinze to provide  gas to                                                               
Alaskans,  but the  project exceeds  700 mmcf.   Given  the legal                                                               
tension,  she asked  what Mr.  Heinze thought  ANGDA's obligation                                                               
and legal commitment  would be as the "gas  ombudsman."  Further,                                                               
could such a project be denied by ANGDA.                                                                                        
                                                                                                                                
MR. HEINZE opined  that as long as the  proposed project enhances                                                               
"the  big  pipe,"  which  is basically  the  same  proposal  from                                                               
TransCanada and  the Denali project,  it is valuable "to  talk to                                                               
both of  them."   He further opined  that ANGDA  cannot influence                                                               
discussions  or what  ultimately  "they  commercially work  out."                                                               
However, he  pointed out that ANGDA  has the ability to  "talk to                                                               
both of  them."  He  said:   "Let's just imagine  a conversation,                                                               
just  to lay  it on  the  table, where  {TransCanada] says,  'You                                                               
know, we'll just  forget about this compete thing  if you'll just                                                               
deal  with us  exclusively.'"   He offered  that in  a commercial                                                               
sense, he would answer, "I'm willing  to consider that.  Here are                                                               
some things I need to have  though; it's just a negotiation."  He                                                               
opined that  the legislature  performed well  with AGIA,  and has                                                               
offered TransCanada  reasonable assurances,  but at  this moment,                                                               
"This is coming  down to trying to make a  commercial deal work."                                                               
He further  opined that  while the  legislature has  an important                                                               
role, "politics  isn't going to get  a pipeline built."   He said                                                               
he thought  that the legislature  has the opportunity  to enhance                                                               
the  framework  of  this  decision,  but that  it  is  "not  your                                                               
decision whether  to build this  project or not.   The commercial                                                               
world is going to  do that."  He urged the  legislature to try to                                                               
get to  that point  as quickly  as possible  and "find  the right                                                               
combination of things that works for Alaska in this whole deal."                                                                
                                                                                                                                
3:35:01 PM                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE  stated that she  did not  disagree that it  is a                                                               
commercial decision.   However, she pointed out  that the tension                                                               
exists since ANGDA  is a public advocate in addition  to being in                                                               
a position  to also consider  the commercial aspects.   She noted                                                               
that ANGDA has a public obligation  and "we as policy makers have                                                               
taken  that same  mode."   She offered  that she  "hopes everyone                                                               
will come together."  She stated  that she did not want to "stand                                                               
in the way," but also does not  want to "look back two years from                                                               
now"  and  realize that  the  legislature,  and  ANGDA, is  in  a                                                               
position where they have debilitated  their ability to "deal with                                                               
the commercial world and get something done."                                                                                   
                                                                                                                                
MR.  HEINZE  related  that  he recognizes  the  tension  and  the                                                               
difficulties in  the decision  making.   The legislature  has the                                                               
opportunity  to   grant  or  not   grant  the  AGIA   license  to                                                               
TransCanada.   He  said that  ANGDA  and its  board believes  the                                                               
right  decision is  "thumbs up."   He  acknowledged a  great deal                                                               
will need to  be worked through over time, but  he reiterated his                                                               
belief  that it  is still  the best  decision at  this time.   He                                                               
stated that  ANGDA and  its board  will do  everything it  can in                                                               
that context.  He opined that  it will take considerable trust to                                                               
make it work.   He said, "I  have no reason to  believe, based on                                                               
my conversations with [TransCanada], that  we can't find a way to                                                               
work forward together."  He  noted that he is equally comfortable                                                               
discussing  things  with ConocoPhillips  and  BP  and the  Denali                                                               
project.    He expressed  a  willingness  to  work with  a  third                                                               
company that indicates its desire to sell gas.                                                                                  
                                                                                                                                
3:37:50 PM                                                                                                                    
                                                                                                                                
SENATOR STEDMAN referred  to a previous slide  that projected gas                                                               
to Alaskans.   He surmised that the map  indicated that Fairbanks                                                               
would have access  to gas and Anchorage would either  have a line                                                               
or  would have  access to  more gas  from Cook  Inlet.   He said,                                                               
"When we are  looking at Western Alaska or  coastal Alaska, we're                                                               
looking  at  a little  different  animal."    He inquired  as  to                                                               
whether  ANGDA has  reviewed  the reasons  that  a prior  project                                                               
undertaken  about10years ago  was  abandoned.   He explained  the                                                               
project  would  have  "gasified"  Southeast  with,  he  recalled,                                                               
compressed  natural  gas  from  British  Columbia.    He  further                                                               
expressed interest in  shipping costs and inquired  as to whether                                                               
Mr. Heinze could discuss the value  of the gas.  He also recalled                                                               
Senator  Hoffman's comments  on  fuel costs  in  rural Alaska  as                                                               
contingent on transportation.                                                                                                   
                                                                                                                                
MR.  HEINZE   agreed  that  any   pipeline  would   come  through                                                               
Fairbanks, which  is great for Fairbanks.   He opined that  it is                                                               
not a given that gas will be  brought into Cook Inlet; due to the                                                               
size of the market, it may  not happen.  He highlighted that once                                                               
gas and NGLs  are at tidewater, all kinds  of flexibility exists,                                                               
such as compressed natural gas or  LNG.  He also pointed out that                                                               
propane air mixtures  are used throughout the United  States.  He                                                               
cautioned that  the decisions  don't have to  be made  today, but                                                               
that it is  important to move gas to tidewater  in order to serve                                                               
Southeast  Alaska.   He  opined that  ANGDA's  mission "isn't  to                                                               
force  these things  beyond commerciality.    We try  to be  very                                                               
sensitive to the  fact that these projects have  to make economic                                                               
sense and I believe that is what you have charged us to do."                                                                    
                                                                                                                                
3:41:27 PM                                                                                                                    
                                                                                                                                
SENATOR STEDMAN  inquired as to  whether Mr. Heinze  reviewed why                                                               
that venture failed.                                                                                                            
                                                                                                                                
MR.  HEINZE answered  that ANGDA  studied marine  distribution of                                                               
propane about three  years ago and concluded  some "marginal type                                                               
things."   He offered that  the legislature has  provided funding                                                               
to provide  answers based on  current prices.  He  predicted that                                                               
it will  be very favorable  to consider alternate  energy sources                                                               
with the price of oil ranging  from $120 to $150 [per barrel] and                                                               
continuing to rise.                                                                                                             
                                                                                                                                
3:42:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER related  that he has been  listening to the                                                               
discussion and said  he felt somewhat unsettled.   He stated that                                                               
the  vital, critical,  core function  that  ANGDA is  statutorily                                                               
charged with is  the creation of in-state value;  "getting gas to                                                               
Alaska  for   Alaskan  use   both  in   residential  consumption,                                                               
individual,  and value-added  processing."   He pointed  out that                                                               
the legislature appropriated ANGDA  substantial funding to pursue                                                               
and develop the body of  knowledge and a greater understanding of                                                               
ANGDA's ability  to deliver  in-state value-added  utilization of                                                               
Alaska's natural gas resources.                                                                                                 
                                                                                                                                
REPRESENTATIVE HAWKER said  that he agreed with  Mr. Heinze until                                                               
he heard that  ANGDA is definitively endorsing a  project that if                                                               
it  moves forward  would contractually  obligate all  of Alaska's                                                               
gas, with  the exception  of up  to 0.5 bcf/d,  out of  state and                                                               
"down  the  Canadian  line."    He related  that  he  heard  some                                                               
thorough answers  from the administration  that said they  gave a                                                               
lot of thought to that 0.5  bcf/d and they believe that will take                                                               
care of  Alaska's needs  forever, into  perpetuity.   However, he                                                               
reiterated his concern with ANGDA's  vision in that it is willing                                                               
to  commit Alaska's  gas into  perpetuity  without the  assurance                                                               
that the state  can know what its  gas needs will be  in the next                                                               
10 years or in 50 years.  He said:                                                                                              
                                                                                                                                
     You  said  the  answer  is,  don't  worry  about  them,                                                                    
     they'll just say, "We'll just  drop this quote 'compete                                                                    
     thing';  we're not  going to  worry about  it."   Given                                                                    
     that  TransCanada  needs this  gas  so  badly in  their                                                                    
     system, and it is a  contractual obligation ... we have                                                                    
     established,  I  guess,  I'm very  confused  with  that                                                                    
     answer.  If  you could somehow convince  me that number                                                                    
     one, they  would be  able to and  willing to  just, and                                                                    
     I'm  quoting you,  you said,  "just  forget about  this                                                                    
     compete  thing," and  secondly,   how does  that square                                                                    
     with  their   need  to  replace  their   declining  ...                                                                    
     throughput in  Canada so they  absolutely have  to have                                                                    
     this gas  to maintain the lower  tariff levels expected                                                                    
     by their Canadian customers?                                                                                               
                                                                                                                                
3:46:37 PM                                                                                                                    
                                                                                                                                
MR.  HEINZE responded  that the  AGIA  law says,  "If before  the                                                               
commencement  of  commercial  operation"   so  the  whole  treble                                                               
damages things goes  away once the operation starts.   He offered                                                               
that the  day after operations start,  that the state is  free to                                                               
"invent 17 competing  projects under the law." He  inquired as to                                                               
whom in this  case is triggering this provision.   He opined that                                                               
if the  legislature grants  the license  to TransCanada  that the                                                               
only one who really has the  right to come forward is TransCanada                                                               
and if  they have stipulated as  to the conditions to  promise to                                                               
"keep the  flag in their  back pocket," that seems  reasonable in                                                               
terms of  trying to  work the  way forward on  this.   He further                                                               
opined that having  the TransCanada and the  Denali projects both                                                               
moving forward places the state in  a strong position in terms of                                                               
its in-state needs.   He related that all the  analysis ANGDA has                                                               
ever performed  concludes that  "for Alaska to  be serviced  by a                                                               
big pipe,  then putting  the gas  into a small  pipe is  the best                                                               
circumstance  for the  Alaskan consumer."   He  noted that  it is                                                               
important that the "big pipe  happen" because that is the state's                                                               
best chance for  long-term low cost to consumers.   He said, "I'm                                                               
not asking you to endorse the  project.  I'm simply asking you to                                                               
grant  a license  and allow  the process  to move  forward."   He                                                               
maintained  his belief  that  once the  license  is granted,  the                                                               
process is a  commercial process that depends on the  market.  He                                                               
opined that  the idea of  competing pipelines is not  unusual and                                                               
that terms and inducements are  often offered that are reasonable                                                               
in a business sense.                                                                                                            
                                                                                                                                
3:49:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN,   with  respect   to  supplying   gas  to                                                               
Fairbanks, pointed  out that price  and availability  are equally                                                               
important.   He posed a  scenario in  which North Slope  gas cost                                                               
twice as much as diesel in  Fairbanks; in that situation it would                                                               
not help Fairbanks' energy crisis  even though the pipeline might                                                               
be in  close proximity.   He  inquired as  to whether  Mr. Heinze                                                               
could  discuss the  reasons that  North  Slope gas  is likely  to                                                               
"stop   at  commercially   reasonable  terms   in  Fairbanks   or                                                               
Anchorage, or anyplace  else in the State of  Alaska, rather than                                                               
shooting  down whatever  big pipeline  it  ... starts  out on  to                                                               
whatever market the rest of that gas goes to."                                                                                  
                                                                                                                                
MR. HEINZE described  a situation in which  Alaska could purchase                                                               
gas from  a big company with  North Slope gas, who  is interested                                                               
in  shipping  it  to  Alberta  and  other  points,  but  also  is                                                               
interested  in providing  gas to  Fairbanks.   He  said, using  a                                                               
hypothetical $5  tariff to  go from the  North Slope  to Alberta,                                                               
that whatever the price is  in Alberta, deducting $5 provides the                                                               
value  at  the  wellhead  in  Prudhoe Bay  of  gas  delivered  to                                                               
Alberta.  He related that if  Fairbanks offers one cent more than                                                               
the number  at the  wellhead, but  the cost to  ship that  gas to                                                               
Fairbanks is $2.  Thus, gas  in Fairbanks would cost $3 less than                                                               
in  Alberta,  he offered.    Furthermore,  he observed  that  the                                                               
legislature can pass a gas  tax provision to reduce the severance                                                               
tax on  gas used in  Alaska by Alaskans.   On the other  hand, he                                                               
cautioned  that a  smaller project,  that  is not  linked to  the                                                               
outside market,  may mean that  consumers in Fairbanks  would pay                                                               
the competitive  alternative price  and are locked  into it.   He                                                               
said, "And  that's one of the  things you are trying  to break by                                                               
bringing a big  pipeline down through the spine of  the state, is                                                               
to break that paradigm."                                                                                                        
                                                                                                                                
CHAIR HUGGINS offered that Mr.  Heinz brings a lot of experience,                                                               
passion, and  drive to  the hearings.   He said,  "Many of  us in                                                               
this  room have  confidence in  what you  say and  what you  have                                                               
done,  and more  important,  what  you are  going  to  do in  the                                                               
future."                                                                                                                        
                                                                                                                                
3:54:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KELLY related  his understanding  that the  right                                                               
timing for  a gas pipeline  seems to be now.   He inquired  as to                                                               
what   Mr.   Walker,   representing  APGA,   "needs"   from   the                                                               
legislature.                                                                                                                    
                                                                                                                                
MR. HEINZE  reminded members that  gas was plentiful in  the Cook                                                               
Inlet for  a long time, but  that in the past  five years concern                                                               
about supply  availability has risen.   Thus the North  Slope gas                                                               
is important.   Secondly, price provides strong  motives for "the                                                               
in-state part."  He  said that his view of LNG  is that it offers                                                               
a long term  opportunity "to help pay the bill."   He opined that                                                               
LNG  is a  logical thing  to pursue,  but that  he cannot  advise                                                               
whether it  would be better  pursued in  Valdez or Kenai,  or the                                                               
names of the  companies  involved.  However, he urged legislators                                                               
to allow companies come here so  that they can decide if they are                                                               
willing  to put  the  effort  forward.   He  opined  that in  his                                                               
discussions,  he  has  always  noted that  it  is  the  company's                                                               
responsibility  to make  the business  proposal.   He said,  "The                                                               
economy, the  commercial aspect here is  not what I say,  or what                                                               
Mr. Walker  says, frankly.   It's what those entities  say, those                                                               
commercial entities."   He highlighted  that the  legislature has                                                               
been  respectful  thus  far,  but  should  continue  to  let  the                                                               
companies know they have a forum but they must make the offer.                                                                  
                                                                                                                                
3:58:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KELLY  referred  to TransCanada's  concession  in                                                               
making the commitment  to the Y-line approach,  and asked whether                                                               
AGPA's proposal is better off, or if AGPA is better off alone.                                                                  
                                                                                                                                
MR. HEINZE  said he  believes that  TransCanada has  attempted to                                                               
reach as far as they could  in terms of commercial promises, that                                                               
the terms  [offered] are reasonably  good, and  their willingness                                                               
to  entertain  the  Y-line notion  indicates  that  a  commercial                                                               
transaction exists that "works for  everybody."  He stressed that                                                               
the timeliness is key.  He said:                                                                                                
                                                                                                                                
     I would  be derelict  if I  didn't mention  that ANGDA,                                                                    
     your  public corporation,  is in  the  field right  now                                                                    
     doing wetlands determination on  370 miles of pipeline.                                                                    
     Thank you.  We've got  more "boots on the ground" right                                                                    
     now than anybody's  pipeline in the state.   And that's                                                                    
     what   it  is   going  to   take,  is   that  kind   of                                                                    
     aggressiveness, and  that's why we want  to move beyond                                                                    
     frankly,  the legalities  and the  politics, and  let's                                                                    
     get to it  and let's just get building  something.  And                                                                    
     that's where I'm at.                                                                                                       
                                                                                                                                
4:00:25 PM                                                                                                                    
                                                                                                                                
CHAIR HUGGINS announced  that the final order of  business was to                                                               
take up the ENSTAR Natural Gas Company presentation.                                                                            
                                                                                                                                
4:01:54 PM                                                                                                                    
                                                                                                                                
GENE  DUBAY,  Senior  Vice-President,  Chief  Operating  Officer,                                                               
Continental Energy  Systems, introduced Curtis  Thayer, Director,                                                               
Corporate  &   External  Affairs,  ENSTAR  Natural   Gas  Company                                                               
(ENSTAR),  and  Andrew  White, Manager,  Business  Development  &                                                               
Revenue Forecasting, ENSTAR.  He  informed the committee that the                                                               
team would select  slides from the PowerPoint report  in order to                                                               
be brief.                                                                                                                       
                                                                                                                                
CURTIS THAYER,  Director, Corporate  & External  Affairs, ENSTAR,                                                               
explained  that  ENSTAR was  established  in  1961, is  based  in                                                               
Anchorage,  Alaska,  and  serves  approximately  345,600  Alaskan                                                               
customers through 128,000  meters from Ninilchik to  the Big Lake                                                               
area, with 3,100 miles of distribution and transmission lines.                                                                  
                                                                                                                                
4:05:09 PM                                                                                                                    
                                                                                                                                
MR. THAYER further  explained that ENSTAR has  a direct financial                                                               
impact on Alaska's economy at  over $300 million, and employs 174                                                               
fulltime workers  and 230 workers  during the summer season.   He                                                               
noted  that  ENSTAR  is  the  number  one  in  size  of  Alaska's                                                               
utilities  and has  450  miles of  transmission  lines and  2,700                                                               
miles of distribution lines in Alaska.   He noted that its sister                                                               
company, Alaska  Pipeline Company,  has expertise  in engineering                                                               
and  construction with  45 years  of  experience in  Alaska.   He                                                               
offered that  ENSTAR has constructed  and is operating  450 miles                                                               
of transmission lines,  including a 20 inch line  across the Cook                                                               
Inlet called  the Beluga  Line, and  2,700 miles  of distribution                                                               
lines  in  Alaska,  which  represents   75  percent  of  all  gas                                                               
transmission  pipelines   in  Alaska  and  100   percent  of  the                                                               
distribution  mains in  Southcentral Alaska.   He  explained that                                                               
its   expertise  is   in   compression   plant  engineering   and                                                               
construction,  pipeline   engineering,  environmental/permitting,                                                               
and construction management.                                                                                                    
                                                                                                                                
4:07:25 PM                                                                                                                    
                                                                                                                                
MR.  THAYER  referred  to  a  slide  labeled,  "Southcentral  Gas                                                               
Distribution,  that  illustrated  transmission  lines  owned  and                                                               
operated  by  ENSTAR,  and  the  natural  gas  systems  owned  by                                                               
producers.   ENSTAR transmission  lines circle  the inlet  by 270                                                               
degrees.   On the west side  of the inlet, the  Beluga Line comes                                                               
around  Knik,  Wasilla, and  Palmer  into  Anchorage.   From  the                                                               
Soldotna and Kenai area, there are  two lines that cross the Knik                                                               
Arm and  come into Anchorage.   There is also a  small line going                                                               
to  Girdwood  and  Whittier.    He noted  that  ENSTAR  owns  and                                                               
operates  the  Kenai  Kachemak  Bay  pipeline  for  Marathon  Oil                                                               
Corporation   and  ChevronTexaco   Corporation  that   runs  from                                                               
Ninilchik to Clam  Gulch up into the Kenai Peninsula.   The slide                                                               
also  illustrates gathering  lines  and the  gas  fields in  Cook                                                               
Inlet.  Mr. Thayer offered  to meet individually with legislators                                                               
to discuss  the current  supply contracts  or price  structure on                                                               
the contracts.                                                                                                                  
                                                                                                                                
4:08:36 PM                                                                                                                    
                                                                                                                                
ANDREW   WHITE,   Manager,   Business   Development   &   Revenue                                                               
Forecasting, ENSTAR,  referred to slide 14,  labeled, "Historic &                                                               
Projected Natural Gas Production" for  the Cook Inlet and pointed                                                               
out the precipitous  falloff from 2010 to 2030.   He informed the                                                               
committees that the projection of  this falloff has led ENSTAR to                                                               
seek gas contracts with ConocoPhillips  Alaska, Inc. and Marathon                                                               
Oil Corporation  through 2013.   In  addition, ENSTAR  is looking                                                               
into  the Foothills  Unit for  a  natural gas  pipeline from  the                                                               
Foothills  to  Southcentral  Alaska  with a  spur  connecting  to                                                               
Fairbanks, he related.                                                                                                          
                                                                                                                                
MR.  WHITE referred  to slide  15 labeled,  "Foothills Unit  Area                                                               
Map" that  shows the location  of the  Gubik Field, which  is the                                                               
location  of the  potential  gas supply  for  the Foothills  Pipe                                                               
Lines Ltd. pipeline or the ENSTAR Line to Southcentral Alaska.                                                                  
                                                                                                                                
MR.  WHITE  referred to  slide  16,  labeled, "ENSTAR  Line"  and                                                               
stated that  the slide portrays  what the ENSTAR line  would look                                                               
like and  noted that it is  independent of other pipelines.   The                                                               
ENSTAR  Line  would  be  690  miles  in  length,    pass  through                                                               
Fairbanks,  and has  the  potential to  carry  additional gas  if                                                               
discoveries of natural gas materialize  in the Yukon Flats or the                                                               
Nenana Basin.                                                                                                                   
                                                                                                                                
4:10:36 PM                                                                                                                    
                                                                                                                                
CHAIR HUGGINS inquired  as to whether Mr. White  was referring to                                                               
the pipeline commonly referred to as the "bullet line."                                                                         
                                                                                                                                
MR. DUBAY answered that ENSTAR refers  to this line as the ENSTAR                                                               
Line.                                                                                                                           
                                                                                                                                
4:10:48 PM                                                                                                                    
                                                                                                                                
MR. WHITE referred  to slide 17 labeled, "Pipeline  Route & Cost"                                                               
and offered  that the costs  have been  broken out into  two main                                                               
costs,  with  the   costs  from  Cook  Inlet   to  Fairbanks  for                                                               
approximately 320  miles along the Parks  Highway route estimated                                                               
at $970  million, and from  Fairbanks to the Foothills  route for                                                               
approximately 370 miles along the  Dalton Highway route estimated                                                               
at $2.3  billion.  He opined  that the difference in  cost is due                                                               
to the  higher level of  complexity for installing pipe,  and the                                                               
logistics of  transporting construction materials.   He noted the                                                               
total estimated cost  of the project is set at  $3.3 billion with                                                               
a  projected project timeline of five to six years.                                                                             
                                                                                                                                
4:11:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS  asked how many additional  miles would be                                                               
involved if ENSTAR needed to go  to Prudhoe Bay in the event that                                                               
the  Foothills Unit  did not  work  out and  it was  commercially                                                               
feasible to obtain the gas at Prudhoe Bay.                                                                                      
                                                                                                                                
MR.  WHITE  estimated  90  miles from  [the  Foothills  Unit]  to                                                               
Prudhoe Bay.   However,  he noted that  ENSTAR has  not estimated                                                               
the cost structure for that change.                                                                                             
                                                                                                                                
REPRESENTATIVE GUTTENBERG observed that  the route approaches the                                                               
southern end  of his district  crossing into the  Denali National                                                               
Park and Preserve area (Denali Park).   He inquired as to whether                                                               
ENSTAR has approached the U.  S. Department of Interior, National                                                               
Park Service (NPS), or if it is possible to avoid Denali Park.                                                                  
                                                                                                                                
MR.  DUBAY   confirmed  that  ENSTAR  has   approached  the  NPS.                                                               
However,  he  said he  believed  it  was  possible to  avoid  the                                                               
national park, although it may increase the cost incrementally.                                                                 
                                                                                                                                
4:13:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  expressed his  concern that  the route                                                               
crosses  scenarios such  as mountainous  terrain and  significant                                                               
obstacles.                                                                                                                      
                                                                                                                                
MR. DUBAY agreed,  but offered that the  initial review indicates                                                               
that avoiding  Denali Park  would cost  a $50  million increment,                                                               
which is included in this cost estimate.                                                                                        
                                                                                                                                
4:13:50 PM                                                                                                                    
                                                                                                                                
SENATOR  THERRIAULT  noted  that Anadarko  Petroleum  Corporation                                                               
(Anadarko) is drilling in Gubik  and inquired as to what quantity                                                               
of gas would make the ENSTAR project workable.                                                                                  
                                                                                                                                
MR. DUBAY  expressed his belief  that it  would be ideal  to have                                                               
3.5  trillion cubic  feet (tcf).    He opined  that ENSTAR  would                                                               
ultimately base its decisions on  probabilities, but that "at the                                                               
end of the day"  it would be good "to have 3.5 tcf  of gas at the                                                               
other end of the line."                                                                                                         
                                                                                                                                
4:14:57 PM                                                                                                                    
                                                                                                                                
SENATOR THERRIAULT inquired as to  whether Anadarko has given any                                                               
indication when information would be released.                                                                                  
                                                                                                                                
MR. DUBAY  responded that ENSTAR  will hold a discussion  in July                                                               
with Anadarko  with regard to  its drilling results for  the past                                                               
winter.   He  offered his  belief that  another drilling  program                                                               
would occur this coming winter.   He offered that ENSTAR does not                                                               
anticipate  that in  July 2008,  Anadarko  will have  information                                                               
that proves [the existence of] 3.5 tcf of gas.                                                                                  
                                                                                                                                
4:15:23 PM                                                                                                                    
                                                                                                                                
SENATOR THERRIAULT referred  to slide 17, to  the cost estimates,                                                               
and inquired  as to what level  of certainty ENSTAR has  with the                                                               
estimated $3.3 billion and if  the cost projections were based on                                                               
all steel pipe, or if composite pipe would be used.                                                                             
                                                                                                                                
MR. DUBAY  answered that the costs  are based on all  steel pipe.                                                               
He offered  that he anticipates  that the cost estimates  will be                                                               
better defined over the next  eight months.  Currently, he noted,                                                               
ENSTAR is  working on  further developing  the route,  the costs,                                                               
the  permitting  requirements,   and  environmental  requirements                                                               
associated with the project.                                                                                                    
                                                                                                                                
4:16:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH inquired  as to  whether ENSTAR  is in                                                               
support  of AGIA,  in competition  [with AGIA],  or whether  this                                                               
project complements AGIA.                                                                                                       
                                                                                                                                
MR. DUBAY responded  that ENSTAR is not competing with  AGIA.  He                                                               
further said:                                                                                                                   
                                                                                                                                
     We believe that  this project fits within  the terms of                                                                    
     AGIA process.   We're  looking at a  project of  half a                                                                    
     bcf  a day.   We're  not looking  for a  state subsidy.                                                                    
     So, we think the project  is stand alone.  We've talked                                                                    
     to  Conoco and  BP with  regard to  the Denali  project                                                                    
     because it is logical  that this project, the pipeline,                                                                    
     will be close  to a larger pipe.  And  that we want our                                                                    
     engineering  not to  conflict with  the engineering  on                                                                    
     another pipe.   So, they've  agreed to share data.   As                                                                    
     we  mention,  one  of  the pinch  points,  ...  if  the                                                                    
     pipelines  are both  coming through  this  room and  we                                                                    
     figure this is  the best corner for our  pipe, we don't                                                                    
     want to find out a year  down the road that Conoco, BP,                                                                    
     or  TransCanada, also  think  that's  the best  corner.                                                                    
     Perhaps, we  should work  that out  before we  start to                                                                    
     lay  pipe  so our  conversations  with  both groups  to                                                                    
     date, have,  I think  that both  groups would  say that                                                                    
     this is not a competing  project and is a complementary                                                                    
     project.                                                                                                                   
                                                                                                                                
MR.  DUBAY,   in  response  to   a  question   by  Representative                                                               
Fairclough, answered that what he is providing is informational.                                                                
                                                                                                                                
4:17:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  recalled that Mr. Dubay  indicated that the                                                               
pipe  design  would allow  for  expansion.    He inquired  as  to                                                               
whether the 0.5 bcf includes  the maximum expansion capability or                                                               
if it  is the initial  anticipated volume with the  capability of                                                               
later expansion.                                                                                                                
                                                                                                                                
MR. WHITE offered that he would  be able to discuss the "numbers"                                                               
for  multiple fields  including  Cook Inlet,  the Foothills,  the                                                               
Yukon Flats,  and Nenana.  He  said that he did  not think either                                                               
the  Yukon  Flats or  Nenana  are  contemplated as  being  source                                                               
points for the larger pipeline to the Lower 48 due to cost.                                                                     
                                                                                                                                
4:19:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES stated  that he  is awaiting  clarification                                                               
from the  administration and TransCanada  as to  their definition                                                               
of the 0.5 bcf.  He said he  wasn't sure if it meant the original                                                               
volume or its capability for expansion.                                                                                         
                                                                                                                                
4:19:40 PM                                                                                                                    
                                                                                                                                
MR.  WHITE referred  to  slide 18,  labeled,  "Advantages of  the                                                               
ENSTAR Line.   He  explained that  ENSTAR hopes  to bring  gas to                                                               
market  by  2014,  assuming that  the  Foothills  exploration  is                                                               
successful.   He opined that  is five to  six years ahead  of any                                                               
other project for a domestic supply of natural gas.  He said:                                                                   
                                                                                                                                
     In this situation, we believe  that Alaska controls its                                                                    
     own destiny  for source of  gas and competitive  gas to                                                                    
     the  various   markets  -  Fairbanks,   Anchorage,  and                                                                    
     Southcentral.    It  provides  us  a  little  bit  more                                                                    
     certainty as the  utility owner of gas  supplied to our                                                                    
     markets with,  of course, Cook Inlet  being a declining                                                                    
     production  rate;  this   provides  us  another  secure                                                                    
     supply  of  gas.   We  don't  believe  that this  is  a                                                                    
     mutually  exclusive  project  with a  pipeline  to  the                                                                    
     Lower  48.    It's   very  complementary  in  terms  of                                                                    
     sourcing gas out of areas  that are not contemplated in                                                                    
     AGIA.     And   as  stated   earlier,  we   think  both                                                                    
     [TransCanada]  and  Denali  group have  indicated  they                                                                    
     think we're okay when we are  under 500 [mmcf].  One of                                                                    
     the important things one of  the things we've got going                                                                    
     is that we  think this will revive the  Agrium plant in                                                                    
     Southcentral.   Right now, we all  know it's mothballed                                                                    
     and  with competitive  gas prices,  and of  course that                                                                    
     will be  determined over time, there  is a possibility,                                                                    
     by time we  get this up and running, that  they will be                                                                    
     able to  bring the plant  back online.  And,  you know,                                                                    
     of  course that  will bring  jobs back  to Southcentral                                                                    
     along with continuation  of an LNG plant  of some type,                                                                    
     either  the   existing  one   owned  by   Marathon  and                                                                    
     ConocoPhillips  maintaining   its  current   status  of                                                                    
     export, or some other producer doing a similar thing.                                                                      
                                                                                                                                
4:22:20 PM                                                                                                                    
                                                                                                                                
CHAIR HUGGINS  asked Mr.  White to  project ENSTAR's  open season                                                               
based on its timeline.                                                                                                          
                                                                                                                                
MR. DUBAY responded that if  ENSTAR obtained the information from                                                               
the producers, that perhaps one year from today.                                                                                
                                                                                                                                
MR.  WHITE explained  that  natural  gas is  a  "feed stock"  for                                                               
petrochemical industries, such  as plastics.  He  opined with the                                                               
amount of volume  ENSTAR expects to "put into the  line" there is                                                               
the possibility  of small  operations on  an industrial  scale in                                                               
the state, such as specialty-type  plastics.  He offered that one                                                               
of the things  ENSTAR and Anadarko identified is  that since it's                                                               
an  in-state supply  of  gas, the  gas is  subject  to lower  tax                                                               
burdens.     He   highlighted  that   this  would   be  a   great                                                               
encouragement  to  the  project  and   to  the  producer  on  the                                                               
Foothills.                                                                                                                      
                                                                                                                                
4:23:47 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI related  his understanding  that the  Gubik                                                               
Field contains  dry gas.   He inquired  as to whether  ENSTAR has                                                               
some knowledge that liquids could be pulled off of this gas.                                                                    
                                                                                                                                
MR. WHITE  responded that  natural gas or  methane is  actually a                                                               
feed stock in  plastics, "it is used there, not  only the heavier                                                               
gas liquids but also methane."                                                                                                  
                                                                                                                                
4:24:19 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI related his  understanding that this project                                                               
would result  in lower prices for  Fairbanks.  He inquired  as to                                                               
what price  Anchorage can expect to  pay if the gas  is currently                                                               
at $6.87 per mmcf.                                                                                                              
                                                                                                                                
MR. WHITE answered that ENSTAR  envisions something similar to an                                                               
indices-based cost of gas.                                                                                                      
                                                                                                                                
MR. DUBAY  interjected that  almost all  gas contracts  are index                                                               
related.   Therefore, whether  the gas  originates in  the larger                                                               
line  or this  line, he  anticipated  that ENSTAR  would have  an                                                               
index based  contract.  He  noted that ENSTAR has  not negotiated                                                               
the contract yet, but anticipates that  it would begin as soon as                                                               
ENSTAR's  current  contracts,  that  are  before  the  Regulatory                                                               
Commission of Alaska (RCA), are dealt with.                                                                                     
                                                                                                                                
4:25:24 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI inquired  as to  whether he  referred to  a                                                               
West  Coast index  or the  Henry Hub,  which is  currently around                                                               
$12.                                                                                                                            
                                                                                                                                
MR. DUBAY  responded, "I think,  frankly, the index will  be less                                                               
than that.  My opinion is the index  is going to come down and it                                                               
may be the index minus the  tariff, something of that nature. ...                                                               
I would expect an index-based contract."                                                                                        
                                                                                                                                
4:25:53 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI  inquired as  to  whether  Mr. Dubay  would                                                               
predict that  Anchorage can not  expect lower cost gas  than what                                                               
it is paying now.                                                                                                               
                                                                                                                                
MR. DUBAY replied:                                                                                                              
                                                                                                                                
     It depends  on where the  index goes.  I  would believe                                                                    
     that we  will end up  with an index-based  contract and                                                                    
     the gas price will follow the  index.  You know, we may                                                                    
     have  an opportunity  to bring,  to get  some discount.                                                                    
     Historically, what you see is  that everything is being                                                                    
     priced now in  an index unless you have  a really, what                                                                    
     we call  a flat profile.   If  you are taking  the same                                                                    
     gas  on  a  daily  basis,  every day,  you  can  get  a                                                                    
     slightly better  price than  a company  like ourselves,                                                                    
     who  takes ten  times more  per day  in the  wintertime                                                                    
     than  we  do in  the  summertime  because there's  more                                                                    
     infrastructure  is required  to deliver  the gas  under                                                                    
     those scenarios.   Just like buying a  plane ticket, if                                                                    
     you  want to  go to  New York  City once  at Christmas,                                                                    
     it's going cost you more than  if you go every week for                                                                    
     fifty weeks and  you can avoid two weeks.   You can buy                                                                    
     those tickets ahead  of time.  So our  profile ... will                                                                    
     still be an index-based  cost with maybe some discount,                                                                    
     or some premium depending on the profile.                                                                                  
                                                                                                                                
4:27:19 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI recalled Mr. Heinz  said that "A big pipe is                                                               
our best  chance for low-cost gas."   He asked whether  Mr. Dubay                                                               
agreed with that statement.                                                                                                     
                                                                                                                                
MR. DUBAY  answered that he  did not think  the size of  the pipe                                                               
will have an  impact on the gas.   He said he  thought gas prices                                                               
will be  based on an  index-based price  whether "it's a  48 inch                                                               
pipe or a 20 inch pipe."                                                                                                        
                                                                                                                                
4:27:50 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH  inquired as to  how North  Slope gas sold  in the                                                               
Anchorage  basin  could  "ever  beat Cook  Inlet  gas  given  the                                                               
obvious differences in transportation  costs," despite the index.                                                               
He clarified  by asking whether  Cook Inlet gas would  be cheaper                                                               
so long as it continues to be available.                                                                                        
                                                                                                                                
MR. DUBAY  responded that  it would  not necessarily  be cheaper.                                                               
He offered that  from his own experience living in  Texas, with a                                                               
great  deal of  gas sources  in  Houston, Houston  still pays  an                                                               
index-based   price.      He    highlighted   except   for   some                                                               
transportation costs, that consumers  pay an index-based price in                                                               
New  York   City  and   in  Houston,   with  the   difference  in                                                               
transportation costs.                                                                                                           
                                                                                                                                
SENATOR FRENCH related his  understanding that the transportation                                                               
costs will  be in  addition to the  cost of the  gas.   He opined                                                               
that  the consumer  won't  be aware  of the  separate  cost.   He                                                               
inquired  as to  whether  the transportation  cost  added to  the                                                               
index to transport  North Slope gas to Cook Inlet  means that the                                                               
consumer in Anchorage will pay more for the North Slope gas.                                                                    
                                                                                                                                
MR. DUBAY replied:                                                                                                              
                                                                                                                                
     Not necessarily,  no sir, because  we are  not assuming                                                                    
     that  the  transportation  cost to  Anchorage  will  be                                                                    
     higher than  the transportation  cost to the  Lower 48.                                                                    
     So, your tariff to Anchorage  and off our line won't be                                                                    
     higher than the tariff to Chicago.                                                                                         
                                                                                                                                
4:30:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS  related his  understanding that  once gas                                                               
is  actually sold  in  the Lower  48, that  the  state will  have                                                               
difficulty differentiating  [lower] tax  rates for  residents for                                                               
U. S.  constitutional reasons.   He asked,  "When you  said you'd                                                               
done your  math under  the current  the tax  regime, how  much of                                                               
your math have you done on that?"                                                                                               
                                                                                                                                
MR. WHITE  responded that ENSTAR  has not performed  the complete                                                               
analysis.  He related the assumption  that ENSTAR will be a local                                                               
in-state line as opposed to any gas transported to the Lower 48.                                                                
                                                                                                                                
REPRESENTATIVE SAMUELS  related a  scenario such that  ENSTAR did                                                               
not have  a large scale commercial  user of North Slope  gas, but                                                               
only had a  residential and power generation  market in Fairbanks                                                               
and  Southcentral.    He  asked  whether  residential  and  power                                                               
generation users  alone would  make a  bullet line  profitable in                                                               
this case.                                                                                                                      
                                                                                                                                
MR. DUBAY answered  that it probably would not  be profitable for                                                               
the bullet line to supply residential customers only.                                                                           
                                                                                                                                
REPRESENTATIVE  SAMUELS inquired  as  to the  amount  of a  state                                                               
tariff  subsidy that  would be  necessary to  make a  bullet line                                                               
profitable in  order to  provide limitless  gas to  Fairbanks and                                                               
all of Southcentral residents.                                                                                                  
                                                                                                                                
MR. DUBAY  explained that is  not something ENSTAR  has reviewed.                                                               
He pointed out  that based on the testimony  during the hearings,                                                               
gas prices are  high and will stay high due  to industrial demand                                                               
for the gas.  He then remarked:                                                                                                 
                                                                                                                                
     Is there anybody in the  room who would believe that if                                                                    
     we  had  the  half  of bcf  going  into  the  Anchorage                                                                    
     community today,  that we  wouldn't have  a functioning                                                                    
     LNG  operation, and  we wouldn't  have an  Agrium plant                                                                    
     that's  producing?   ...  There's  a   hundred  percent                                                                    
     certainty  that both  those industrial  users would  be                                                                    
     online.  When  we look ... forward we say,  what is the                                                                    
     likelihood  that's going  to happen?    We've got  some                                                                    
     time to  spend with the  engineering and ...  some time                                                                    
     to spend  with producers.   But even though we  may not                                                                    
     see a  robust price in  the twelve dollar range  a year                                                                    
     from now, certainly  I don't, we don't  see anything on                                                                    
     the  horizon  that  would indicate  energy  prices  are                                                                    
     going to fall dramatically,  that commodity prices, I'm                                                                    
     talking  about  commodity  food prices,  are  going  to                                                                    
     fall.    The  fertilizer   market  looks  very  robust,                                                                    
     prospectively.   The  offshore  LNG  market looks  very                                                                    
     robust, prospectively.   We're approaching this project                                                                    
     with quite a  bit of certainty that when  it comes time                                                                    
     for the  industrial users  to sign  up for  capacity on                                                                    
     this  line, that  we're going  to get  commitments from                                                                    
     the industrial  users and that  they are going  to take                                                                    
     capacity in the line.                                                                                                      
                                                                                                                                
4:34:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS  posed a  scenario in which  the Foothills                                                               
does not  produce commercial  level finds,  that ENSTAR  must use                                                               
Prudhoe Bay  gas at 0.5  bcf, and  must finance the  line without                                                               
Point  Thomson gas.   He  inquired  as to  how soon  would it  be                                                               
before the impacts  of ENSTAR's line, which is a  short term line                                                               
to produce energy  for this community, "essentially  puts a crimp                                                               
in the  style of  TransCanada and the  major line"  because there                                                               
isn't  enough gas  to go  to  0.5 bcf.   Thus,  he inquired,  has                                                               
ENSTAR considered  if it  must use  Prudhoe Bay  gas and  not the                                                               
Gubik gas.                                                                                                                      
                                                                                                                                
MR. DUBAY responded by saying:                                                                                                  
                                                                                                                                
     Our  decision  point  today is  still  centered  around                                                                    
     getting commitments  from producers,  or probabilities,                                                                    
     high  probabilities from  producers  that  that gas  is                                                                    
     there  in   Gubik.  ...   We  haven't   approached  the                                                                    
     producers today about trying to  access the North Slope                                                                    
     gas.    So  we're   building  our  project  around  the                                                                    
     Anadarko and Conoco gas in the Gubik area.                                                                                 
                                                                                                                                
MR.  DUBAY,  in  further   response  to  Representative  Samuels,                                                               
responded that he is not certain  when ENSTAR will have an answer                                                               
on when it could move forward.   He said that ENSTAR is scheduled                                                               
to meet with producers by  July, and that another drilling season                                                               
is planned for  next year.  Thus, he predicted  that by next year                                                               
at  this  time,  ENSTAR  should   have  enough  information  from                                                               
producers  to indicate  "the high  probabilities of  the reserves                                                               
that we need to anchor this project."                                                                                           
                                                                                                                                
4:36:17 PM                                                                                                                    
                                                                                                                                
SENATOR WAGONER recalled Mr. Thayer  previously mentioned that he                                                               
was going to  have discussions with Agrium, Inc. in  Calgary.  He                                                               
inquired as  to whether  those discussions  have occurred  and if                                                               
ENSTAR obtained a letter of commitment.                                                                                         
                                                                                                                                
MR.  DUBAY answered  that he  has held  discussions and  is still                                                               
working on  letter of intent.   He stated  that he sent  Agrium a                                                               
draft,  and  has  not  yet  heard back,  but  anticipates  it  is                                                               
forthcoming.                                                                                                                    
                                                                                                                                
4:37:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN inquired  as to  whether the  $3.3 billion                                                               
cost  estimate  for  the  pipeline  includes  any  gas  treatment                                                               
facility (GTP).                                                                                                                 
                                                                                                                                
MR. DUBAY  clarified that it  includes a treatment  facility, but                                                               
not a liquids extraction plant.                                                                                                 
                                                                                                                                
MR. DUBAY, in  response to Representative Doogan,  agreed that it                                                               
did include  a GTP that will  condition the gas to  allow for the                                                               
gas to be piped.                                                                                                                
                                                                                                                                
MR. WHITE referred to slide  19, labeled, "Cost to Consumer", and                                                               
noted this slide illustrates the  cost differential between types                                                               
of fuels  in Southcentral Alaska.   Switching to fuel  oil, would                                                               
cost $423 million per year in  addition to the current costs, and                                                               
switching  to  propane  would  add  an  additional  $831  million                                                               
annually, he explained.   He pointed out that in  terms of an in-                                                               
state pipeline,  huge economies  exist in terms  of the  value to                                                               
the consumer by proceeding with this type of pipeline.                                                                          
                                                                                                                                
MR. WHITE  referred to slide  20, labeled, "Comparative  Fuels in                                                               
Fairbanks"  and pointed  out that  with current  prices for  fuel                                                               
oil,  which is  the dominant  fuel used  in Fairbanks,  consumers                                                               
could  realize $150  million  in residential  cost  savings.   He                                                               
noted that ENSTAR believes the annual value is considerable.                                                                    
                                                                                                                                
4:39:49 PM                                                                                                                    
                                                                                                                                
SENATOR  STEDMAN asked  Mr. White  to expand  on the  electricity                                                               
costs and the energy source used to generate electricity.                                                                       
                                                                                                                                
MR.  WHITE  responded  that  ENSTAR  profiled  a  standard  home,                                                               
reviewed the  "therms" that the  house would consume in  terms of                                                               
space heating and  water heating, and converted  that total value                                                               
into the  number of  watts that  a house would  need.   The total                                                               
watts were  then multiplied by  the total cost per  kilowatt hour                                                               
for electricity.                                                                                                                
                                                                                                                                
SENATOR STEDMAN  inquired as to  whether the fuel  oil projection                                                               
is  based  on  the  home  being  heated  by  a  boiler  and  that                                                               
additionally, the  electricity projection  is based  on use  of a                                                               
diesel-powered generator.                                                                                                       
                                                                                                                                
MR. WHITE  answered that the electricity  calculation assumes the                                                               
house would be heated using baseboard heat.                                                                                     
                                                                                                                                
SENATOR HOFFMAN  inquired as  to the unit  costs for  natural gas                                                               
for fuel oil and for propane.                                                                                                   
                                                                                                                                
MR. WHITE  responded that the  per unit  cost used was  $8.57 per                                                               
mmcf for  natural gas, $4.25 per  gallon for fuel oil,  $4.57 per                                                               
gallon for  propane, and that the  tariff rate used was  13 cents                                                               
for  electricity.   He said  that he  guessed at  the exact  rate                                                               
today, but advised  members that the tariff rate  used to produce                                                               
the graph was pulled from the Internet.                                                                                         
                                                                                                                                
MR.  WHITE, in  response to  Senator Stedman's  concern that  the                                                               
figures  for  fuel  oil  and electric  generation  did  not  seem                                                               
correct, offered to provide the analysis for members.                                                                           
                                                                                                                                
MR.  WHITE referred  to slide  21, labeled,  "Accessible In-State                                                               
Market" and stated  that having an accessible  in-state market is                                                               
one of ENSTAR's  primary considerations.  He  noted that ENSTAR's                                                               
potential   markets  include:      LNG   exports,  Agrium   Inc.,                                                               
Southcentral electric companies, and  Fairbanks Natural Gas, LLC.                                                               
He further noted that military  bases such as Elmendorf Air Force                                                               
Base,  Eielson   Air  Force  Base,  Fort   Richardson,  and  Fort                                                               
Wainwright could be served.   He highlighted that ENSTAR has held                                                               
conversations with Flint Hills Resources  [Alaska], which is very                                                               
interested in running their plant  off of natural gas rather than                                                               
oil,  and  the  Golden  Valley  Electric  Association  (GVEA)  in                                                               
Fairbanks.                                                                                                                      
                                                                                                                                
MR. WHITE offered  that the demand rate over the  next two slides                                                               
amounts to  about 500 mmcf, but  when that is split  between Cook                                                               
Inlet natural gas and Foothills,  ENSTAR falls under 500 mmcf per                                                               
day for the annual loads per customer.                                                                                          
                                                                                                                                
4:45:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CHENAULT  inquired as  to  whether  Mr. White  is                                                               
referring  to half  of the  production from  Cook Inlet  and half                                                               
from Gubik Fields.                                                                                                              
                                                                                                                                
MR. WHITE answered that the  assumption would be about 80 percent                                                               
production  from Gubik  Fields  and about  20 percent  production                                                               
from  Cook   Inlet.    In  further   response  to  Representative                                                               
Chenault, Mr. White  clarified that total numbers  are listed for                                                               
annual loads.                                                                                                                   
                                                                                                                                
4:46:28 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  inquired as  to the  tariff that  ENSTAR is                                                               
looking  at  and  what  discussions   ENSTAR  has  had  with  the                                                               
utilities along the Railbelt.                                                                                                   
                                                                                                                                
MR. DUBAY  responded that the tariff  rate would be in  the $2.00                                                               
to $2.50  range, which he said  he thought was based  on a return                                                               
of the equity portion of about  twelve percent and is what ENSTAR                                                               
is currently authorized in its  rates.  He further explained that                                                               
ENSTAR  has not  yet talked  to utilities  in the  Railbelt.   He                                                               
offered  that  ENSTAR  understands   their  needs  are  based  on                                                               
contracts that are  filed.  However, he noted that  they have not                                                               
held discussions.                                                                                                               
                                                                                                                                
4:47:32 PM                                                                                                                    
                                                                                                                                
MR. WHITE  related that ENSTAR  has held discussions  with Golden                                                               
Valley Electric  Association (GVEA), in  terms of what  the value                                                               
difference  would be  for conversion.   He  offered that  the new                                                               
plant that GVEA brought online last  year is set up to convert to                                                               
natural gas, and  was designed that way.  However,  he noted that                                                               
the older  plant is not designed  for conversion.  He  noted that                                                               
by 2018, GVEA  will need to make a  re-capitalization decision on                                                               
the  older  plant.    He  related  his  understanding  that  GVEA                                                               
envisions that if the spread between  fuel oil and natural gas is                                                               
at the same  point it currently is, that GVEA  would rebuild with                                                               
a natural gas unit.                                                                                                             
                                                                                                                                
4:48:39 PM                                                                                                                    
                                                                                                                                
SENATOR HOFFMAN pointed  out that slides 22 and  23 list Scenario                                                               
A.   He inquired as  to whether members  could get copies  of any                                                               
other scenarios.                                                                                                                
                                                                                                                                
MR. WHITE  stated that  ENSTAR did have  a second  scenario which                                                               
removed Agrium  Inc. from the  assumption.  He offered  to supply                                                               
members with the requested data.                                                                                                
                                                                                                                                
4:49:39 PM                                                                                                                    
                                                                                                                                
MR.  DUBAY  referred  to slide  25,  labeled,  "Assumptions"  and                                                               
related that the  project is based on the  assumption that ENSTAR                                                               
would obtain  utility grade gas out  of the production area.   He                                                               
stated that the  project would use a 20 inch  diameter pipe, with                                                               
an operating pressure  of 2,500 pounds per square  inch (psi) and                                                               
with the ability to spike hydrocarbons  or add volumes.  He posed                                                               
a scenario in  which production is proved up in  the Nenana Basin                                                               
and offered  that if  ENSTAR had commitments  on 0.5  bcf/d, that                                                               
ENSTAR  would like  the  ability  to add  compression  to add  in                                                               
production  in the  instance that  production south  of Fairbanks                                                               
occurred.    He  noted  that  ENSTAR  assumes  that  through  the                                                               
regulatory  process it  would have  open access  pipe.   Thus, if                                                               
other production  occurred ENSTAR  would have some  obligation to                                                               
accommodate that other production, he explained.                                                                                
                                                                                                                                
MR.  DUBAY referred  to slide  26, labeled,  "Project Development                                                               
Plan Overview."   He explained that ENSTAR has  entered into what                                                               
it refers  to as phase one  of the project with  the intention of                                                               
spending capital dollars to better  define the alignment, perform                                                               
design work, perform some field  work, and define cost estimates.                                                               
He reiterated that ENSTAR is working  with Conoco and BP to share                                                               
information.   He  noted that  Conoco agreed  last week  to share                                                               
aerial  information.   He said,  "We estimate  this phase  of the                                                               
project should  cost us $5 to  $6 million and we  hope that we're                                                               
going to be completed in the spring 2009."                                                                                      
                                                                                                                                
MR. DUBAY  referred to slide  27, labeled, "Where Are  We Today."                                                               
He gave an overview of the  work being done.  Mr. Dubay explained                                                               
that ENSTAR  has contracted with engineering,  environmental, and                                                               
construction companies  to assist  with the  project.   The field                                                               
work began June  10, 2008, and additional  meetings are scheduled                                                               
with Anadarko  in July as  well as discussions with  Conoco about                                                               
their  production.    Our chief  engineer  is  performing  aerial                                                               
photography  today, he  noted.   He highlighted  that preliminary                                                               
permitting and  ROW use meetings  are underway  with governmental                                                               
entities,  that ENSTAR  is  developing  a geographic  information                                                               
system (GIS)  database and alignment  sheets and,  if TransCanada                                                               
is  approved,   that  ENSTAR  will   work  with   TransCanada  to                                                               
coordinate engineering.                                                                                                         
                                                                                                                                
4:52:42 PM                                                                                                                    
                                                                                                                                
MR.  DUBAY  referred  to slide  28,  labeled,  "Development  Plan                                                               
Priorities."  He stated that  ENSTAR's priorities are to continue                                                               
regulatory  permit acquisition,  prepare  economic and  financial                                                               
models,  conduct public  outreach, understand  constituent needs,                                                               
and submit  ROW application.   He advised  that ENSTAR has  set a                                                               
date of June 2009, to try  to reach a management decision to move                                                               
forward on this project.                                                                                                        
                                                                                                                                
4:53:40 PM                                                                                                                    
                                                                                                                                
SENATOR  HOFFMAN inquired  as to  how the  decision date  of June                                                               
2009, relates to the completion timeframe of five to six years.                                                                 
                                                                                                                                
MR.  DUBAY answered  that the  five to  six years  commenced this                                                               
year.    He  referred  to slide  29,  labeled,  "ENSTAR  Pipeline                                                               
Development  Team"  and noted  that  ENSTAR  has engaged  Michael                                                               
Baker, Jr. Inc., Arctic Slope  Regional Corporation (ASRC) Energy                                                               
Services,  and  Aerometric,  Inc.  to  work  with  them  on  this                                                               
project.                                                                                                                        
                                                                                                                                
4:54:54 PM                                                                                                                    
                                                                                                                                
SENATOR THOMAS  referred to a prior  slide not in the  packet and                                                               
inquired  as to  whether the  LNG indicated  was new  LNG or  was                                                               
carrying forward  the current  export [rate  of the  existing LNG                                                               
plant].                                                                                                                         
                                                                                                                                
MR. WHITE  answered that in  talking to ConocoPhillips,  if [gas]                                                               
was [at]  the right price,  Conoco would envision  continuing the                                                               
operation of that facility.                                                                                                     
                                                                                                                                
SENATOR  THOMAS  referred  back  to  slide  14,  and  noted  that                                                               
production drops off  in 2014.  He inquired as  to who would drop                                                               
out of the scenario.                                                                                                            
                                                                                                                                
MR.   WHITE  responded   that  in   this   scenario,  ENSTAR   is                                                               
anticipating  approximately  49 bcf  per  year  of export,  which                                                               
would total 134 mmcf per day of gas.                                                                                            
                                                                                                                                
CURTIS THAYER,  Director, Corporate  & External  Affairs, ENSTAR,                                                               
interjected and  pointed out that  Senator Thomas was  looking at                                                               
an Alaska Department  of Natural Resources (DNR)  slide from 2006                                                               
that  demonstrates  the  "cliff"  in  Southcentral  Alaska.    He                                                               
continued:                                                                                                                      
                                                                                                                                
     That  is one  of the  reasons  why we  decided that  we                                                                    
     can't  afford  to wait  for  a  line to  come  through,                                                                    
     whether it is a large  line, like we've talked here for                                                                    
     30  years, a  line coming  down.   And here's  a chance                                                                    
     where we think  we can get a line down,  a 20 inch from                                                                    
     the Foothills down  to bring it into this  market.  One                                                                    
     thing is,  is reserves  are always being  found, matter                                                                    
     of fact,  ConocoPhillips and Marathon are  drilling new                                                                    
     wells in  Cook Inlet.   And so there is  the assumption                                                                    
     that  the  cliff will  move  out.   But,  clearly  with                                                                    
     Agrium  going  away,   that  cliff  definitely  exists,                                                                    
     because  they cannot  meet the  deliverability of  Cook                                                                    
     Inlet, "they" being the producers in the fields.                                                                           
                                                                                                                                
In response to  Chair Huggins, Mr. Thayer noted  that the figures                                                               
are preliminary figures.                                                                                                        
                                                                                                                                
4:57:28 PM                                                                                                                    
                                                                                                                                
MR. DUBAY  interjected that these  historical usages are  for the                                                               
industrial users.  He said:                                                                                                     
                                                                                                                                
     Again, if  we had the  gas today and those  plants were                                                                    
     up, this  is what we  believe they would  produce based                                                                    
     on  what they've  historically produced.   The  utility                                                                    
     loads that we  forecast are based off of  what we know,                                                                    
     but what  the utilities  have filed  is what  they need                                                                    
     for gas  in these time  periods.  So the  utility loads                                                                    
     ramp up,  but the  industrial loads  are based  on what                                                                    
     they have historically used.                                                                                               
                                                                                                                                
4:57:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EDGMON  referred to  slide 4,  to the  breakout of                                                               
the  consumer base.   He  inquired  as to  whether future  mining                                                               
needs have  been considered  as part of  the long  term strategic                                                               
plan.                                                                                                                           
                                                                                                                                
MR. DUBAY  responded that ENSTAR  did not consider  mining needs.                                                               
He explained  that ENSTAR  is basing its  product on  the current                                                               
demand  on the  system and  demand that  the utilities  will need                                                               
based on  their contracts "falling  off."  He stated  that ENSTAR                                                               
has not  developed any  additional load  for mines  or industrial                                                               
use that hasn't existed or that doesn't exist today.                                                                            
                                                                                                                                
4:59:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EDGMON  observed that  the potential  is available                                                               
to accommodate the demands, if everything goes as planned.                                                                      
                                                                                                                                
MR.  DUBAY  agreed.    He  acklnowledgedthat  the  estimates  are                                                               
conservative;  gas  is still found in Cook Inlet,  and Nenana gas                                                               
is not included  in the projections.  He opined  that as the line                                                               
gets  constructed,  more  gas  will  come  online,  perhaps  from                                                               
Fairbanks or the Gubik field area.                                                                                              
                                                                                                                                
5:00:29 PM                                                                                                                    
                                                                                                                                
CHAIR HUGGINS  inquired as  to whether  there were  questions for                                                               
Mr. Dubay or ENSTAR and there were none.                                                                                        
                                                                                                                                
CHAIR HUGGINS  stressed his commitment  to try to provide  gas to                                                               
Alaskans as soon as possible.                                                                                                   
                                                                                                                                
[HB 3001 and SB 3001 were held over.]                                                                                           
                                                                                                                              
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committees, the joint                                                                
House Rules Standing Committee and Senate Special Committee on                                                                  
Energy meeting was adjourned at 5:04:59 PM.                                                                                   

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