Legislature(2007 - 2008)TERRY MILLER GYM

07/09/2008 01:30 PM Senate SENATE SPECIAL COMMITTEE ON ENERGY


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01:40:39 PM Start
01:41:06 PM SB3001|| HB3001
07:57:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
= SB3001 APPROVING AGIA LICENSE
Heard & Held
Joint w/(H) Rules
House Special Subcommittee on AGIA
1:30-4:30pm In-State Gas
Participants: ANGDA, AGPA, Enstar,
Steve Porter, Tony Palmer, Dan Dickinson,
Pat Galvin
6-8pm Presentation: Point Thomson
Participant: Steve Porter
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
               SENATE SPECIAL COMMITTEE ON ENERGY                                                                             
                 HOUSE RULES STANDING COMMITTEE                                                                               
                          July 9, 2008                                                                                          
                           1:40 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
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                                                                                                         
                                                                                                                                
HOUSE RULES                                                                                                                     
                                                                                                                                
 Representative John Coghill, Chair                                                                                             
 Representative Anna Fairclough                                                                                                 
 Representative Craig Johnson                                                                                                   
 Representative Ralph Samuels                                                                                                   
 Representative Beth Kerttula                                                                                                   
 Representative David Guttenberg                                                                                                
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
  All members present                                                                                                           
                                                                                                                                
HOUSE RULES                                                                                                                     
                                                                                                                                
 Representative John Harris                                                                                                     
                                                                                                                                
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
                                                                                                                                
  Senator Con Bunde                                                                                                             
  Senator John Cowdery                                                                                                          
  Senator Gene Therriault                                                                                                       
  Senator Gary Wilken                                                                                                           
  Representative Bob Buch                                                                                                       
  Representative Mike Chenault                                                                                                  
  Representative Sharon Cissna                                                                                                  
  Representative Harry Crawford                                                                                                 
  Representative Nancy Dahlstrom                                                                                                
  Representative Andrea Doll                                                                                                    
  Representative Mike Doogan                                                                                                    
  Representative Richard Foster                                                                                                 
  Representative Les Gara                                                                                                       
  Representative Berta Gardner                                                                                                  
  Representative Carl Gatto                                                                                                     
  Representative Mike Hawker                                                                                                    
  Representative Lindsey Holmes                                                                                                 
  Representative Kyle Johanson                                                                                                  
  Representative Reggie Joule                                                                                                   
  Representative Scott Kawasaki                                                                                                 
  Representative Wes Keller                                                                                                     
  Representative Mike Kelly                                                                                                     
  Representative Gabrielle LeDoux                                                                                               
  Representative Bob Lynn                                                                                                       
  Representative Kevin Meyer                                                                                                    
  Representative Mark Neuman                                                                                                    
  Representative Kurt Olson                                                                                                     
  Representative Jay Ramras                                                                                                     
  Representative Bob Roses                                                                                                      
  Representative Woodie Salmon                                                                                                  
  Representative Paul Seaton                                                                                                    
  Representative Mike Stoltze                                                                                                   
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
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                                                                                                             
                                                                                                                                
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                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
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                                                                     
06/12/08       (S)       Heard & Held                                                                                           
06/12/08       (S)       MINUTE(ENR)                                                                                            
06/13/08       (S)       ENR AT 10:00 AM FBX Carlson Center                                                                     
06/13/08       (S)       Heard & Held                                                                                           
06/13/08       (S)       MINUTE(ENR)                                                                                            
06/14/08       (S)       ENR AT 10:00 AM FBX Carlson Center                                                                     
06/14/08       (S)       Heard & Held                                                                                           
06/14/08       (S)       MINUTE(ENR)                                                                                            
06/16/08       (S)       ENR AT 9:00 AM ANCHORAGE                                                                               
06/16/08       (S)       Heard & Held                                                                                           
06/16/08       (S)       MINUTE(ENR)                                                                                            
06/17/08       (S)       ENR AT 9:00 AM ANCHORAGE                                                                               
06/17/08       (S)       Heard & Held                                                                                           
06/17/08       (S)       MINUTE(ENR)                                                                                            
06/18/08       (S)       ENR AT 9:00 AM ANCHORAGE                                                                               
06/18/08       (S)       Heard & Held                                                                                           
06/18/08       (S)       MINUTE(ENR)                                                                                            
06/19/08       (S)       ENR AT 9:00 AM ANCHORAGE                                                                               
06/19/08       (S)       Heard & Held                                                                                           
06/19/08       (S)       MINUTE(ENR)                                                                                            
06/20/08       (S)       ENR AT 9:00 AM ANCHORAGE                                                                               
06/20/08       (S)       Heard & Held                                                                                           
06/20/08       (S)       MINUTE(ENR)                                                                                            
06/24/08       (S)       ENR AT 1:00 PM MAT-SU                                                                                  
06/24/08       (S)       Heard & Held                                                                                           
06/24/08       (S)       MINUTE(ENR)                                                                                            
06/26/08       (S)       ENR AT 1:00 PM KENAI                                                                                   
06/26/08       (S)       Heard & Held                                                                                           
06/26/08       (S)       MINUTE(ENR)                                                                                            
07/01/08       (S)       BILL CARRIES OVER FROM 3RD SPECIAL                                                                     
                         SESSION                                                                                                
07/01/08       (S)       ENR AT 9:00 AM BARROW                                                                                  
07/01/08       (S)       Heard & Held                                                                                           
07/01/08       (S)       MINUTE(ENR)                                                                                            
07/08/08       (S)       ENR AT 1:00 PM KETCHIKAN                                                                               
07/08/08       (S)       Heard & Held                                                                                           
07/08/08       (S)       MINUTE(ENR)                                                                                            
07/09/08       (S)       ENR AT 1:30 PM TERRY MILLER GYM                                                                        
                                                                                                                                
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; Subcommittee Assigned                                                                    
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                                                                     
06/12/08       (H)       Heard & Held                                                                                           
06/12/08       (H)       MINUTE(RLS)                                                                                            
06/13/08       (H)       RLS AT 10:00 AM FBX CARLSON CENTER                                                                     
06/13/08       (H)       Heard & Held                                                                                           
06/13/08       (H)       MINUTE(RLS)                                                                                            
06/14/08       (H)       RLS AT 10:00 AM FBX CARLSON CENTER                                                                     
06/14/08       (H)       Heard & Held                                                                                           
06/14/08       (H)       MINUTE(RLS)                                                                                            
06/16/08       (H)       RLS AT 9:00 AM ANCHORAGE                                                                               
06/16/08       (H)       Heard & Held                                                                                           
06/16/08       (H)       MINUTE(RLS)                                                                                            
06/17/08       (H)       RLS AT 9:00 AM ANCHORAGE                                                                               
06/17/08       (H)       Heard & Held                                                                                           
06/17/08       (H)       MINUTE(RLS)                                                                                            
06/18/08       (H)       RLS AT 9:00 AM ANCHORAGE                                                                               
06/18/08       (H)       Heard & Held                                                                                           
06/18/08       (H)       MINUTE(RLS)                                                                                            
06/19/08       (H)       RLS AT 9:00 AM ANCHORAGE                                                                               
06/19/08       (H)       Heard & Held                                                                                           
06/19/08       (H)       MINUTE(RLS)                                                                                            
06/20/08       (H)       RLS AT 9:00 AM ANCHORAGE                                                                               
06/20/08       (H)       Heard & Held                                                                                           
06/20/08       (H)       MINUTE(RLS)                                                                                            
06/24/08       (H)       RLS AT 1:00 PM MAT-SU                                                                                  
06/24/08       (H)       Heard & Held                                                                                           
06/24/08       (H)       MINUTE(RLS)                                                                                            
06/26/08       (H)       RLS AT 1:00 PM KENAI                                                                                   
06/26/08       (H)       Heard & Held                                                                                           
06/26/08       (H)       MINUTE(RLS)                                                                                            
07/01/08       (H)       RLS AT 9:00 AM BARROW                                                                                  
07/01/08       (H)       Heard & Held                                                                                           
07/01/08       (H)       MINUTE(RLS)                                                                                            
07/02/08       (H)       BILL CARRIES OVER TO FOURTH SPECIAL                                                                    
                         SESSION                                                                                                
07/08/08       (H)       RLS AT 1:00 PM KETCHIKAN                                                                               
07/08/08       (H)       Heard & Held                                                                                           
07/08/08       (H)       MINUTE(RLS)                                                                                            
07/09/08       (H)       RLS AT 1:30 PM TERRY MILLER GYM                                                                        
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
PAT GALVIN, Commissioner, Department of Revenue (DNR)                                                                           
POSITION STATEMENT: Supported AGIA                                                                                            
                                                                                                                                
GENE  DUBAY  SR.,  Chief Operating  Officer,  Continental  Energy                                                               
Systems                                                                                                                         
POSITION STATEMENT: Opposed AGIA                                                                                              
                                                                                                                                
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development Authority (ANGDA)                                                                                                   
POSITION STATEMENT:  Presented information about an  in-state gas                                                             
pipeline project.                                                                                                               
                                                                                                                                
DAN  DICKINSON,  CPA under  contract  to  Legislative Budget  and                                                               
Audit                                                                                                                           
POSITION STATEMENT: Supported AGIA                                                                                            
                                                                                                                                
TONY PALMER, Vice President, Alaska Development, TransCanada                                                                    
POSITION STATEMENT: Supported AGIA                                                                                            
                                                                                                                                
STEVE PORTER, Consultant to Legislative Budget and Audit                                                                        
POSITION  STATEMENT: Presented  information &  answered questions                                                             
about Point Thomson.                                                                                                            
                                                                                                                                
BILL WALKER, Project Director, Alaska Gasline Port Authority                                                                    
POSITION STATEMENT: Opposed AGIA.  Presented information about an                                                             
in-state gas pipeline project.                                                                                                  
                                                                                                                                
RADOSLAV SHIPKOFF, Financial Advisor, Greengate LLC                                                                             
POSITION  STATEMENT: Opposed  AGIA.  Presented information  about                                                             
the economics of an in-state gas pipeline project.                                                                              
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  CHARLIE HUGGINS  called the  joint meeting  of the  Senate                                                             
Special  Committee  on  Energy   and  the  House  Rules  Standing                                                               
Committee to order at 1:40:39 PM.                                                                                             
                                                                                                                                
                 SB3001-APPROVING AGIA LICENSE                                                                              
                 HB3001-APPROVING AGIA LICENSE                                                                              
                                                                                                                                
1:41:06 PM                                                                                                                    
CHAIR HUGGINS welcomed  the panel members and  thanked members of                                                               
the public for their input at these public meetings.                                                                            
                                                                                                                                
He  had  before  him   SCR  22  INSTATE  PIPELINE/DISTRIB/SPECIAL                                                               
SESSION, which  was introduced and  passed on March 2,  2008, and                                                               
said that  the topic of an  in-state gasline was a  strong common                                                               
thread  through  all  of the  recent  public  testimony.  Today's                                                               
meeting would  kick off  with discussion of  an initiative  for a                                                               
possible joint venture to produce in-state gas.                                                                                 
                                                                                                                                
1:44:56 PM                                                                                                                    
CHAIR HUGGINS recognized the  panel organizations: Alaska Natural                                                               
Gas Pipeline  Authority (ANGPA);  Alaska Natural  Gas Development                                                               
Authority  (ANGDA); The  Alaska  Gasline  Port Authority  (AGPA);                                                               
TransCanada Alaska; Enstar; Legislative  Budget and Audit (LB&A);                                                               
and Commissioner  Pat Galvin of  the State of  Alaska, Department                                                               
of  Revenue.   He  announced   that  Commissioner   Galvin  would                                                               
introduce the  initiative he referenced  in his  opening remarks,                                                               
the financial implications  of it, and a  projected time schedule                                                               
to reach a contract.                                                                                                            
                                                                                                                                
1:46:00 PM                                                                                                                    
The panel members introduced themselves:                                                                                        
PAT  GALVIN,  Commissioner,  Department of  Revenue  (DNR);  GENE                                                               
DUBAY SR.,  Chief Operating Officer, Continental  Energy Systems;                                                               
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority  (ANGDA);  TONY  PALMER,  Vice  President,                                                               
Alaska Development,  TransCanada; BILL WALKER,  Project Director,                                                               
Alaska   Gasline  Port   Authority  (AGPA);   RADOSLAV  SHIPKOFF,                                                               
Financial  Advisor,  Greengate  LLC;  DAN  DICKINSON,  CPA  under                                                               
contract to  Legislative Budget and  Audit (LB&A);  STEVE PORTER,                                                               
Consultant to Legislative Budget and Audit.                                                                                     
                                                                                                                                
CHAIR HUGGINS  reminded members that  today's meeting would  be a                                                               
round table  discussion of various scenarios  related to in-state                                                               
gas.                                                                                                                            
                                                                                                                                
1:47:55 PM                                                                                                                    
PAT GALVIN, Commissioner, Department  of Revenue  (DNR) explained                                                               
that the  state, Enstar and  ANGDA were working together  to form                                                               
the  organizing structure  for  developing  an in-state  pipeline                                                               
that would  initially be  built from the  existing fields  in the                                                               
Cook Inlet  area to Fairbanks with  the intent to provide  gas to                                                               
communities in  the interior  as soon as  possible. It  would use                                                               
existing Cook  Inlet gas reserves  and hoped to  spur exploration                                                               
of  new gas  reserves. If  new reserves  could not  be found  and                                                               
additional  gas was  needed for  Fairbanks and  South Central,  a                                                               
line would  continue north in  order to bring those  gas supplies                                                               
into the system.  They also saw an opportunity to  hook this line                                                               
into the  main line from  the North Slope,  so gas could  move in                                                               
either direction.                                                                                                               
                                                                                                                                
The  announcement was  the  beginning of  the  formation of  this                                                               
partnership. Details were  not worked out yet,  but they expected                                                               
to make  an agreement public within  a few months, at  which time                                                               
they  would   provide  more   detail  about   the  organizational                                                               
structure of  the entity and  the expected  financial involvement                                                               
of  the   players.  They  intended   to  provide   any  necessary                                                               
legislative requests at  the beginning of the  regular session in                                                               
January 2009.                                                                                                                   
                                                                                                                                
1:51:05 PM                                                                                                                    
CHAIR HUGGINS asked  Commissioner Galvin to review  what led from                                                               
SCR 22 to a news conference announcing this partnership.                                                                        
                                                                                                                                
COMMISSIONER  GALVIN responded  that Enstar  and ANGDA  have been                                                               
focused  on  in-state  gas  for   years.  Their  activities  were                                                               
undertaken   independent  of   each   other   and  sometimes   in                                                               
competition  with one  another. A  combination of  recent factors                                                               
had changed  the landscape surrounding this  issue, including the                                                               
state's focus on in-state gas and  the high price of energy. When                                                               
the administration's  discussions expanded in the  last couple of                                                               
months to  include Enstar  and ANGDA, with  the idea  of focusing                                                               
the  first phase  on getting  Cook Inlet  gas into  Fairbanks and                                                               
moving north from there, it  was recognized as an opportunity for                                                               
them to  work in  tandem if  an agreement  could be  reached. The                                                               
timing  was right  to advance  the  in-state line,  to provide  a                                                               
market for  Cook Inlet gas and  to get exploration going  in Cook                                                               
Inlet.                                                                                                                          
                                                                                                                                
1:55:07 PM                                                                                                                    
CHAIR HUGGINS  asked where they  got the 460 mcf/d  volume figure                                                               
that was mentioned.                                                                                                             
                                                                                                                                
COMMISSIONER GALVIN  said that was the  number Enstar anticipated                                                               
to be  their volume  coming south.  The actual  flow of  the line                                                               
would depend  upon the market  being served and the  initial line                                                               
north to Fairbanks would not  be that capacity because the market                                                               
was not sufficient for that  volume. The opportunity to expand it                                                               
to  that  size  would  come  with an  extension  north  into  the                                                               
foothills.                                                                                                                      
                                                                                                                                
1:56:08 PM                                                                                                                    
GENE  DUBAY  SR.,  Chief Operating  Officer,  Continental  Energy                                                               
Systems,  the parent  company of  Enstar, added  that they  could                                                               
meet the communities' needs at fewer than 500 mcf/d.                                                                            
                                                                                                                                
1:56:54 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  was  pleased  with  the  concern  for                                                               
exploration and  new reserves  in Cook  Inlet, but  wondered what                                                               
efforts  had been  made to  encourage exploration  in the  Nenana                                                               
Basin, which  is only  20 miles  from the  Railbelt. He  was told                                                               
that the  Basin was  comparable to  Cook Inlet  and had  not been                                                               
tapped yet, and thought development  there could save quite a bit                                                               
of pipeline and time.                                                                                                           
                                                                                                                                
COMMISSIONER GALVIN  answered that he was  absolutely right; when                                                               
he  talked about  phase one  connecting  the Cook  Inlet area  to                                                               
Fairbanks, one  issue was  whether gas would  be found  along the                                                               
route, and that would include  the Nenana Basin. The Nenana Basin                                                               
was close  enough to  the Fairbanks  area that  its gas  could be                                                               
linked into the  Fairbanks system. He added that  both Cook Inlet                                                               
and the  Nenana Basin  had fairly limited  markets, so  there was                                                               
not  much  incentive to  finance  exploration.  The new  pipeline                                                               
would spur interest in exploring both areas.                                                                                    
                                                                                                                                
1:58:58 PM                                                                                                                    
REPRESENTATIVE   GUTTENBERG   asked   if   they   had   initiated                                                               
discussions  with Doyon  Limited  on the  Nenana  Basin, or  Atna                                                               
Resources Ltd. in the Glennallen area yet.                                                                                      
                                                                                                                                
COMMISSIONER GALVIN replied that the  new venture had not reached                                                               
the  point  of  formal  discussions.  However,  the  state  as  a                                                               
resource  owner had  many discussions  over the  years with  both                                                               
Doyon and Atna  about where the gas  would go and the  need for a                                                               
pipeline to get it to market.                                                                                                   
                                                                                                                                
                                                                                                                                
2:01:25 PM                                                                                                                    
REPRESENTATIVE HAWKER was gratified  to hear of the collaboration                                                               
between Enstar,  the state  and ANGDA. He  wondered how  long the                                                               
administration  had   been  in  negotiations  with   Enstar  over                                                               
bringing  this  together,  and how  far  those  negotiations  had                                                               
really progressed.  The press  release sounded as  if a  deal had                                                               
been cut and he was interested to hear some more background.                                                                    
                                                                                                                                
2:02:35 PM                                                                                                                    
COMMISSIONER GALVIN responded that  discussions had been going on                                                               
separately for  quite a while,  but joint discussions  began only                                                               
recently.  The  administration  chose  to  wait  to  announce  it                                                               
publicly until  they had a  commitment from both parties  to work                                                               
together toward  one project. All  parties had committed  to work                                                               
diligently to reach  agreement on a binding contract  to bring to                                                               
the legislature with  a clear statement of what  the state's role                                                               
in it would be.                                                                                                                 
                                                                                                                                
2:04:47 PM                                                                                                                    
REPRESENTATIVE  HAWKER  said  the  press  release  was  the  only                                                               
information  he had  received. He  asked  Commissioner Galvin  to                                                               
comment on the public statement made  by a senior member at ANGDA                                                               
that "It is  a bit of a shotgun wedding..."  and they were thrown                                                               
together  very abruptly.  He  was  put off  by  the  use of  that                                                               
expression by one of the partners to this collaboration.                                                                        
                                                                                                                                
COMMISSIONER GALVIN did not know  who made that statement or what                                                               
the context was.                                                                                                                
                                                                                                                                
CHAIR HUGGINS  referred to  Commissioner Galvin's  statement that                                                               
the parties had  been working together for "some  time" and asked                                                               
Mr. Heinze to clarify how long "some time" meant.                                                                               
                                                                                                                                
2:05:48 PM                                                                                                                    
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority     (ANGDA),  explained  that   they  were                                                               
contacted two weeks  ago Monday to meet  with the administration,                                                               
and met with  Enstar for the first time the  Wednesday after that                                                               
[July 2, 2008].  From ANGDA's point of view it  was very early in                                                               
the process,  but that  did not  mean they  didn't have  a strong                                                               
commitment to it.                                                                                                               
                                                                                                                                
CHAIR HUGGINS asked if Mr. Heinze  or Mr. Dubay could address the                                                               
specific comment about a shotgun wedding.                                                                                       
                                                                                                                                
2:07:17 PM                                                                                                                    
MR.  DUBAY  confirmed  that  the   timeline  was  as  Mr.  Heinze                                                               
described. However,  they had been  working with  the legislature                                                               
and  the  administration for  a  while  regarding development  of                                                               
their project and their supply requirements for the community.                                                                  
                                                                                                                                
2:07:47 PM                                                                                                                    
CHAIR HUGGINS  said he  understood that  there were  two proposed                                                               
routes, one along the Parks  Highway and the other the Glennallen                                                               
spur route.  He asked  if that  was still true  or if  Enstar was                                                               
considering other routes.                                                                                                       
                                                                                                                                
MR. DUBAY  replied they had been  working on a project  along the                                                               
Parks Highway  and had  engineers in the  field to  better define                                                               
the  cost,  the  time  line, permitting,  and  the  environmental                                                               
issues on that route.                                                                                                           
                                                                                                                                
MR. HEINZE interjected that the  legislature needed to put all of                                                               
this in  context. Because  of Department  of Energy  studies that                                                               
had been  ongoing for  over 3  years, Enstar  and ANGDA  had both                                                               
participated in and  evaluated projects that would  use the Parks                                                               
Highway  and the  Glenn Highway/Richardson  route. Those  studies                                                               
were performed  by very  competent contractors  and made  part of                                                               
the public record. What changed a  week ago was that they were no                                                               
longer talking  just about a  project; they were talking  about a                                                               
business structure that  they would be involved  in and committed                                                               
to in a financial sense and in other ways. That would take time.                                                                
                                                                                                                                
2:10:32 PM                                                                                                                    
REPRESENTATIVE GARA said he had  heard many times since coming to                                                               
the legislature that  Cook Inlet would be out of  gas soon, so he                                                               
was surprised to  hear about a proposal that would  take gas from                                                               
Cook Inlet  north. He  asked Mr.  Dubay how  that jibed  with the                                                               
presentations of the  past few years that we were  running out of                                                               
gas in  Cook Inlet, and  with the fact  that about 40  percent of                                                               
Cook Inlet gas was being exported to Asia.                                                                                      
                                                                                                                                
2:11:39 PM                                                                                                                    
MR.  DUBAY advised  that Enstar  was not  in the  exploration and                                                               
production business and could only  supply the community with gas                                                               
purchased under contract.  So while they agreed  that there might                                                               
be a lot  more gas in the  Inlet, they could only  get the supply                                                               
they needed under contract through the  end of 2013, and only had                                                               
all the deliverability they needed  through the end of 2010. That                                                               
was why  they'd discussed  accessing additional  gas with  a line                                                               
into the community to serve their customers.                                                                                    
                                                                                                                                
MR.  HEINZE  added  that  ANGDA   would  describe  the  issue  as                                                               
deliverability, how much  gas could be made available  on a daily                                                               
basis on a cold  day in the middle of winter,  and he believed it                                                               
was  awfully  close  the  previous  winter.  He  noted  that  the                                                               
administration was part of an  agreement related to extending the                                                               
export  license  and  had negotiated  with  Conoco  Phillips  and                                                               
Marathon to  drill five  wells each; he  hoped those  wells would                                                               
improve deliverability and be part of the solution.                                                                             
                                                                                                                                
With regard  to the  possibility of sending  gas north,  they had                                                               
looked at the volumes involved and,  as he had stated in previous                                                               
presentations  about the  volumes  of in-state  gas, the  heating                                                               
load  was about  100  mcf/d;  about 115  mcf/d  was required  for                                                               
electrical,  and 250  mcf/d for  industrial use,  which was  very                                                               
close  to the  460  mcf/d number  Commissioner Galvin  mentioned.                                                               
More  importantly,  looking  ahead,  if they  fed  Golden  Valley                                                               
Electric,  the  refinery, and  Fairbanks  Natural  Gas, it  would                                                               
require less than  50 mcf/d, a fraction of what  was used in Cook                                                               
Inlet.  He summarized  that some  improvement in  the Cook  Inlet                                                               
situation might make a difference in supplying gas to Fairbanks.                                                                
                                                                                                                                
2:14:52 PM                                                                                                                    
REPRESENTATIVE  GARA saw  this as  a concept  plan rather  than a                                                               
proposal and  did not see  what the legislature  could accomplish                                                               
during this  special session.  He asked if  someone was  going to                                                               
assure them  that the investment  in a  bullet line to  serve the                                                               
Railbelt would  be more cost  effective than other  options, such                                                               
as hydro  power from Lake  Chakachamna or geo-thermal  power from                                                               
Mount Spur or more wind power.                                                                                                  
                                                                                                                                
COMMISSIONER  GALVIN replied  that they  would expect  to provide                                                               
information about the economics of  this project in comparison to                                                               
other options  that might be  available when they brought  them a                                                               
proposal  asking   for  state  participation.  To   preview  that                                                               
discussion  however,  he  anticipated   that  a  line  with  this                                                               
particular design would incorporate  a combination of things. Its                                                               
initial intent would  be to provide gas to Alaskans,  but also to                                                               
provide  the opportunity  for Cook  Inlet gas  and gas  along the                                                               
route to ultimately reach a market.  When they looked at the Cook                                                               
Inlet current reserves,  they were in the neighborhood  of 1.5 to                                                               
1.7 tcf.  Given current consumption,  that represented a 9  or 10                                                               
year supply.  The very conservative  estimates coming out  of the                                                               
Alaska  Division of  Geological &  Geophysical Surveys  (DGGS) of                                                               
technically recoverable, economic resources  that would likely be                                                               
found if  the investment  in exploration were  made, were  in the                                                               
neighborhood of 3  to 5 tcf. From the state's  perspective he saw                                                               
two competing  interests: 1) getting  gas to Alaskans  as quickly                                                               
as  possible  and  at  an  affordable price,  and  2)  trying  to                                                               
maximize  development  of  Alaska's   resources.  This  line  was                                                               
intended to serve both of those functions.                                                                                      
                                                                                                                                
2:18:22 PM                                                                                                                    
MR. HEINZE  illustrated the conceptual  nature of that  by saying                                                               
the governor  had not  asked the  organizations involved  to stop                                                               
what  they  were  doing.  ANGDA was  continuing  to  do  wetlands                                                               
determination  for a  300 mile  spur line  to Delta  Junction. He                                                               
said  what they  might do  as a  result of  conversations and  in                                                               
order  to meet  Fairbanks' needs  more quickly,  was to  continue                                                               
their  wetlands  work all  the  way  up  to Fairbanks  along  the                                                               
TransAlaska pipeline.  If they could  pre-build the spur  line to                                                               
Delta Junction with a pipe that  would hook into a big project at                                                               
some time in  the future, perhaps running  a high-density plastic                                                               
pipe  for  80  miles,  it   might  solve  both  problems  without                                                               
incurring a lot of additional cost.                                                                                             
                                                                                                                                
CHAIR  HUGGINS  asked   Mr.  Dubay  to  reflect,   based  on  his                                                               
experience,  on what  impediments  existed to  delivering gas  to                                                               
Alaskans.                                                                                                                       
                                                                                                                                
MR. DUBAY replied  that they were working on  the engineering for                                                               
a line  from Anchorage to  the foothills area  through Fairbanks.                                                               
As they were going ahead  with the engineering work, Anadarko was                                                               
proceeding with exploration  in the foothills area  and Doyon was                                                               
working on exploration  in the Nenana Basin; so  they were trying                                                               
to identify  the gas  that would  be available  on that  line. He                                                               
believed  they  had  the customer  demand  from  various  sources                                                               
including utilities; Agrium, which he  felt would commit to bring                                                               
the  plant back  up if  Anadarko or  Doyon made  a commitment  to                                                               
deliver gas; and a robust market in fertilizer and LNG.                                                                         
                                                                                                                                
He  said that  ANGDA  also had  contracts  before the  regulatory                                                               
commission  for  the  additional  supply  they  needed  for  2009                                                               
through  2013 and  that  was a  hurdle. If  they  were unable  to                                                               
secure approved  contracts for supply  in the short term,  he did                                                               
not see  how they could  have certainty  with regard to  a longer                                                               
term commitment either  for space in a line, or  for a commitment                                                               
to  purchase gas  from  a  producer. He  stressed  that they  all                                                               
needed to  work together; they needed  to get an agreement  and a                                                               
structure together as soon as possible.                                                                                         
                                                                                                                                
2:22:44 PM                                                                                                                    
MR.  HEINZE said,  in addition  to the  Regulatory Commission  of                                                               
Alaska  (RCA) and  the importance  of approved  supply contracts,                                                               
two other hurdles for an in-state pipeline were:                                                                                
                                                                                                                                
     1)   Project  permitting including  right-of-ways, U.S.                                                                    
     Army  Corps  of   Engineers  permitting,  Environmental                                                                    
     Impact  Statements  (EIS)  and other  permissions;  and                                                                    
     certification from the RCA as  a pipeline. He explained                                                                    
     that these  generally required  1 to  2 years  of field                                                                    
     work.                                                                                                                      
                                                                                                                                
     2)   An in-state open season  involving North Slope gas                                                                    
     would utilize a  portion of the statute  that had never                                                                    
     been  used  by  the  RCA.  They  would  recommend  some                                                                    
         changes to it that would give the RCA greater                                                                          
     flexibility in how it would deal with those issues.                                                                        
                                                                                                                                
2:23:40 PM                                                                                                                    
CHAIR HUGGINS opined  that it was incumbent  upon the legislature                                                               
to make  the RCA  effective, efficient, and  timely in  the long-                                                               
term.                                                                                                                           
                                                                                                                                
2:24:06 PM                                                                                                                    
REPRESENTATIVE CHENAULT  said he ought  to be happy to  hear talk                                                               
of revitalizing the Agrium plant,  which employed 300 people over                                                               
time; and he was  please that they seemed to have  a lot more gas                                                               
in Cook  Inlet than he  had realized. He  questioned Commissioner                                                               
Galvin's  statement that  the administration  was not  asking for                                                               
anything at that  time, because he had a request  for $25 million                                                               
from  the administration  for  engineering, permitting,  planning                                                               
and design  of this project,  which he  believed would end  up in                                                               
the capital project summary.                                                                                                    
                                                                                                                                
He also said, while he would love  to see more gas in Cook Inlet,                                                               
or gas  from the North Slope  to Cook Inlet or  the Railbelt area                                                               
for use by individuals, they  continued to talk about keeping the                                                               
Agrium plant in  business. In reality, whether Agrium  or the LNG                                                               
plant  could continue  to operate  would depend  on the  price of                                                               
that gas.  If the gas price  was too high it  wouldn't matter how                                                               
much there was, because they would  not be able to compete in the                                                               
world market. He was concerned about  investing a lot of money to                                                               
send gas north, spurring investment in  the Cook Inlet for only a                                                               
short time, and  felt they needed to do a  lot more talking about                                                               
it.                                                                                                                             
                                                                                                                                
2:26:33 PM                                                                                                                    
CHAIR HUGGINS said he saw the $25 million also.                                                                                 
                                                                                                                                
2:26:43 PM                                                                                                                    
MR. HEINZE responded that the $25  million was a request to cover                                                               
work  on the  right-of-way, preliminary  engineering, permitting,                                                               
planning, and design of a 370  mile spur line from Delta Junction                                                               
to Beluga. That line would be  a continuation of the project that                                                               
the legislature  had already been  funding and which he  felt was                                                               
in the  best interests of Alaskans.  He said they were  on a very                                                               
aggressive time-line and, if they  were to maintain that schedule                                                               
to reach  open season at the  same time as the  AGIA licensee, it                                                               
would require the $25 million.                                                                                                  
                                                                                                                                
2:28:19 PM                                                                                                                    
DAN  DICKINSON,  CPA under  contract  to  Legislative Budget  and                                                               
Audit  (LB&A),  said his  question  revolved  around whether  the                                                               
parties would  seek to have  this pipeline regulated by  the RCA,                                                               
to have the  initial certification done by the  legislature or by                                                               
some other process.                                                                                                             
                                                                                                                                
A lot  of this  had been  adjudicated in  a small  sense already.                                                               
Fairbanks Natural Gas was taking  gas from Cook Inlet, extracting                                                               
the  liquids and  trucking  them  up to  Fairbanks  where it  had                                                               
industrial customers. As  it began to have supply  issues, it had                                                               
some  adjudication  before  the  RCA   and  he  believed  it  was                                                               
extended, allowed a short-term contract,  and asked to find other                                                               
solutions. He  thought that,  earlier in  the year,  the solution                                                               
they came up with was a  supply contract with Exxon for the North                                                               
Slope, where  a small  amount of liquids  could be  extracted and                                                               
trucked south to Fairbanks. So the  RCA had already looked at the                                                               
issues of  supply and demand there  and whether it made  sense to                                                               
take  liquids up  to  Fairbanks. It  had come  up  with the  more                                                               
traditional view, which  was that exploration would  have to keep                                                               
going to make  the gas that would  be used in 2013  and beyond as                                                               
contracts expired.                                                                                                              
                                                                                                                                
2:30:04 PM                                                                                                                    
REPRESENTATIVE FAIRCLOUGH  noted that  a major concern  raised in                                                               
discussion over  the previous 30  days was triggering  the treble                                                               
damages  in the  AGIA clause  while providing  for in-state  gas.                                                               
Specific to that, 500 mcf/d would  be the trigger point for those                                                               
treble damages if  no in-state line existed and the  big line had                                                               
not been  built. With  that said,  she asked  Commissioner Galvin                                                               
and  Tony Palmer  if she  was correct  in her  understanding that                                                               
TransCanada wanted to provide the gas line itself for Alaska.                                                                   
                                                                                                                                
COMMISSIONER GALVIN asked which gas line she was referring to.                                                                  
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH replied  that she  meant the  in-state                                                               
gas line. She said that  in previous hearings TransCanada offered                                                               
to facilitate building the in state portion of the line.                                                                        
                                                                                                                                
TONY  PALMER, Vice  President,  Alaska Development,  TransCanada,                                                               
corrected that TransCanada's proposal had  been to build the main                                                               
line from  Prudhoe Bay to  Alberta and if sufficient  gas volumes                                                               
were nominated  to Valdez, they  would build the line  to Valdez.                                                               
They had  never proposed building  a "bullet line"  to Anchorage,                                                               
although  they had  proposed to  provide off-takes  off the  main                                                               
line, which would be available  along the route to Delta Junction                                                               
or, if a line were built to Valdez, along that route as well.                                                                   
                                                                                                                                
2:32:25 PM                                                                                                                    
REPRESENTATIVE  FAIRCLOUGH addressed  Commissioner Galvin  saying                                                               
that the  administration told  the legislators  30 days  ago that                                                               
half a  bcf was  sufficient off-take  for the  big line,  but the                                                               
proposal before them  was already at 460 mcf/d;  she wondered how                                                               
they were supposed  to balance that. If, within  a private sector                                                               
development, they had  460 mcf/d proposed to provide  gas to just                                                               
the  Anchorage or  Railbelt  area, she  wondered  how they  could                                                               
reconcile that  with his  statements that  .5 bcf/d  would handle                                                               
the entire in-state load until the big line was built.                                                                          
                                                                                                                                
COMMISSIONER GALVIN replied that the  460 mcf/d was Enstar's size                                                               
going  from the  foothills south;  that had  to do  as much  with                                                               
supply and  the amount of  throughput they anticipated as  it did                                                               
with  the expected  demand in  the  Cook Inlet  market. What  the                                                               
administration provided information on  was just the demand side,                                                               
that is how  much demand they expected to have  for Alaska during                                                               
the time  in which the treble  damages clause would be  a factor.                                                               
The 500 mcf/d would be more  than sufficient given that they also                                                               
had Cook Inlet supplies to meet the demand during that time.                                                                    
                                                                                                                                
He continued  to say  that on this  particular project,  the line                                                               
would go from  south to north to pick up  the additional needs of                                                               
folks along that line. He added  that it was difficult to balance                                                               
these things because  they were comparing apples  to oranges, and                                                               
the  question  came  down  to  why one  would  build  a  pipeline                                                               
designed with  a throughput of  greater than 500 mcf/d.  In state                                                               
demand could  not reasonably be  expected to exceed 500  mcf/d in                                                               
that  time frame,  so the  only reason  would be  to improve  the                                                               
economics  of the  line. From  the administration's  perspective,                                                               
the 460 mcf  figure provided corroboration of the  upper limit of                                                               
demand during the period to which treble damages would apply.                                                                   
                                                                                                                                
2:35:49 PM                                                                                                                    
MR. DUBAY  confirmed that  500 mcf/d should  meet the  demands of                                                               
the community based on historical load profiles.                                                                                
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH said  she  was not  convinced that  .5                                                               
bcf/d was  going to sustain the  state until 2017, which  was the                                                               
earliest they could reasonably expect to  see gas flow on the big                                                               
line.  She also  questioned whether  the state  was being  a good                                                               
partner  to TransCanada  by supporting  another  line that  would                                                               
pull customers away from them.                                                                                                  
                                                                                                                                
2:37:07 PM                                                                                                                    
MR. HEINZE  said a  reasonable projection for  heat and  light to                                                               
Alaskans would be  250 mcf per day. In  addition, Fairbanks might                                                               
take  50  mcf  per  day  for  the  refinery.  He  hoped  to  have                                                               
industrial customers as  well, but at open  season the applicants                                                               
would  have to  come  forward  with more  than  an expression  of                                                               
interest. He estimated the total  commitment for utilities in the                                                               
State of Alaska would be about  $10 billion, but they had not yet                                                               
found anyone  willing to even talk  in that scale of  numbers, so                                                               
he  felt  they  could  count  on  only  the  residential  utility                                                               
business.                                                                                                                       
                                                                                                                                
With  regard  to  the  relationship  with  TransCanada,  he  said                                                               
whether the pipe was Denali or  TC Alaska, they were customers of                                                               
that pipeline  and intended to  ship their  gas in the  first 540                                                               
miles of it. He saw no way  in which that would be in competition                                                               
with their purpose.                                                                                                             
                                                                                                                                
2:39:00 PM                                                                                                                    
REPRESENTATIVE FAIRCLOUGH  asked TransCanada if Alaska  was being                                                               
a good partner right now.                                                                                                       
                                                                                                                                
MR.  PALMER  answered  that  based   on  his  understanding,  the                                                               
proposal as  currently structured would  be within the  bounds of                                                               
AGIA and would  not breach in any way the  state's obligations to                                                               
TransCanada. As long as the  state stayed within those boundaries                                                               
he saw no problem.                                                                                                              
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH queried very  specifically whether a 20                                                               
inch pipe  that was proposed to  carry 460 mcf and  that could be                                                               
expanded to  over 500 mcf  would cause TransCanada to  attempt to                                                               
recover damages based on the treble damages clause in AGIA.                                                                     
                                                                                                                                
MR. PALMER  replied that  a 20  inch line  designed to  flow less                                                               
than 500  mcf/d and  actually flowing less  than 500  mcf/d until                                                               
the big  line was  in service, would  not trigger  treble damages                                                               
under AGIA.                                                                                                                     
                                                                                                                                
REPRESENTATIVE   FAIRCLOUGH   asserted   that  the   line   would                                                               
accommodate up to 700 mcf/d and  wanted to be clear that it would                                                               
not kick off the treble damages.                                                                                                
                                                                                                                                
MR. PALMER responded that the 700  mcf/d was a new number to him;                                                               
his understanding was that the  project would be designed to flow                                                               
less than  500 mcf/d.  By that  he meant that  it would  have the                                                               
facilities  installed to  flow less  than 500  mcf/d. He  gave an                                                               
illustration:  If   someone  constructed  a  48   inch  pipeline,                                                               
dribbled  through 460  mcf  a day  and took  a  subsidy from  the                                                               
state, it would  clearly be a breach. But if  the facilities were                                                               
designed and installed to flow less  than 500 mcf a day, it would                                                               
not trigger treble damages.                                                                                                     
                                                                                                                                
2:43:15 PM                                                                                                                    
STEVE PORTER,  Consultant to Legislative  Budget and  Audit, said                                                               
he thought that the clause was  intended to look at a 500 million                                                               
a day  project that  was in competition  to TransCanada,  and gas                                                               
coming from Cook Inlet and  going to Fairbanks would have nothing                                                               
to do  with that clause  so it was  nothing to worry  about. What                                                               
they might need  to worry about would be  competing against North                                                               
Slope gas.                                                                                                                      
                                                                                                                                
2:43:50 PM                                                                                                                    
MR. PALMER  read the portion of  the clause that dealt  with this                                                               
and  summarized that,  if over  500 mcf  of Cook  Inlet gas  were                                                               
going north it clearly would not be in competition.                                                                             
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH pointed  out that  they had  been told                                                               
they  could  not  "flag"  Alaska's molecules  [of  gas]  and,  if                                                               
Fairbanks  were  a  consumer,  it  would  put  TransCanada  in  a                                                               
position to  argue that it was  a competing line because  it took                                                               
away part of the market.                                                                                                        
                                                                                                                                
2:44:41 PM                                                                                                                    
MR.  HEINZE  said  there  was  also the  technical  part  of  the                                                               
question, which  was that a 20  inch pipe had a  varying capacity                                                               
to carry gas, depending on  how many compressor stations might be                                                               
installed.  He asserted  that, with  a 20  inch pipeline  and the                                                               
volumes needed  in Alaska,  they would  only need  one compressor                                                               
station located in  Glennallen to bring the gas  in. That project                                                               
would clearly be under 500 mcf/d.  If someone wanted to move more                                                               
gas  through that  pipeline at  some future  time, the  RCA would                                                               
require   the  addition   of   other   compressor  station/s   to                                                               
accommodate  greater  throughput.  The  upper end  number  was  a                                                               
reasonable estimate of what you could  get on that project if you                                                               
built it out all the way.                                                                                                       
                                                                                                                                
2:45:43 PM                                                                                                                    
MR. PORTER  agreed with Representative Fairclough  that, if there                                                               
were a  Fairbanks market for  over 500  mcf/d and that  took away                                                               
somehow  from  the  trunk  line,  it  might  be  a  problem;  but                                                               
Fairbanks would  need only about  50 mcf. He cautioned  that they                                                               
needed to focus on the business  plan and decide now whether they                                                               
wanted to  build the pipe  of a size  to take advantage  of North                                                               
Slope gas  coming south  in the  future. That  would be  the only                                                               
reason for the size of the pipe.  He also opined that this was an                                                               
opportunity  for  creativity  regarding  how  to  maximize  local                                                               
hiring and training, and recommended  they build this pipe before                                                               
the big one got underway as  there would not be enough workers to                                                               
build both at the same time.                                                                                                    
                                                                                                                                
2:47:34 PM                                                                                                                    
MR. PALMER  clarified that he was  the author of "you  can't flag                                                               
your molecules"  and that  was true once  they were  comingled in                                                               
the  pipeline.  However, they  would  know  the source  of  those                                                               
molecules and  the intention  was clear that  if there  were more                                                               
than  500 mcf  per  day  coming from  the  North  Slope it  would                                                               
trigger damages.                                                                                                                
                                                                                                                                
2:48:05 PM                                                                                                                    
COMMISSIONER GALVIN wanted to clear  up a misconception regarding                                                               
the issue of  competing gas. He said the competition  was for the                                                               
gas,  not for  the market,  not for  the sale.  The question  was                                                               
whether they  were trying to move  North Slope gas off  the North                                                               
Slope at greater  than 500 mcf/d. The reason  this discussion was                                                               
relevant was due to the possibility  of phase two of the project.                                                               
If they planned  to build from Fairbanks north  to the foothills,                                                               
that area was considered under  the definition of AGIA to contain                                                               
North Slope gas.  If they simply built phase one  from Cook Inlet                                                               
to Fairbanks  and sufficient supplies  were discovered  either in                                                               
Cook Inlet  or along the route  so they never had  to build phase                                                               
two,  it   would  have  absolutely   no  implications   for  AGIA                                                               
regardless of  the size  or the design.  He emphasized  that when                                                               
they  talked  about  460  mcf/d   they  were  talking  about  the                                                               
potential for a  line going up to the foothills  and bringing gas                                                               
down.  So phase  one would  have no  implications under  AGIA; it                                                               
would only be an issue if they  had to build the second phase and                                                               
bring North Slope gas down into the rest of the state.                                                                          
                                                                                                                                
2:49:34 PM                                                                                                                    
CHAIR   HUGGINS  said   he  shared   Representative  Fairclough's                                                               
concern; the  legislature wanted to  get gas to Alaskans  and did                                                               
not want any impediment to that.                                                                                                
                                                                                                                                
2:49:51 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  said  that   as  he  understood  it,  the                                                               
difference between today and the  day before the press conference                                                               
was that  there had been  the announcement of a  partnership that                                                               
had yet to be formed, to ship  gas that had yet to be discovered,                                                               
in what  seemed to most  people to be  the wrong direction,  in a                                                               
pipeline that  had yet to be  built and details would  follow. He                                                               
asked if he had gotten the gist of it.                                                                                          
                                                                                                                                
2:50:54 PM                                                                                                                    
COMMISSIONER    GALVIN     conceded    Representative    Doogan's                                                               
characterization   of  the   situation,   but   noted  that   the                                                               
administration  deemed  it  a  significant  advancement  to  have                                                               
Enstar and  ANGDA working  together to  advance this  project. He                                                               
agreed  that,  before asking  for  anything  associated with  the                                                               
project, the  state would have  to provide much  more information                                                               
than they  had done  to date;  but they were  not at  that point.                                                               
Going back  to the question  about the appropriation  however, he                                                               
said  that money  was being  requested  to get  the route  moving                                                               
because  it would  satisfy either  outcome, a  spur line  or this                                                               
particular project.                                                                                                             
                                                                                                                                
2:52:12 PM                                                                                                                    
CHAIR  HUGGINS  requested  a  tentative   time-line  to  reach  a                                                               
contract.  He   also  asked  that   the  energy   coordinator  be                                                               
introduced to the committee and made available for questions.                                                                   
                                                                                                                                
2:53:00 PM                                                                                                                    
REPRESENTATIVE  SALMON indicated  on  the map  that the  pipeline                                                               
proposed to cross the Tanana and  Yukon Rivers. He said there was                                                               
another route that  ran from Nenana up and down  the Yukon River,                                                               
which should  also be considered.  He pointed out that  there had                                                               
been little discussion about which  route would be used, or about                                                               
the possibility of barging gas to river villages.                                                                               
                                                                                                                                
2:54:52 PM                                                                                                                    
COMMISSIONER GALVIN  referred Representative Salmon's  concern to                                                               
Mr. Heinze.                                                                                                                     
                                                                                                                                
MR. HEINZE responded that ANGDA  recognized at least one third of                                                               
the  population could  not be  reached  by pipeline.  Fortunately                                                               
North  Slope  gas  is  extraordinarily  rich  in  propane;  their                                                               
estimate was that  over 50,000 barrels of propane a  day could be                                                               
carried down a big mainline pipe.  With that in mind, they looked                                                               
at what  it would take  to separate  propane at the  Yukon River,                                                               
for instance,  and move  it up  and down  the river  system. They                                                               
believed that  had a lot of  potential and were working  with the                                                               
City of Tanana on a  demonstration project to understand how they                                                               
would use propane in that community,  which they felt was the key                                                               
question. He had  also hired a propane coordinator  who was under                                                               
contract  to  develop  a commercial  wholesale  propane  facility                                                               
within one year, with the  cooperation of the producers. He added                                                               
that it might also be of  value to truck propane to Fairbanks, as                                                               
it was  not uncommon in the  gas industry to feed  a distribution                                                               
system with a propane/air mixture.                                                                                              
                                                                                                                                
2:56:42 PM                                                                                                                    
REPRESENTATIVE SALMON said  it seemed as if  private industry was                                                               
again dictating  to the  state what  it could  and could  not do,                                                               
when the state  should have been telling them what  it wanted. He                                                               
asserted that  the state had  an infrastructure already  in place                                                               
off Nenana and they should use it.                                                                                              
                                                                                                                                
2:57:18 PM                                                                                                                    
MR. HEINZE reminded  him that the legislature funded  both of the                                                               
programs he had been talking about.                                                                                             
                                                                                                                                
2:57:33 PM                                                                                                                    
REPRESENTATIVE    RAMRAS   applauded    Mr.   Galvin    and   the                                                               
administration  for  moving  so  aggressively  to  facilitate  an                                                               
agreement between ANGDA  and Enstar. He asked if he  could have a                                                               
list  of the  meetings  the administration  had  had with  Enstar                                                               
specific to  this issue.  He also  reminded Senator  Stedman that                                                               
they  were  only  seven  days  away  from  voting  on  AGIA,  and                                                               
reiterated  his  request  for  a list  of  meetings  between  the                                                               
administration and the producers with  regard to getting gas into                                                               
the line.                                                                                                                       
                                                                                                                                
CHAIR  HUGGINS  said  he would  provide  both  of  Representative                                                               
Ramras' requests to the administration in writing.                                                                              
                                                                                                                                
2:59:34 PM                                                                                                                    
SENATOR  WIELECHOWSKI said  he  had  heard in  at  least a  dozen                                                               
presentations that  they were running  out of gas in  Cook Inlet,                                                               
so he was surprised  to see a proposal to send  gas north. He had                                                               
also  heard that  the cost  of building  a bullet  line from  the                                                               
North  Slope down  to Anchorage  would be  about $3  billion; the                                                               
cost to  import LNG for  natural gas  would be about  $3 billion;                                                               
and the  cost of exploration  to get more  gas out of  Cook Inlet                                                               
would  be about  $3 billion.  When  the legislature  took up  the                                                               
issue  of  an in-state  gas  line  in  the special  session,  the                                                               
administration was  violently opposed to  it and said  Alaska was                                                               
better off building the big line  and using economies of scale to                                                               
keep the  tariffs low.  He wondered what  had happened  to change                                                               
their opinion.                                                                                                                  
                                                                                                                                
3:00:35 PM                                                                                                                    
COMMISSIONER    GALVIN     disagreed    with     the    Senator's                                                               
characterization  that  they  were  "violently  opposed"  to  the                                                               
resolution.  The  issue  at  the  time  was  the  timing  of  the                                                               
resolution  and  the purpose  of  the  issue  coming up  at  that                                                               
particular  moment.  Regarding economies  of  scale,  that was  a                                                               
recognition that in  the long term, the focus was  on getting gas                                                               
off the  North Slope,  getting it to  market, and  providing both                                                               
revenue to  the state  and the opportunity  for off-take  of that                                                               
gas  for  Alaskans.  They acknowledged,  within  that  same  time                                                               
frame,  that  a bullet  line  was  part  of the  discussion.  The                                                               
economics of  a bullet  line remained in  question, but  they had                                                               
said  consistently  that  the state's  involvement  in  either  a                                                               
bullet line  or a spur line  was a factor in  those economics. It                                                               
was a  question of what  would give the  state the best  bang for                                                               
the buck.                                                                                                                       
                                                                                                                                
They  talked about  Cook Inlet  running  out of  gas because  the                                                               
known  supplies of  gas  were  being depleted  and  they had  not                                                               
discovered  any new  gas  fields, although  a  number of  studies                                                               
indicated that  they should  be out there.  The evolution  of the                                                               
discussion, which  spurred the  group to  come together,  was the                                                               
administration's  suggestion  that  they combine  the  issues  of                                                               
giving Cook  Inlet gas  the opportunity  to reach  bigger markets                                                               
and  spurring interest  in exploration,  while  also meeting  the                                                               
short-term need to get gas to Alaskans as soon as possible.                                                                     
                                                                                                                                
With the formation  of this idea to go from  Cook Inlet north and                                                               
then build off  from there if necessary,  the economic discussion                                                               
changed;  they were  no longer  looking simply  at the  most cost                                                               
effective way of delivering gas  to Alaskans, but also at getting                                                               
Cook Inlet  gas to market.  In that context the  analysis changed                                                               
and the  opportunity presented  itself for the  state to  do more                                                               
than just fulfill the needs of the households along the way.                                                                    
                                                                                                                                
3:04:34 PM                                                                                                                    
CHAIR HUGGINS  asked what the  difficulty was with the  timing of                                                               
the resolution.                                                                                                                 
                                                                                                                                
COMMISSIONER GALVIN  could not recall  and thought it  might have                                                               
been because they were near the end of the session.                                                                             
                                                                                                                                
CHAIR  HUGGINS pointed  out  it  was only  half  way through  the                                                               
session  and  said  he  took   exception  to  the  commissioner's                                                               
comments as he had offered that resolution.                                                                                     
                                                                                                                                
3:05:15 PM                                                                                                                    
REPRESENTATIVE HAWKER  asked Mr.  Dubay about the  impediments he                                                               
saw  to  expanding their  ability  to  deliver gas  to  Alaskans,                                                               
particularly  the RCA  regulatory  hurdle they  were facing  with                                                               
their  existing  contracts.  He  commented that  he  had  read  a                                                               
newspaper article  recently that  said Chugach Electric  filed as                                                               
an "intervener"  in their regulatory proceedings,  and questioned                                                               
whether  Chugach's  counsel  was   also  under  contract  to  the                                                               
administration. He was also interested  in the issue of expansion                                                               
permitting in Cook Inlet.                                                                                                       
                                                                                                                                
3:06:43 PM                                                                                                                    
MR. DUBAY  clarified that when  he spoke of "impediments"  he was                                                               
not referring  to construction, engineering, or  licensing, which                                                               
he  considered tasks  rather than  impediments.  He acceded  that                                                               
Chugach was  an intervener in  their gas contracts case  and that                                                               
two of  the experts  Chugach was using  were Litsinger  and Hosie                                                               
[Spencer Hosie,  Hosie/Rice LLP],  who had represented  the state                                                               
on  royalty  issues.  The  experts took  the  position  that  the                                                               
producers were obligated under royalty  agreements to develop and                                                               
produce  the reserves,  so Enstar  didn't really  need to  meet a                                                               
market price.  That position conflicted with  Enstar's, which was                                                               
that  they  wanted  to  see the  producers  continue  to  develop                                                               
reserves in the  inlet and were looking for ways  to promote that                                                               
interest.                                                                                                                       
                                                                                                                                
Enstar supported relicensing  the LNG plant because  they felt it                                                               
was an important anchor as a customer  off a new line, and that a                                                               
longer license period would give  the producers more incentive to                                                               
develop production  within the inlet,  off the foothills,  in the                                                               
Nenana Basin  or anyplace where they  had access to a  line. That                                                               
license was extended through 2011.                                                                                              
                                                                                                                                
3:10:33 PM                                                                                                                    
REPRESENTATIVE  HAWKER thanked  Mr. Dubay  for his  testimony and                                                               
commented  that  he would  feel  much  better  if he  could  hear                                                               
additional  details   from  Chugach  to  better   understand  the                                                               
foundation of the regulatory dispute.                                                                                           
                                                                                                                                
3:11:16 PM                                                                                                                    
CHAIR HUGGINS asked the commissioner if he had any comments.                                                                    
                                                                                                                                
COMMISSIONER GALVIN said he had nothing to add.                                                                                 
                                                                                                                                
CHAIR HUGGINS  encouraged each member of  the Judiciary Committee                                                               
to look  at the propriety of  having legal experts being  paid to                                                               
look at both sides of the issue.                                                                                                
                                                                                                                                
3:11:28 PM                                                                                                                    
SENATOR DYSON  said he knew  of no  Cook Inlet geologist  who did                                                               
not think there was a lot  more gas in Cook Inlet. USGS testified                                                               
only a week or so before  that there was a reasonable expectation                                                               
of  17  tcf/d  in  Cook Inlet.  Senator  Wagoner,  Representative                                                               
Keller and  he wrote  to the president  asking for  permission to                                                               
explore in  the Eastern part  of the  Cook Inlet basin  under the                                                               
federal  lands  and,  thanks to  Senator  Steven's  efforts  they                                                               
received  some interesting  contact  from the  Department of  the                                                               
Interior about  that. He stressed  however, that in order  to get                                                               
the  explorers to  spend money  on Cook  Inlet exploration  there                                                               
would  have to  be a  market  for more  gas, and  that meant  the                                                               
industrial users.                                                                                                               
                                                                                                                                
He felt they had done a  good job of providing tax advantages for                                                               
Cook Inlet explorers, and the  administration gave the LNG export                                                               
license some teeth for replacing  if not increasing the reserves;                                                               
but  people who  knew Cook  Inlet economics  had been  saying for                                                               
years that  they needed to  build a spur  line or bullet  line to                                                               
connect with  the main line  and give them a  decades-long market                                                               
to all of North America.                                                                                                        
                                                                                                                                
CHAIR HUGGINS paused to recognize Representative Richard Foster.                                                                
                                                                                                                                
3:14:47 PM                                                                                                                    
SENATOR THOMAS  said he had been  looking at the Econ  One demand                                                               
study  published   in  2002,  which  combined   the  residential,                                                               
commercial and  industrial historical  use figures  and projected                                                               
them out  to 2020.  They also  calculated a  petrochemical plant,                                                               
doubled Agrium,  put server barns  in place in  Alaska, converted                                                               
every coal  burning generator and plant  to gas and even  put gas                                                               
in  places for  which there  was no  transportation. He  believed                                                               
that is  where people were getting  the figure of half  a bcf per                                                               
day of  gas in 2020.  He wondered  what would drive  the drilling                                                               
operation in  Cook Inlet to get  things moving if Agrium  was out                                                               
of business and they couldn't  supply Fairbanks with natural gas.                                                               
What could they do to get exploration moving?                                                                                   
                                                                                                                                
MR.  DUBAY ventured  that  to invest  in  exploration a  producer                                                               
would want to understand where  they could sell what was produced                                                               
and what  they would be  paid for it.  He pointed out  that there                                                               
was  some uncertainty  with regard  to the  market. Agrium  could                                                               
take  gas if  it was  in sufficient  quantity to  keep the  plant                                                               
going,  but there  had been  some uncertainty  because their  LNG                                                               
plant license  was scheduled  to expire in  2009. There  was also                                                               
uncertainty with regard  to the price, because  their last supply                                                               
contract with Marathon was rejected by the RCA.                                                                                 
                                                                                                                                
3:18:41 PM                                                                                                                    
MR.   HEINZE  added   that  to   the  extent   oil  prices   were                                                               
significantly above  what they had  been one year  before, anyone                                                               
in the  exploration/production business had  tremendous incentive                                                               
to find places to increase their  production of both oil and gas,                                                               
and they  were doing  that. He  felt there  should be  some price                                                               
effect in Cook  Inlet as well, but they may  not have been seeing                                                               
the full  price effect on the  supply side. The other  part of it                                                               
was the uses  of gas in Alaska; fertilizer,  LNG delivered across                                                               
the  Pacific  Rim, all  of  those  commodity  prices were  up  so                                                               
significantly that  the economics  of those activities  were very                                                               
attractive, yet they were not seeing a lot of people respond.                                                                   
                                                                                                                                
3:19:58 PM                                                                                                                    
SENATOR THOMAS opined that building  the line north sooner rather                                                               
than later seemed like a wise idea.                                                                                             
                                                                                                                                
3:20:14 PM                                                                                                                    
SENATOR COWDERY  asked Mr. Palmer  what would have to  happen for                                                               
the state  to incur  treble damages.  He also  questioned whether                                                               
the price of  Cook Inlet gas going south would  be the same price                                                               
as that going north.                                                                                                            
                                                                                                                                
3:21:17 PM                                                                                                                    
MR.  PALMER said  the  statute set  the  responsibilities of  the                                                               
state out  quite clearly with  regard to what would  incur treble                                                               
damages.  If the  state granted  TransCanada a  license and  then                                                               
breached  the  statute by  providing  financial  incentives to  a                                                               
competing project  of over .5  bcf/d it  would be obliged  to pay                                                               
treble damages.                                                                                                                 
                                                                                                                                
He  could not  answer  Senator Cowdery's  question regarding  the                                                               
price  of gas  coming south  from Prudhoe  Bay. If  Fairbanks gas                                                               
were connected  to the overall  marketplace in North  America, it                                                               
would be a fairly  straightforward calculation, not specifically,                                                               
but a basis differential between  transportation points along the                                                               
pipeline would  be relatively  straightforward to  understand. If                                                               
there were no  liquid market in Fairbanks and  the large pipeline                                                               
was in place,  you could get a  proxy of what the  price would be                                                               
by looking  at the first  liquid market, which would  be Alberta,                                                               
and  deducting  the transportation  costs.  It  might not  always                                                               
trade in Fairbanks at that  exact cost differential, but it would                                                               
often trade in that range. If  Fairbanks was not connected to the                                                               
North American market and you  were strictly moving gas from Cook                                                               
Inlet north, you'd have to look at  a test case of how Cook Inlet                                                               
gas was being  priced. He suggested that Mr. Dubay  might be able                                                               
to add something.                                                                                                               
                                                                                                                                
3:23:42 PM                                                                                                                    
MR. DUBAY  said they had  gas under  contract using both  a Henry                                                               
Hub price and an oil  index price. Under proposed contracts, they                                                               
had  a  number  of  different  delivery  points  for  Conoco  and                                                               
Marathon. He  emphasized that they  had not  negotiated contracts                                                               
beyond 2014,  so he did not  want to guess what  that price would                                                               
be, but  said that usually  where there was more  production than                                                               
demand, there was  a discount to the index. Where  there was less                                                               
production than  demand, there  was some kind  of premium  to the                                                               
index. They  were hoping to  have more production  available into                                                               
Cook  Inlet than  they  had  demand. If  what  happened in  other                                                               
producing  areas was  an indicator,  they  should end  up with  a                                                               
discount and a better price.                                                                                                    
                                                                                                                                
3:26:39 PM                                                                                                                    
REPRESENTATIVE SAMUELS asked if his  business model was to become                                                               
the local distributing company (LDC) in Fairbanks.                                                                              
                                                                                                                                
3:27:15 PM                                                                                                                    
MR. DUBAY replied not at this point.                                                                                            
                                                                                                                                
REPRESENTATIVE  SAMUELS   asked  if  Enstar  would   need  strong                                                               
assurances that they would have  more exploration, more gas and a                                                               
big pipeline before  they would put their  shareholders' money in                                                               
the south to north project.                                                                                                     
                                                                                                                                
MR. DUBAY replied not necessarily.  They had been working for the                                                               
past  several months  toward developing  a line  along the  Parks                                                               
Highway route from  Anchorage to the Foothills.  When they looked                                                               
at  the  business  model  for   that  pipeline,  they  looked  at                                                               
Fairbanks being part  of that load, but saw them  as a "city gate                                                               
customer."  That is,  they  would not  have  all the  residential                                                               
users;  they  would  be  delivering  gas  to  Fairbanks  and  the                                                               
industries   around  Fairbanks,   but   it   wouldn't  be   their                                                               
distribution system. He clarified that  when he talked about "the                                                               
customer  group" he  was talking  about Agrium,  the Flint  Hills                                                               
Refinery  and that  type of  customer. Production  would be  from                                                               
Anadarko and Conoco  Phillips in the foothills and  Doyon if they                                                               
found gas  in the Nenana  Basin. If  they started south  to north                                                               
and a  lot of gas  became available in  the Cook Inlet,  he could                                                               
see how they might continue past Fairbanks.                                                                                     
                                                                                                                                
3:30:22 PM                                                                                                                    
REPRESENTATIVE  SAMUELS  submitted  that   it  would  not  be  in                                                               
Enstar's business model  to put their capital at  risk before gas                                                               
was  committed to  the pipeline.  He asked  how the  timing would                                                               
work.                                                                                                                           
                                                                                                                                
3:30:56 PM                                                                                                                    
MR. DUBAY  replied that they  were trying to get  the engineering                                                               
done in early  2009 and were scheduled to meet  with Anadarko the                                                               
following  week with  regard to  their  drilling and  exploration                                                               
activity. He  expected them to commit  to having two rigs  in the                                                               
foothills  for  the next  drilling  season.  They  had a  lot  of                                                               
permitting and  environmental work to  do between spring  of 2009                                                               
and  2010, but  he believed  that they  would be  ready to  dig a                                                               
trench in 2010  that would give them lot more  data about the gas                                                               
available to the line before  they committed hundreds of millions                                                               
of dollars.  Overall he  felt the timing  should work  out pretty                                                               
well for gas delivery in Cook Inlet in 2014.                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS  questioned, since Anadarko had  no way of                                                               
knowing when the  big line would be built, when  they would start                                                               
spending exploration capital.                                                                                                   
                                                                                                                                
MR. DUBAY  said he was  reassured by  the fact that  Anadarko was                                                               
already spending  significant dollars on its  exploration effort.                                                               
He reiterated that  he was confident by the time  they were ready                                                               
to lay  pipe next year,  Anadarko would have the  confidence they                                                               
needed that  the line would be  built, and Enstar would  have the                                                               
confidence they  needed that  they'd have supply  to go  into the                                                               
line.                                                                                                                           
                                                                                                                                
3:34:34 PM                                                                                                                    
MR. HEINZE added that the  question Representative Samuels raised                                                               
of whether you  drill wells before there is a  pipeline, or build                                                               
a pipeline  before you drill  wells, was  a fairly common  one in                                                               
the  industry. In  Wyoming, the  Wyoming Natural  Gas Development                                                               
Authority played  a major role  in standing between  the pipeline                                                               
builders  and the  explorers and  giving both  the confidence  to                                                               
move forward.  The result was  the timely building of  a pipeline                                                               
to tap into  the drilling of exploration wells.  He suggested the                                                               
state consider  some way  to encourage  both activities  to occur                                                               
and lessen risk for the capital investment involved.                                                                            
                                                                                                                                
3:35:25 PM                                                                                                                    
MR. PORTER went back to Senator Cowdery's question about treble                                                                 
damages and whether changing the production tax would trigger                                                                   
them. The production tax discussions occurred before, during and                                                                
after AGIA; there was a plan to deal with the gas tax issue and                                                                 
it was not intended to be in conflict. The statute itself said                                                                  
"if the state extends to another person preferential royalty or                                                                 
tax treatment..." so changing the gas tax equally for all                                                                       
parties without regard to a specific project would not trigger                                                                  
damages. He cautioned however, that extending TransCanada's                                                                     
benefits, such as fiscal certainty at open season for their                                                                     
shippers, to other parties would be in violation.                                                                               
                                                                                                                                
3:36:50 PM                                                                                                                    
CHAIR HUGGINS announced a break at 3:36:58 PM.                                                                                
                                                                                                                                
CHAIR HUGGINS called the meeting back to order at 3:57:39 PM.                                                                 
                                                                                                                                
BILL  WALKER, Project  Director,  Alaska  Gasline Port  Authority                                                               
(AGPA),  said  this   had  been  a  helpful   discussion  and  he                                                               
appreciated the  opportunity to comment.  They were  surprised to                                                               
read about this  association in the media and would  like to have                                                               
had the  opportunity to learn about  it and see where  they could                                                               
add value to  it; but their calls to Enstar  attempting to set up                                                               
a meeting were not returned.                                                                                                    
                                                                                                                                
He was concerned to know how  they could work within the confines                                                               
of the  exclusive license without triggering  the treble damages.                                                               
Looking  at  life after  AGIA,  he  wondered whether  they  could                                                               
continue to  work on the  project they  had been pursuing  for 10                                                               
years, a  line from Prudhoe  Bay to  Valdez, without in  some way                                                               
violating AGIA.                                                                                                                 
                                                                                                                                
He stated that  their project remained the same,  an "all Alaska"                                                               
line from  Prudhoe Bay  to Valdez. They  had always  believed the                                                               
most economic gas  would come off a large line,  so their project                                                               
called for a 48 inch pipe to Delta  and a 42 inch pipe to Valdez,                                                               
with a spur line off at Delta.                                                                                                  
                                                                                                                                
He  introduced   Radoslav  Shipkoff   to  respond   to  questions                                                               
regarding the financial aspects of their LNG project.                                                                           
                                                                                                                                
4:01:36 PM                                                                                                                    
REPRESENTATIVE CRAWFORD  noted that when they  were talking about                                                               
the  liquifaction facility,  the administration  provided numbers                                                               
that were  much higher than what  the Port Authority had  come up                                                               
with. He wondered if the time  frame in which they were generated                                                               
could account for the difference between their numbers.                                                                         
                                                                                                                                
4:02:25 PM                                                                                                                    
RADOSLAV SHIPKOFF, Financial Advisor,  Greengate LLC, agreed that                                                               
the  LNG plant  was one  of  the principal  areas of  discrepancy                                                               
between  their  assumptions  and  the  assumptions  used  by  the                                                               
administration in  their evaluation of the  relative economics of                                                               
the two projects. The Port  Authority's estimate was developed by                                                               
Bechtel  on the  basis  of an  extensive  technical study,  which                                                               
involved  a large  team  of highly  qualified  engineers who  had                                                               
extensive experience in  implementing large liquifaction projects                                                               
of  this  type.  Their   understanding  of  the  administration's                                                               
analysis based on  the materials that were made  public was that,                                                               
rather than  creating a bottom-up  evaluation of the cost  of the                                                               
plant taking into account the  specifics of the proposed project,                                                               
they  implemented a  top-down approach,  which had  taken a  wide                                                               
database  of projects  implemented world-wide  and looked  at the                                                               
variability of  costs per ton  of capacity. They  then translated                                                               
that into  what, in the view  of that analysis, the  cost per ton                                                               
of capacity would  be for the Valdez Project  and translated that                                                               
cost per  ton into the  figure for the  total plant based  on the                                                               
capacity AGPA was proposing.                                                                                                    
                                                                                                                                
MR. SHIPKOFF pointed out several  problems with that methodology.                                                               
The commercial and technical  literature frequently cited dollars                                                               
per ton for the  cost of LNG plants, but not  all LNG plants were                                                               
the same. One would have to  take into consideration the scope of                                                               
the  project, the  specific  technical  parameters involved  with                                                               
that scope, and the location.                                                                                                   
                                                                                                                                
He  explained that  the location-specific  factors would  make it                                                               
very  difficult to  compare  a  project in  one  location with  a                                                               
project  in  another location.  For  example,  many LNG  projects                                                               
involved  an integrated  gas monetization  solution which  had an                                                               
upstream  component  and, tied  to  the  upstream component,  the                                                               
liquifaction onshore  aspect. The LNG plant  in itself frequently                                                               
included  gas   treatment  facilities  including   liquid  sludge                                                               
removal,    condensate   stabilization,    acid   gas    removal,                                                               
dehydration, and  mercury removal. All of  those components would                                                               
be included in  the figure cited as dollars per  ton. In the case                                                               
of this  project, that function  would be performed on  the North                                                               
Slope.                                                                                                                          
                                                                                                                                
A second technical aspect that did  not appear to have been taken                                                               
into account by  the administration was the high  pressure of the                                                               
feed  gas  fed  into  the   Valdez  plant  from  Prudhoe  Bay.  A                                                               
significant amount of cost which  would otherwise be installed in                                                               
the plant  for compression could  be saved because the  gas would                                                               
arrive at high pressure. The  ambient conditions should also have                                                               
been taken  into account  as the colder  climate in  Valdez would                                                               
create additional  savings. Bechtel advised that  the combination                                                               
of high pressure feed gas  and the ambient conditions alone would                                                               
result in cost savings of between 35 and 40 percent.                                                                            
                                                                                                                                
Site preparation  would also  vary greatly  from one  location to                                                               
another,  as  would  the  cost  of  marine  terminal  facilities.                                                               
Bechtel's  estimate was  based specifically  on the  Anderson Bay                                                               
location, which had very favorable  conditions with regard to the                                                               
costs associated with the marine terminal.                                                                                      
                                                                                                                                
Additionally,  one would  not generally  know what  comprised the                                                               
figures that  were put out in  the public domain or  whether they                                                               
were inflated. So  when you put all of  those variables together,                                                               
this methodology  would not result in  a probability distribution                                                               
of  the capital  cost of  the LNG  plant, which  was supposed  to                                                               
reflect the  risk profile of  the LNG  plant in Valdez.  It would                                                               
really  reflect  the  distribution  and the  variability  of  the                                                               
various factors that were location specific.                                                                                    
                                                                                                                                
4:08:00 PM                                                                                                                    
He  pointed out  that the  probability distribution  presented by                                                               
the administration  with respect to  the LNG  plant had a  p25 to                                                               
p75 variability, which was $6 to  $8 billion compared to the p25,                                                               
p75 variability of  the pipeline, which was only  $2 billion. The                                                               
engineers who looked  at cost risks associated  with the pipeline                                                               
and the LNG plant told  them that the cost variability associated                                                               
with the pipeline  was significantly larger than that  of the LNG                                                               
plant,  because the  unknowns associated  with the  pipeline were                                                               
significantly  greater. While  they would  certainly expect  some                                                               
unknowns with an LNG plant,  they used a fairly well established,                                                               
proven design.                                                                                                                  
                                                                                                                                
4:09:50 PM                                                                                                                    
CHAIR  HUGGINS  asked   if  he  agreed  or   disagreed  with  the                                                               
administration's analysis.                                                                                                      
                                                                                                                                
MR.   SHIPKOFF    replied   that   they   disagreed    with   the                                                               
administration's estimate  of the cost  of the LNG  plant because                                                               
they did  not believe  it took into  account factors  specific to                                                               
the  location.  He   said  they  did  agree  with   some  of  the                                                               
assumptions  regarding prices  in various  potential markets  for                                                               
the LNG  project; so  if he  used the  LNG plant  cost assumption                                                               
developed  by  Bechtel and  a  range  of assumptions  for  prices                                                               
developed  by   both  the  administration  and   the  legislative                                                               
consultant, a strong case could be  made that, under a wide range                                                               
of price scenarios, the economic  proposition to the producers in                                                               
terms of netback  price per Mmbt on the North  Slope was the most                                                               
attractive for the LNG project.                                                                                                 
                                                                                                                                
4:11:04 PM                                                                                                                    
REPRESENTATIVE GATTO said  he was confused by  the assertion that                                                               
costs  could   be  reduced  40   percent  due   to  environmental                                                               
conditions  affecting  the gas.  He  asked  if Mr.  Shipkoff  was                                                               
mixing operational costs with construction costs.                                                                               
                                                                                                                                
MR.  SHIPKOFF  answered  that   temperature  and  pressure  would                                                               
directly  influence  capital  costs because  they  determine  the                                                               
amount of compression  necessary to liquefy the  gas, which would                                                               
be installed as part of the capital costs.                                                                                      
                                                                                                                                
REPRESENTATIVE GATTO  asked if he  was saying  the administration                                                               
failed to include those factors in their analysis.                                                                              
                                                                                                                                
MR.  SHIPKOFF   said  he   had  seen   only  the   materials  the                                                               
administration  made  public and  had  tried  to determine  their                                                               
methodology from  that. Based on  their description,  it appeared                                                               
that they  had derived  their cost  per ton  estimate based  on a                                                               
database  of projects  worldwide,  most of  which had  conditions                                                               
that differed  significantly from  the unique conditions  of this                                                               
project.                                                                                                                        
                                                                                                                                
4:13:09 PM                                                                                                                    
REPRESENTATIVE SEATON  said that Cook  Inlet had been  a stranded                                                               
gas basin with  no external market other  than limited industrial                                                               
capacities and questioned what the  price scenario would be if it                                                               
were  connected into  a large  pipeline. He  wondered if  the RCA                                                               
would  consider Cook  Inlet gas  the  same price  as Alberta  gas                                                               
since it  was indirectly connected  to that market, and  how that                                                               
would affect the project going forward.                                                                                         
                                                                                                                                
4:14:17 PM                                                                                                                    
COMMISSIONER  GALVIN  replied they  could  not  project what  the                                                               
price  would be,  but could  discuss the  relative price  between                                                               
different options. He  observed that what they had  right now was                                                               
the Cook  Inlet, South Central  area transitioning from  a fairly                                                               
low cost to produce gas, to a  price that would be high enough to                                                               
incentivize  development costs  for  new gas.  If they  projected                                                               
that out  in isolation from the  rest of the system,  either they                                                               
would transition out of gas or  continue to increase the price to                                                               
the  point that  it would  encourage enough  exploration to  meet                                                               
their demand.                                                                                                                   
                                                                                                                                
He elaborated, if they factored  in the option of connecting Cook                                                               
Inlet to a larger market by a  spur line or hooking into the main                                                               
line,  it  would  end  up  connecting Cook  Inlet  to  the  North                                                               
American  market in  general. At  that point  pricing would  be a                                                               
combination of  the cost  to produce  in the  local area  and the                                                               
availability of  other gas on  the system, and that  system would                                                               
include  North Slope  gas with  gas from  other basins  along the                                                               
route. So  the price  would be a  combination of  that integrated                                                               
market. He considered  the relative advantage of  that versus not                                                               
having the connection and, based  on their projection of what the                                                               
North American  market would  bear, the  price would  probably be                                                               
below the  expected cost to  develop the  resource independently,                                                               
so in that way the consumer would end up in a better position.                                                                  
                                                                                                                                
In  response  to  the  second  part  of  Representative  Seaton's                                                               
question, how  that would  affect the economics  of the  line, he                                                               
felt  that  was  what  they  needed to  be  looking  at  as  they                                                               
developed  the project  plan.  They needed  to  determine if  the                                                               
price  was going  to be  such  that it  could cover  the cost  of                                                               
transporting the gas  through the system, or if  there would have                                                               
to be  other state involvement  to make the price  reasonable and                                                               
bring that transportation cost down.                                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON referred  to Mr.  Dubay's comment  that he                                                               
hoped to have more production in  Cook Inlet than they had demand                                                               
in order to keep the price down.  He asked if tying that gas into                                                               
the large  line going through  Canada would equalize  prices, and                                                               
whether  he anticipated  that  the price  of  gas throughout  the                                                               
system would  be basically Alberta  hub minus  location sensitive                                                               
charges.                                                                                                                        
                                                                                                                                
4:18:45 PM                                                                                                                    
MR.  DUBAY  replied  yes,  if  you  could  take  Cook  Inlet  gas                                                               
someplace else without permitting  impediments, then you would be                                                               
able to get that price less  the transportation. He added that it                                                               
seemed like  that might be a  ceiling as opposed to  a floor; but                                                               
he thought  local use  could get  it at that  price or  below the                                                               
delivered price minus transportation into the larger market.                                                                    
                                                                                                                                
4:19:43 PM                                                                                                                    
REPRESENTATIVE SEATON  commented that, if the  gas were connected                                                               
into the  Alberta hub there would  be a very definite  impetus to                                                               
base the gas price throughout Alaska  on the Henry hub or Alberta                                                               
pricing.                                                                                                                        
                                                                                                                                
MR. HEINZE interjected that one of  the reasons ANGDA had been so                                                               
enthusiastic  about   a  spur   line  was   that  it   offered  a                                                               
deliverability; pipeline rates could be  varied for free. He also                                                               
noted that utilities  in Cook Inlet were  very economical because                                                               
they had  bought gas in  the ground a  long time ago;  that could                                                               
happen again  if Cook  Inlet were  hooked into  gas on  the North                                                               
Slope.                                                                                                                          
                                                                                                                                
4:21:49 PM                                                                                                                    
REPRESENTATIVE  SEATON questioned  Enstar's  commitment to  local                                                               
service. He said  that the North Fork unit about  ten miles north                                                               
of Homer,  had one well  and recently Homer  Electric Association                                                               
(HEA)  and Enstar  competitively sought  RCA approval  to service                                                               
the Homer  area with  a couple  of conditions:  1) that  a second                                                               
well  be produced  and 2)  that eight  miles of  pipe be  laid to                                                               
Anchor Point. The second well was  being spudded in at that time,                                                               
but he  had heard  that Enstar  might decide  not to  service the                                                               
local area  and would  instead go north  through a  connection to                                                               
Kenai-Kachemack  pipeline  for  either  LNG   export  or  to  the                                                               
Fairbanks  area. He  wanted to  know how  committed they  were to                                                               
fulfilling their obligation for distribution in the local areas.                                                                
                                                                                                                                
MR. DUBAY said  he believed they still had an  agreement in place                                                               
to service  Homer if the  gas was developed  in that area  and if                                                               
they got commitments from at least  2,000 customers to use gas as                                                               
a  heating  source.  He  added   that  if  their  contracts  were                                                               
approved, they had the gas  under contract through 2014 and would                                                               
not be  able to take the  Armstrong gas into the  Inlet for their                                                               
local customer needs until 2014.  Their intention would be to get                                                               
a commitment  from the citizens  of Homer to  take the gas  if it                                                               
were developed by Armstrong.                                                                                                    
                                                                                                                                
4:24:47 PM                                                                                                                    
SENATOR FRENCH said he heard that  there was no cost estimate for                                                               
this pipeline and he found  that frustrating. He felt inclined to                                                               
associate himself with the remarks  that Senator Wielechowski and                                                               
Chair Huggins  made regarding the  resolution of the  Senate back                                                               
in March  to add  in-state gas  to the call  of this  session. He                                                               
brought that up  because they still had no cost  estimate for the                                                               
project when they were being  asked to write individual checks to                                                               
Alaskans to help them with the  high cost of energy. He felt they                                                               
should  be working  with the  administration on  this and  making                                                               
some investments to get it going.                                                                                               
                                                                                                                                
4:26:46 PM                                                                                                                    
MR. HEINZE  interrupted that cost  estimates had been put  on the                                                               
table.                                                                                                                          
                                                                                                                                
SENATOR FRENCH  returned that the  question was more  specific to                                                               
the  legal issues  that surround  [the project].  He acknowledged                                                               
that they could  not sell royalty gas below  market and wondered,                                                               
as   they   considered   some    other   state   involvement   in                                                               
infrastructure in a pipeline, what  legal impediments might arise                                                               
and what that  would mean to citizens who did  not participate in                                                               
the benefits of the gas pipeline.  He also wondered if they would                                                               
run into a constitutional prohibition  if they tried to bring the                                                               
price of gas down too far.                                                                                                      
                                                                                                                                
4:27:53 PM                                                                                                                    
COMMISSIONER  GALVIN replied  that the  constitutionality of  the                                                               
price  of  the state's  royalty  gas  would  not be  impacted  by                                                               
participation  in a  pipeline. The  pipeline participation  would                                                               
simply  be an  infrastructure  project on  the transportation  of                                                               
that gas,  not on the  actual price at  the wellhead. He  did not                                                               
believe  there  would  be  any  legal  impediment  to  the  state                                                               
participation in  an infrastructure  project that  benefited only                                                               
one portion  of the state, and  pointed out that they  did it all                                                               
the time.                                                                                                                       
                                                                                                                                
With regard to  a cost estimate for this project,  he said it had                                                               
just evolved.  There was a  cost estimate for the  Enstar project                                                               
and cost  estimates from  ANGDA on  spur lines,  but the  idea of                                                               
moving  gas from  Cook Inlet  to Fairbanks  before the  big line,                                                               
with state participation  in that project, was new.  While it was                                                               
similar to the  bullet line in that it would  be a small capacity                                                               
line designed  primarily to  meet in-state  demand, it  was being                                                               
proposed for a different reason.  The bullet line was problematic                                                               
from the  administration's perspective  because it had  the long-                                                               
term   impacts    associated   with    potentially   discouraging                                                               
exploration  in  Cook Inlet.  This  project  would take  the  gas                                                               
north,  meet in-state  demand and  hopefully spur  exploration in                                                               
the Cook  Inlet, then  hook up  to the big  line, connect  to the                                                               
main markets and meet both of their goals.                                                                                      
                                                                                                                                
Cost estimates for  this particular project were  scheduled to be                                                               
in place before the legislature  in January. He stressed that the                                                               
administration  wanted  to  work  with the  legislature  on  this                                                               
matter to meet the needs of Alaskans.                                                                                           
                                                                                                                                
MR.  HEINZE  said   that  during  the  hearings   in  Juneau  and                                                               
Fairbanks, Enstar  did present  an estimate  of about  $1 billion                                                               
for a  pipeline linking Fairbanks  and Anchorage, and  about $2.3                                                               
billion for  a line  linking the Foothills  to Fairbanks.  At the                                                               
subsequent meeting  in Anchorage,  he presented  tariff estimates                                                               
for  those  based on  different  assumed  flow rates.  What  they                                                               
showed  was that  there was  some rationality  for the  tariff at                                                               
those  cost  levels  for  volumes that  were  based  entirely  on                                                               
utility needs  in Alaska. The challenge  the government presented                                                               
to them on Monday  was to find a way to make  it work even better                                                               
and he had tried to explain how that might be done.                                                                             
                                                                                                                                
CHAIR  HUGGINS  commented  that Representative  Jay  Ramras  from                                                               
Fairbanks voiced  the slogan "Gas  in 5 years, swinging  first to                                                               
Fairbanks."  He  said   he  would  like  to  see   a  Cook  Inlet                                                               
development program  that would  mature to  the extent  that they                                                               
could get something to Fairbanks within 5 years.                                                                                
                                                                                                                                
4:34:37 PM                                                                                                                    
CHAIR HUGGINS continued  that he wanted to see  what that program                                                               
would look like so they  [the legislature] could help, because it                                                               
had to be  a cooperative process. He stressed that  they were all                                                               
in  it together  and  should not  be  communicating through  news                                                               
interviews;  the legislators  represented  the  people they  were                                                               
talking about getting the resources to.                                                                                         
                                                                                                                                
4:35:31 PM                                                                                                                    
SENATOR STEDMAN said  he was puzzled by  Enstar's recent decision                                                               
to take  gas from Cook Inlet  and asked Mr. Dubay  to explain the                                                               
analysis they went through that  changed their business model for                                                               
the source of the gas.                                                                                                          
                                                                                                                                
4:36:49 PM                                                                                                                    
MR. DUBAY  replied that the project  they were working on  was to                                                               
build  a line  from Anchorage  to the  Foothills; that  was where                                                               
they had invested their capital  dollars. They had always felt it                                                               
would  be most  logical to  build from  Anchorage going  north to                                                               
Fairbanks, because if the opportunity  presented itself to gather                                                               
gas from  Doyon, for  instance, they could  get gas  to Fairbanks                                                               
earlier than  they might  otherwise. While  they had  not changed                                                               
direction, they  were committed  to sit down  with the  state and                                                               
ANGDA to  work on  a structure for  a partnership  and reevaluate                                                               
their options to get the best project done for the community.                                                                   
                                                                                                                                
SENATOR STEDMAN  said that during  the previous  session, Senator                                                               
Thomas  worked  quite a  bit  on  Susitna  hydro to  broaden  the                                                               
analysis  of how  to get  energy to  Alaska, particularly  in the                                                               
rail belt.  The Senate appropriated  funds in the  capital budget                                                               
for that study,  which was still several  months from completion.                                                               
Then he  saw a  press release about  a business  arrangement with                                                               
Enstar  that came  out of  the blue  eight days  into the  fiscal                                                               
year, and  he was  concerned about  the lack  of openness  in the                                                               
arrangement  between  the  administration and  Enstar.  He  asked                                                               
Commissioner Galvin to help him understand what was going on.                                                                   
                                                                                                                                
4:41:22 PM                                                                                                                    
COMMISSIONER GALVIN  responded that the venture  being undertaken                                                               
was to  put together both a  business plan and a  proposal to the                                                               
legislature with regard  to this project. When  the proposal came                                                               
to  them, it  would go  through the  same public  process Senator                                                               
Stedman described  relative to  the money  that was  allocated to                                                               
study  the Susitna  project. In  that context,  it would  have to                                                               
justify itself under a number  of potential benefits to the state                                                               
including opening the Cook Inlet  Basin for more exploration, and                                                               
getting gas to Alaskans as quickly as possible.                                                                                 
                                                                                                                                
4:44:10 PM                                                                                                                    
SENATOR STEDMAN was concerned about  the state's involvement in a                                                               
capital  project that  seemed  to be  driven  by the  marketplace                                                               
without state or federal aid.                                                                                                   
                                                                                                                                
4:46:17 PM                                                                                                                    
COMMISSIONER GALVIN assured  them that if the state  was going to                                                               
consider playing  a financial role  in this project,  there would                                                               
be a  large number of hearings  as the process moved  forward and                                                               
Mr. Dubay  would have the  opportunity to  sit in the  same chair                                                               
that  Mr.  Palmer had  in  terms  of answering  questions.  Other                                                               
entities  would  also  have  the  opportunity  to  express  their                                                               
interest in  whether or not the  state should be involved  in the                                                               
project.                                                                                                                        
                                                                                                                                
SENATOR STEDMAN  reiterated that he  was concerned the  state was                                                               
interjecting itself too early into this process.                                                                                
                                                                                                                                
4:49:10 PM                                                                                                                    
MR.  HEINZE   emphasized  that  the  state's   possible  role  in                                                               
supporting  this  case  was  still   undefined.  He  offered  the                                                               
Gravelly Lake hydro project as an  example of how the state might                                                               
be  involved. The  citizens  who depended  on  Gravelly Lake  for                                                               
their power enjoyed  a lower rate because the  state stood behind                                                               
the project; it did not spend a  nickel on the project but it did                                                               
stand behind the debt.                                                                                                          
                                                                                                                                
4:50:00 PM                                                                                                                    
REPRESENTATIVE JOULE  questioned whether Cook Inlet  gas could be                                                               
used for those communities up and down the Yukon River.                                                                         
                                                                                                                                
MR. HEINZE  replied that there was  no propane in the  Cook Inlet                                                               
gas, so the option was  eliminated technically. He suggested that                                                               
as an  intermediate step, propane  from North Slope gas  could be                                                               
trucked  to the  Yukon  River giving  the  rural communities  the                                                               
opportunity to  participate. Ultimately,  they would hope  that a                                                               
large  amount of  propane  could  find its  way  to Tidewater  to                                                               
service the coastal communities such as Juneau as well.                                                                         
                                                                                                                                
4:51:33 PM                                                                                                                    
COMMISSIONER GALVIN added that when  they began discussions about                                                               
this line, it was basically about  a substitution for the idea of                                                               
a  bullet  line from  the  foothills  south.  That line  was  not                                                               
intended to carry  liquids, and the fuel source  was not intended                                                               
to provide  the opportunity  to strip off  liquids at  the river.                                                               
This project  would not change the  time frame or dynamic  of the                                                               
opportunities presented by  the larger line coming  off the North                                                               
Slope. He  felt it was  important for all Alaskans  to understand                                                               
as  they moved  forward with  these hearings,  that although  the                                                               
hearings might focus on one aspect  of the project, they were not                                                               
excluding  other  opportunities.  There  had  been  a  number  of                                                               
studies done and  it was the objective of  the administration and                                                               
ANGDA to explore how to maximize  the opportunity to make gas and                                                               
other  similar   products  available  to  as   many  Alaskans  as                                                               
possible.                                                                                                                       
                                                                                                                                
4:53:27 PM                                                                                                                    
SENATOR  GREEN commented  that she  believed  anything the  state                                                               
might do at  that time to fit into this  project would only serve                                                               
to slow it down.                                                                                                                
                                                                                                                                
CHAIR  HUGGINS  shared  some  of  Senator  Green's  concerns  and                                                               
reminded Commissioner Galvin that  they wanted that chronological                                                               
timeline objective for reaching a contract to move them forward.                                                                
                                                                                                                                
4:54:37 PM                                                                                                                    
CHAIR HUGGINS  reminded members they  would meet again  from 6:00                                                               
to  8:00 PM  for Mr.  Porter's presentation  on Pt.  Thomson, and                                                               
that they would  begin at 8:00 AM the following  morning with the                                                               
Denali project;  TransCanada workforce issues;  TransCanada Exxon                                                               
Mobile presentation. The CBI Mediation  Group would be presenting                                                               
from 6:00 to 8:00 PM.                                                                                                           
                                                                                                                                
He adjourned the meeting at 4:55:02 PM.                                                                                       
                                                                                                                                
Note:  Due  to  technical  issues,  this  section  of  audio  was                                                             
recompiled from  other sources. Recording volume  of this segment                                                               
is significantly lower than the rest of the meeting.                                                                            
                                                                                                                                
CHAIR HUGGINS called the meeting back  to order at 6:08:13 PM and                                                             
introduced  Steve. Porter,  who  would be  presenting "The  Point                                                               
Thomson Dilemma."                                                                                                               
                                                                                                                                
6:09:22 PM                                                                                                                    
STEVE  PORTER, Consultant  for the  Legislative Budget  and Audit                                                               
Committee,  said he  wanted to  begin by  providing context:  why                                                               
they were where they were; why  they might get a gasline; and why                                                               
Point Thomson  was probably economic.  It was all related  to gas                                                               
price  and commercial  decisions, not  to stranded  gas, AGIA  or                                                               
anything else they might have done.                                                                                             
                                                                                                                                
6:10:30 PM                                                                                                                    
Slide 2: Plains All American L.P.'s WTI Crude - Posted Price                                                                    
MR. PORTER said there was a  time in about 1999 when the industry                                                               
thought they were in a $15  per barrel world in perpetuity. About                                                               
that time ARCO liquidated, Pt  Thomson did not look economic, and                                                               
a gas pipeline was marginal.                                                                                                    
                                                                                                                                
Slide 3:  U.S. Wellhead Natural  Gas Price  - In the  early years                                                               
from 2002-2004  there was the  Stranded Gas  Act. They were  in a                                                               
$2.00 world into the late  1990's and 2000. From 2001-2003 prices                                                               
were volatile  and it  was hard to  determine where  prices would                                                               
go.  Even when  they  were negotiating  stranded  gas, they  were                                                               
talking about cases of $3.50 to $6.00.                                                                                          
                                                                                                                                
6:11:58 PM                                                                                                                    
MR. PORTER added  that the economists of the world  are usually 6                                                               
to 12  months behind price in  their analysis; but in  about 2005                                                               
to  2006 they  recognized  that they  were  entering a  different                                                               
world. Assumptions on  oil and gas were  substantially higher. At                                                               
this  point they  believed that  both Point  Thomson and  the gas                                                               
pipeline had become economic due to prices.                                                                                     
                                                                                                                                
6:12:56 PM                                                                                                                    
Slide 4: Pt.  Thomson Unit Status prior to  Director's Decision -                                                               
Just prior to the director's decision  they had 21 [22] plans for                                                               
development. The  State wanted the  producers to drill  the wells                                                               
necessary  to  determine  whether   gas  cycling  or  a  blowdown                                                               
strategy was  appropriate. The producers were  unwilling to spend                                                               
the  money because  they wouldn't  see a  return on  it any  time                                                               
soon,  so there  was tension  between the  Department of  Natural                                                               
Resources  (DNR) and  the producers  prior  to the  23rd plan  of                                                               
development, which resulted in that plan being disapproved.                                                                     
                                                                                                                                
6:14:13 PM                                                                                                                    
DNR recognized that they had  to either disapprove it or stagnate                                                               
indefinitely,  and   he  felt  they  had   made  the  appropriate                                                               
decision.                                                                                                                       
                                                                                                                                
Slide 5:  Director's Decision -  Failure to submit  an acceptable                                                               
plan of development was grounds  for termination and that was the                                                               
director's decision. The individual  lessees with certified wells                                                               
were required to commence production by October 2009.                                                                           
                                                                                                                                
6:15:06 PM                                                                                                                    
MR. PORTER  continued to  Slide 6:  Commissioner's Decision  - As                                                               
with  any  director's  decision,  they  had  the  opportunity  to                                                               
escalate it to the commissioner,  and the commissioner's decision                                                               
changed  a  few things.  The  decision  did  reject the  plan  of                                                               
development  because it  did  not  commit to  put  the unit  into                                                               
production, but it  terminated the Point Thomson  Unit as opposed                                                               
to  saying they  had grounds  for termination.  That was  a shift                                                               
from the director's decision that  the courts would come back to.                                                               
It also revoked  the certification of Point  Thomson wells, where                                                               
the  director's decision  required  them to  go into  production.                                                               
Both of these changes showed up  later in the December 25th court                                                               
decision.                                                                                                                       
                                                                                                                                
6:16:01 PM                                                                                                                    
Slide 7:  May 1 Decision -  The producers went to  court to stall                                                               
the  process.  The court  said  it  would  let the  process  move                                                               
forward but  warned DNR that  they had probably failed  to follow                                                               
their own  statutes when they  decertified the wells.  Mr. Porter                                                               
quoted a section from that decision:                                                                                            
                                                                                                                                
     "the  undisputed  fact   remains  that  the  Department                                                                    
     certified these  wells pursuant to  11 AAC  83.361, and                                                                    
     that  as a  result of  these certifications,  the wells                                                                    
     'will be  considered capable of  producing hydrocarbons                                                                    
     in paying quantities' for purposes of 11 AAC 83.374"                                                                       
                                                                                                                                
6:16:51 PM                                                                                                                    
REPRESENTATIVE SAMUELS  asked Mr. Porter to  clarify whether this                                                               
was Judge Gleason's and not Tom Irwin's decision.                                                                               
                                                                                                                                
MR. PORTER answered  yes; it was the court's May  1st decision by                                                               
the same judge who made the final decision.                                                                                     
                                                                                                                                
REPRESENTATIVE  SAMUELS  asked  how   many  wells  this  decision                                                               
affected.                                                                                                                       
                                                                                                                                
MR. PORTER replied that he thought there were 7 certified wells.                                                                
                                                                                                                                
6:18:01 PM                                                                                                                    
SENATOR BUNDE  commented that, although  they usually  thought of                                                               
Point Thomson as kind of a  monolith, it was actually 46 separate                                                               
tracts. He noticed  there were test wells drilled in  about 15 of                                                               
those, so the  producers explored a third of what  they had under                                                               
lease. He wondered how that compared to other leases.                                                                           
                                                                                                                                
MR. PORTER said the issue was  not so much the amount of property                                                               
drilled,  it was  whether they  had  found out  enough about  the                                                               
reservoir to  decide whether to  do gas cycling or  gas blowdown.                                                               
In  fact,  the records  of  that  court  case  show that  if  the                                                               
producers  had agreed  to drill  even  the single  well that  DNR                                                               
wanted them to, they would have  delayed a lot of the other lease                                                               
obligations, because DNR recognized that  they needed to see what                                                               
was going  on down below  in order to make  a decision on  how to                                                               
move the project forward.                                                                                                       
                                                                                                                                
6:19:53 PM                                                                                                                    
Slide 8: Dec 26 Court Decision -  Mr. Porter felt that this was a                                                               
very good decision.                                                                                                             
                                                                                                                                
6:20:19 PM                                                                                                                    
He said there were four main issues:                                                                                            
   1) Did DNR have the authority to accept or reject the plan of                                                                
       development? The  answer was  yes, the  law gave  DNR very                                                               
       broad  authority   to  accept  or   reject  the   plan  of                                                               
       development. That gave DNR a lot of  clout to force a unit                                                               
       operator to move  forward with a project  however, if they                                                               
       rejected a plan  of development, the  unit was at  risk of                                                               
       being terminated.                                                                                                        
   2) They found that DNR had the authority to terminate the                                                                    
       unit,  but  not   without  a  hearing  to   determine  the                                                               
       appropriate  remedy   for   rejection  of   the  plan   of                                                               
       development.                                                                                                             
                                                                                                                                
6:21:36 PM                                                                                                                    
REPRESENTATIVE HAWKER asked  if the May 1st decision  was in 2008                                                               
                   th                                                                                                           
and the December 26 decision was in 2007.                                                                                       
                                                                                                                                
MR. PORTER replied they were May 1, 2007 and December 26, 2007.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER  wanted  to   confirm  that  DNR  had  the                                                               
authority to terminate,  but not without a hearing.  He said that                                                               
seemed significant.  The way he  read it,  it seemed to  say they                                                               
could terminate but had to provide some remedies.                                                                               
                                                                                                                                
MR.  PORTER clarified  that, to  terminate the  unit they  had to                                                               
provide  some notice.  DNR went  back and  held hearings  and the                                                               
commissioner  issued another  decision. But  the court  indicated                                                               
that there were some standards associated with that review.                                                                     
                                                                                                                                
3) Termination  of unit is  only one  possible remedy, and  a key                                                               
phrase  was: "consider  the import  of  Section 21  of the  Point                                                               
Thomson Unit  Agreement, as amended  in 1985, in  determining the                                                               
appropriate remedy." That  said, there was a  higher standard for                                                               
unit  termination   than  there  was  for   plan  of  development                                                               
termination.                                                                                                                    
                                                                                                                                
4)   Certified wells: Mr. Porter said  he would come back to this                                                               
point in a moment.                                                                                                              
                                                                                                                                
6:24:14 PM                                                                                                                    
MR.  Porter turned  to Slide  9: Point  Thomson Unit  Agreement -                                                               
This addressed Section 21, which  specified that authority "shall                                                               
not be exercised in a manner  that would (i) require any increase                                                               
in the rate of prospecting,  development, or production in excess                                                               
of  that required  under  good  faith and  diligent  oil and  gas                                                               
engineering practices;  ...or (iii)  prevent this  agreement from                                                               
serving  its  purpose of  adequately  protecting  all parties  in                                                               
interest hereunder, subject to  the application conservation laws                                                               
and regulations."                                                                                                               
                                                                                                                                
He  explained  that   there  was  a  standard   rather  like  the                                                               
reasonably prudent operator  standard. If you were  going to take                                                               
an $80 billion asset away from  somebody, you would have to prove                                                               
they  weren't being  a  reasonable and  prudent  operator at  the                                                               
time. In  this case,  the court  said Exxon lost  on the  plan of                                                               
development;  on the  unit termination,  they  said a  reasonably                                                               
prudent  operator would  probably have  moved this  to production                                                               
and if they  didn't, they would probably lose that  too. But they                                                               
created  a balance.  They told  the state  that if  they couldn't                                                               
figure out a way to agree  with Exxon, they would leave them with                                                               
the  certified wells.  That meant  that Exxon  would get  to keep                                                               
those seven leases,  which would split the unit  between them and                                                               
probably result in years of litigation and negotiations.                                                                        
                                                                                                                                
6:26:29 PM                                                                                                                    
REPRESENTATIVE  SAMUELS  asked  Mr.  Porter  if  the  term  "unit                                                               
termination" was  really a  lease revocation,  and if  the leases                                                               
without certified wells would revert to the state.                                                                              
                                                                                                                                
MR. PORTER  replied that unit  termination would end up  with all                                                               
of  the  uncertified  leases  going  back to  state.  As  far  as                                                               
certified wells,  the court referred  the state to their  May 1st                                                               
comments.                                                                                                                       
                                                                                                                                
6:27:45 PM                                                                                                                    
SENATOR  STEVENS   asked  if  there  were   remedies  other  than                                                               
termination or negotiation.                                                                                                     
                                                                                                                                
MR. PORTER said  the court did not delineate  the remedies. Under                                                               
the contract,  anything that  would have  moved this  forward and                                                               
been acceptable to both parties was an option.                                                                                  
                                                                                                                                
6:29:32 PM                                                                                                                    
REPRESENTATIVE DOOGAN asked if it  was when the commissioner made                                                               
his decision  that the court ruled  DNR had failed to  follow its                                                               
own statutes and regulations when it decertified the wells.                                                                     
                                                                                                                                
MR. PORTER confirmed that it was at the commissioner's level.                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN   asked  if   the  court's   decision  was                                                               
absolute, or  could the department  have gone back and  fixed the                                                               
defects that the court recognized in its process.                                                                               
                                                                                                                                
MR.  PORTER  responded that  the  commissioner  said it  was  bad                                                               
policy to certify wells that  had been plugged and abandoned. The                                                               
court said  whether or  not he  thought it  was bad  policy, they                                                               
were certified  and the commissioner  did not have  the authority                                                               
to overrule his  own regulations and statutes. DNR  could go back                                                               
and fix that  problem but they would have to  follow a regulatory                                                               
process.                                                                                                                        
                                                                                                                                
He  explained that  as a  rule, a  certified well  that was  good                                                               
policy would have pressure to  the surface. A certified well that                                                               
was bad  policy would have a  plug below the surface.  In Alaska,                                                               
unlike the lower  48 however, it might make good  safety sense to                                                               
plug a certified well if you didn't  plan to bring it on line for                                                               
8 or 10  years because, due to bad weather  and remote locations,                                                               
it could be hard to get back on site if there were a problem.                                                                   
                                                                                                                                
6:32:58 PM                                                                                                                    
REPRESENTATIVE DOOGAN  queried, if  it was  not possible  for the                                                               
state to take  back leases that had wells on  them which could be                                                               
producing gas but were not, how  was it possible for the state to                                                               
enforce  that part  of  the  lease that  required  the lessee  to                                                               
produce.                                                                                                                        
                                                                                                                                
MR. PORTER said  that was a good question and  one he kept coming                                                               
back to,  because the  question was whether  they could  ever get                                                               
the  leases back.  He  said  that it  was  even  worse than  that                                                               
because there was a  part of the law that said  if you drilled an                                                               
exploratory  well  or two,  from  a  conservation standpoint  you                                                               
would  have  to make  sure  to  include  all  the leases  of  the                                                               
reservoir and  develop a unit  plan before you  started producing                                                               
the leases.  So from a  logical standpoint,  for DNR to  tell the                                                               
lease  holders to  produce that  individual  well wouldn't  work,                                                               
because  every time  somebody found  an  exploratory well  they'd                                                               
have to start producing immediately.                                                                                            
                                                                                                                                
Mr.  Porter admitted  that  he  didn't know  the  answer, but  he                                                               
understood that if the Point  Thomson Unit did get terminated and                                                               
they broke it  up, they would have to put  the unit back together                                                               
with  those seven  certified leases  and submit  another plan  of                                                               
development.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN  said that  from  his  standpoint, if  the                                                               
state  had  laws and  regulations  that  allowed people  to  find                                                               
producible oil and  gas and then just camp on  it, they needed to                                                               
change those laws.                                                                                                              
                                                                                                                                
MR. PORTER agreed.                                                                                                              
                                                                                                                                
REPRESENTATIVE   GATTO  recalled   the   statement  from   Howard                                                               
Johnson's presentation  that "every  single lease was  in default                                                               
except  for one."  He  asked  if that  would  mean  the unit  was                                                               
entirely in default.                                                                                                            
                                                                                                                                
MR. PORTER  replied that  he did  not say only  one lease  was in                                                               
default; there  was only one lease  that was in its  primary term                                                               
so they could still pay rentals  on that particular lease, and if                                                               
the unit  went away it would  not be affected. Every  other lease                                                               
would need  a reason to be  held out of production.  That was why                                                               
the certified wells  were so important. In his  opinion, that was                                                               
also why DNR  originally decertified the wells;  they feared this                                                               
exact  circumstance would  happen. If  the wells  were certified,                                                               
the leases would be held by the certified wells.                                                                                
                                                                                                                                
6:37:32 PM                                                                                                                    
REPRESENTATIVE GARA said  he believed Mr. Porter  had studied the                                                               
issue and must have some recommendations  to make to them. He was                                                               
not  particularly interested  in the  lower court  ruling because                                                               
the  matter would  be appealed  to the  Supreme Court  anyway. He                                                               
expected  them  to  say  that  since  our  partners  had  already                                                               
violated 24  plans of development, we  did not have to  work with                                                               
them any more.                                                                                                                  
                                                                                                                                
He  asked Mr.  Porter  what he  was expected  to  take from  this                                                               
discussion.  If it  was that  they should  mediate, he  knew they                                                               
wouldn't get anywhere with that  unless both parties had a desire                                                               
to do it.                                                                                                                       
                                                                                                                                
6:39:08 PM                                                                                                                    
CHAIR HUGGINS pointed out that  some of them needed to understand                                                               
the process of litigation.                                                                                                      
                                                                                                                                
MR. PORTER countered that the  producers did not violate 24 plans                                                               
of development. In  the early years DNR did not  put penalties in                                                               
their plans of  development. When they expanded the  unit and DNR                                                               
wanted  to  be sure  the  producers  met  the provisions  of  the                                                               
expansion,  they started  to  do  that, but  the  early ones  had                                                               
little meat to force compliance.                                                                                                
                                                                                                                                
6:41:36 PM                                                                                                                    
REPRESENTATIVE GARA  conceded that  they might not  have violated                                                               
all 22  of the previous  plans, but  many of those  were breached                                                               
and every  single time the state  gave them another chance.  As a                                                               
result, Point Thomson  might not be available as a  gas field for                                                               
the gas  pipeline. He asked  why the state  would not say  it had                                                               
given them  22 chances  and they  still had  not produced,  so it                                                               
wanted a new partner.                                                                                                           
                                                                                                                                
MR.  PORTER totally  agreed  with  Representative Gara  regarding                                                               
mediation; as  a sovereign  state, Alaska  should tell  Exxon the                                                               
rules. In this case, DNR had  the right and the responsibility to                                                               
tell Exxon what it would and would not accept.                                                                                  
                                                                                                                                
With  regard  to  the  delay,  he  opined  that  the  reason  the                                                               
producers  were  finally moving  the  project  was that  if  they                                                               
started now  it would  take 6  years to  go to  development; they                                                               
would have to cycle  the gas for at least 5  years, so they would                                                               
be ready  to push gas  into the pipeline  in about 11  years. The                                                               
pipeline was scheduled  to be done in 11 years,  so they would be                                                               
ready to put gas in the line  either at the beginning of the line                                                               
or  within a  few years.  If this  were to  go to  litigation, it                                                               
would take another 10 years.                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARA  said  that   in  his  experience,  after  a                                                               
superior court  ruling, the Alaska  Supreme Court  decides within                                                               
about a year and  a half. He asked Mr. Porter  what the basis was                                                               
for his statement that it would take 10 years.                                                                                  
                                                                                                                                
6:44:55 PM                                                                                                                    
Slide 12: Probable Outcome                                                                                                      
MR. PORTER explained that this case  alone might take only a year                                                               
and  a half  or 2  years; then  they would  have to  litigate the                                                               
certified  well issue  if the  state  wanted all  of the  leases,                                                               
which would  take another  3 years to  go through  superior court                                                               
and Supreme Court.  Once DNR had the leases back  they would have                                                               
to  go through  a "best  interest" finding,  which would  take at                                                               
least  a year,  and then  they would  get sued  on best  interest                                                               
finding. It  would take another six  months to a year  before the                                                               
courts would allow  them to hold a lease sale.  If DNR were lucky                                                               
and the lease  sale concluded within six months,  they would then                                                               
have a  new lessee(s) who  would have  to review and  analyze the                                                               
data,  form the  units, and  create a  new unit  development plan                                                               
that would probably  end up looking a lot like  the existing one.                                                               
After  all of  that  was  done, they  would  be  back where  they                                                               
started, ready to start developing the unit.                                                                                    
                                                                                                                                
6:47:16 PM                                                                                                                    
SENATOR  WIELECHOWSKI took  issue with  the statement  that "they                                                               
finally figured it  out" about gas cycling. He  said they figured                                                               
                               th                                                                                               
that out  in 1986!  In their 16   POD, they  said they  needed to                                                               
cycle the  gas and promised  to drill 7 to  10 wells but  did not                                                               
drill a  single one. In previous  POD's they said they  could not                                                               
develop  Point  Thomson until  a  gas  line  was built;  but  the                                                               
opposite  turned out  to  be  true. He  said  he fully  supported                                                               
Governor Murkowski's  and Commissioner Irwin's action  to finally                                                               
take the leases from them.                                                                                                      
                                                                                                                                
MR. PORTER  also supported what DNR  did in terms of  pushing the                                                               
producers to  move the  unit forward,  and admitted  that Senator                                                               
Wielechowski  was  absolutely correct  about  the  unit plans  of                                                               
development; they did  propose cycling twice but  then backed off                                                               
of it. He expressed his opinion  that they got excited about what                                                               
they thought they could get out  of stranded gas and thought they                                                               
could do  gas blowdown. They  thought they could get  it approved                                                               
by the  legislature, circumvent the  rest of the process  and not                                                               
comply with  the POD's,  and move Point  Thomson straight  to gas                                                               
blowdown.                                                                                                                       
                                                                                                                                
6:49:27 PM                                                                                                                    
SENATOR  THERRIAULT disagreed  with Mr.  Porter's statement  that                                                               
new lessees at  Point Thomson wouldn't have the  data. He pointed                                                               
out that  some of  the same  companies that  were on  the current                                                               
list of lessees  could come back in and would  have access to the                                                               
data.                                                                                                                           
                                                                                                                                
6:52:20 PM                                                                                                                    
MR. PORTER conceded  that was a possibility. He said  he had made                                                               
an assumption  that the state got  rid of Exxon and  the existing                                                               
owners, but  if Exxon got  in with  the new owners  somehow, they                                                               
would probably cut a deal to share the data.                                                                                    
                                                                                                                                
SENATOR THERRIAULT referred to Mr.  Porter's statements that "the                                                               
state can  tell them what's  acceptable" and "the state  can tell                                                               
them  what to  do" and  pointed out  that the  state brought  the                                                               
producers in  because they  had expertise  in developing  oil and                                                               
gas that  the state, the  sovereign, did not have.  He questioned                                                               
whether the state  had the right to tell them  how to develop the                                                               
leases.                                                                                                                         
                                                                                                                                
MR.  PORTER said  that  11  AC 83.343(b)  gave  them that  right.                                                               
(Slide 14 - State's Obligation Under Point Thomson Contract)                                                                    
                                                                                                                                
SENATOR THERRIAULT  asked if the  burden of proof would  shift to                                                               
the state in that case.                                                                                                         
                                                                                                                                
MR. PORTER  said no,  not at  that point.  What 11  AAC 83.343(b)                                                               
said was that if you rejected  a plan of development, you had the                                                               
right to propose an alternative  that would be acceptable to you.                                                               
(Slide 15: DNR's responsibility under regs.)                                                                                    
                                                                                                                                
SENATOR THERRIAULT asked what would happen if they disagreed.                                                                   
                                                                                                                                
MR. PORTER  answered that  if they disagreed,  the state  had the                                                               
right  to reject  the plan  of  development and  then follow  the                                                               
process for lease termination.                                                                                                  
                                                                                                                                
SENATOR THERRIAULT questioned what  would happen if the producers                                                               
maintained  that the  alternative offered  by the  state was  not                                                               
what a  reasonable, prudent  operator would do.  He asked  if the                                                               
state would have to prove to  the court that what it had proposed                                                               
was fair, reasonable and prudent.                                                                                               
                                                                                                                                
MR. PORTER did not agree  with Senator Therriault that the burden                                                               
of proof  would shift  just because the  state met  its statutory                                                               
responsibility. He thought  the court would defer  to the state's                                                               
sovereign rights.                                                                                                               
                                                                                                                                
SENATOR  THERRIAULT  insisted that  the  court  should give  some                                                               
credence to the producers' claims in the matter.                                                                                
                                                                                                                                
MR. PORTER said he understood  the argument and that argument had                                                               
actually been made, but it was  not what the court did. The court                                                               
told  Exxon that  the  state  had the  authority  to  do what  it                                                               
pleased as long as it was not arbitrary.                                                                                        
                                                                                                                                
SENATOR THERRIAULT felt strongly that  turning down their POD and                                                               
telling them how to proceed were two different things.                                                                          
                                                                                                                                
MR.  PORTER clarified  that the  reasonable and  prudent operator                                                               
standard would  not apply at  the plan of development  phase, but                                                               
at the unit termination phase.                                                                                                  
                                                                                                                                
6:56:08 PM                                                                                                                    
SENATOR STEDMAN  asked if it would  be correct to assume  that if                                                               
Exxon's  leases   were  terminated   and  the  leases   were  re-                                                               
advertised, Exxon could submit a new bid to buy those leases.                                                                   
                                                                                                                                
MR. PORTER answered yes.                                                                                                        
                                                                                                                                
SENATOR  STEDMAN asked  how much  information the  existing Point                                                               
Thomson  lease holders,  primarily Exxon,  might have  that would                                                               
create an advantage in re-acquiring those leases.                                                                               
                                                                                                                                
MR. PORTER referred  the question to DNR because he  was not sure                                                               
what  information was  considered confidential  and how  much, if                                                               
any of it, would become public if the owners lost the leases.                                                                   
                                                                                                                                
CHAIR HUGGINS called a brief at east at 6:57:50 PM.                                                                           
                                                                                                                                
CHAIR HUGGINS called the meeting back to order at 7:12:09 PM.                                                                 
He  recognized  Representative  Doll  and  thanked  her  for  her                                                               
suggestion that a map be displayed in the front of the room.                                                                    
                                                                                                                                
7:13:22 PM                                                                                                                    
MR.  PORTER  said in  the  interest  of  time  he would  skip  to                                                               
discussion of  his recommendations  for the  future and  what the                                                               
benefits would be of moving Point Thomson forward timely.                                                                       
                                                                                                                                
If  Point  Thomson gas  was  not  available  for first  gas,  the                                                               
project  would go  from a  4.5 bcf/d  pipe to  about a  3.5 bcf/d                                                               
pipe,  which  would  still  be  at the  economic  limit  of  what                                                               
TransCanada  proposed.  He  stressed that  whatever  that  number                                                               
would be,  the tariff differential  was what they needed  to look                                                               
at. He estimated that to be roughly $.50 to $1.00.                                                                              
                                                                                                                                
He  stressed that  if  they fought  Point  Thomson out,  everyone                                                               
would lose.  No matter  when they expected  to get  Point Thomson                                                               
gas into the  pipe, they would still  have a 10 year  delay if it                                                               
was litigated.                                                                                                                  
                                                                                                                                
He believed  that DNR was  interested in upholding  the interests                                                               
of the state  and hopeful that the parties would  find a solution                                                               
to move  the project  forward so  the court never  had to  make a                                                               
decision on this case. In  his opinion, DNR thought they couldn't                                                               
talk to  Exxon before  they had submitted  their proposal  to the                                                               
courts. Now that had been done,  he thought they would be able to                                                               
sit down with  Exxon and work things out. Basically,  he hoped it                                                               
was  just a  timing  issue and  they  would be  able  to get  the                                                               
project moving within six months.                                                                                               
                                                                                                                                
7:18:22 PM                                                                                                                    
SENATOR  BUNDE said  as he  understood  it Exxon  was a  majority                                                               
holder  at Point  Thomson,  but there  were  minority holders  as                                                               
well. He asked Mr. Porter to  talk about how they played into the                                                               
situation and whether they could negotiate on their own.                                                                        
                                                                                                                                
MR. PORTER  understood that  under the old  plan, Exxon  had veto                                                               
power over moving  the project forward, but he  believed they had                                                               
recently changed  the operating agreement  so that if all  of the                                                               
owners  got together,  they could  roll Exxon.  He said  that the                                                               
other owners included BP, Chevron,  Conoco Phillips, and probably                                                             
20 smaller owners.                                                                                                              
                                                                                                                                
7:20:30 PM                                                                                                                    
REPRESENTATIVE LYNN felt he was  stating the obvious when he said                                                               
that  it  wouldn't  make  any  difference  who  they  went  with,                                                               
everybody would  make less  money if Point  Thomson did  not come                                                               
in.                                                                                                                             
                                                                                                                                
MR. PORTER confirmed  his statement. The sooner  they could bring                                                               
Point Thomson  in, the better  it would  be for any  project that                                                               
moved forward.                                                                                                                  
                                                                                                                                
7:21:57 PM                                                                                                                    
REPRESENTATIVE  DOOGAN said,  if by  some miracle  the department                                                               
were  to  allow  this  plan  of development  to  go  forward,  he                                                               
understood that the  producers would have to  delineate the field                                                               
better  and   then,  according   to  the   Alaska  Oil   and  Gas                                                               
Conservation  Commission  (AOGCC),  they  would  have  to  either                                                               
produce the gas liquids and the  oil rim or demonstrate that they                                                               
could not,  before they could  start taking off gas  and reducing                                                               
pressure in the field. He asked  Mr. Porter what the timing would                                                               
be to take the oil off first and get to gas.                                                                                    
                                                                                                                                
MR. PORTER  responded that getting to  the gas would be  based on                                                               
drilling  a  few more  wells.  Hypothetically,  if Point  Thomson                                                               
owners started  producing the unit  6 years from now,  that would                                                               
be phase  one and they  would have  a lot more  information. Even                                                               
before  production, AOGCC  would begin  evaluating what  they had                                                               
found, but  once they were in  production AOGCC would have  a lot                                                               
more information  about how much  oil they could use,  whether or                                                               
not they could  even produce out of the oil  rim, how gas cycling                                                               
worked, and how  much of the condensates would  be producible. At                                                               
that point  they could  begin to  develop a  time line,  but that                                                               
would not  start until  the project started.  So if  they started                                                               
immediately, Point Thomson [gas] could  show up as early as first                                                               
gas or a few years after.                                                                                                       
                                                                                                                                
REPRESENTATIVE  DOOGAN  reiterated  that  even  under  best  case                                                               
scenario they would barely make first gas, and it wasn't likely.                                                                
                                                                                                                                
MR. PORTER agreed that it was possible but not likely.                                                                          
                                                                                                                                
7:26:17 PM                                                                                                                    
CHAIR  HUGGINS  commented  that   the  fundamental  question  was                                                               
whether it would be available for open season.                                                                                  
                                                                                                                                
MR. PORTER said if the project  moved forward, the owners of that                                                               
gas might show  up at open season  and commit the gas;  but a gas                                                               
commitment is for 25  years, so even if they got in  2 or 3 years                                                               
late they would  have to make that commitment or  they would have                                                               
to commit at the expansion level.                                                                                               
                                                                                                                                
7:27:10 PM                                                                                                                    
REPRESENTATIVE ROSES  paraphrased Mr. Porter's testimony  that if                                                               
they  didn't bring  Point  Thomson  on line  it  would drive  the                                                               
tariffs up and the state would  make less money. Then he referred                                                               
to Exxon's testimony  about Point Thomson. They said  it had cost                                                               
them about $500  million to obtain the information  they had over                                                               
the years  and to reach the  point that they could  put this plan                                                               
of development in  place. If they were to lose  the leases, since                                                               
much  of that  information was  proprietary, whoever  bought them                                                               
would have  to spend  a considerable  amount of  money to  get to                                                               
that point.                                                                                                                     
                                                                                                                                
MR. PORTER deferred discussion of that to DNR.                                                                                  
                                                                                                                                
REPRESENTATIVE ROSES felt it would  be fair to assume there would                                                               
be some cost to a new owner to acquire additional information.                                                                  
                                                                                                                                
MR. PORTER said  they would have to acquire  information from the                                                               
existing owners and then spend some time getting up to speed.                                                                   
                                                                                                                                
REPRESENTATIVE ROSES continued that  whoever got those leases and                                                               
had to  drill for  information would be  entitled to  the credits                                                               
the state gives  for exploratory operations. So  if Point Thomson                                                               
wasn't on  line and they had  to go to those  as yet undiscovered                                                               
reserves,  the  state  would  have   to  pay  incentives  to  the                                                               
explorers  for their  drilling operations.  That would  mean even                                                               
more loss of  revenue to the state in terms  of Point Thomson gas                                                               
not being committed by the current lease holders.                                                                               
                                                                                                                                
MR.  PORTER  allowed that  Representative  Roses  was correct  in                                                               
terms of  explorers; if  someone spent  money exploring  a lease,                                                               
the state was  going to pay for  it and he thought  that was what                                                               
they would want to have happen.                                                                                                 
                                                                                                                                
REPRESENTATIVE  ROSES  agreed,  but  maintained  that  when  they                                                               
talked  about  the  expense  of  not  having  Point  Thomson  gas                                                               
available, it  included not  only loss of  tariff, but  the money                                                               
the state  would have  to pay for  exploration incentives  to get                                                               
back to  the level  they would  be at if  Point Thomson  were not                                                               
"taken off the map."                                                                                                            
                                                                                                                                
MR. PORTER thought they would  end up with some incremental costs                                                               
on  whoever  came  in  with  Point Thomson.  In  terms  of  other                                                               
explorers, they would explore whether  Point Thomson showed up or                                                               
not.  So  while  there  would probably  be  an  incremental  cost                                                               
associated with Point Thomson he didn't know what it would be.                                                                  
                                                                                                                                
7:30:57 PM                                                                                                                    
SENATOR  BUNDE said,  because the  stakeholders at  Point Thomson                                                               
were in  litigation they obviously  could not book  the reserves;                                                               
but they were also aiming at  a moving target with regard to when                                                               
a pipeline would be available. He  asked at what point they could                                                               
book the  reserves if the  producers and the  administration made                                                               
piece, and  if Mr. Porter  could venture a  guess as to  what the                                                               
value to the producers would be when they booked those reserves.                                                                
                                                                                                                                
MR. PORTER replied  that he didn't have a clue;  he was sorry but                                                               
it was not his field.                                                                                                           
                                                                                                                                
7:31:55 PM                                                                                                                    
SENATOR THERRIAULT  conjectured that AOGCC  would not be  able to                                                               
give its blessing on an off-take  rate for the first open season.                                                               
He asked  if it  was possible  to bid for  capacity on  a reserve                                                               
that AOGCC had not "blessed."                                                                                                   
                                                                                                                                
MR. PORTER  responded that he  thought TransCanada  only required                                                               
40 percent  of the  bid be  identified reserves,  so it  would be                                                               
possible for the three majors to overbid Prudhoe.                                                                               
                                                                                                                                
SENATOR  THERRIAULT felt  a growing  concern  that Point  Thomson                                                               
would  not be  able  to  participate in  the  first open  season,                                                               
because  he  didn't see  how  AOGCC  could  come to  an  off-take                                                               
decision that quickly. If it  were bid without AOGCC blessing, it                                                               
seemed that would be taken into consideration by the financiers.                                                                
                                                                                                                                
MR.  PORTER replied  that AOGCC  would not  be a  factor at  open                                                               
season, but  it would be in  terms of what a  risk-taker would be                                                               
willing to  risk. If Point  Thomson owners believed they  were at                                                               
least 10 years  out and might not have the  Point Thomson leases,                                                               
they might not factor that into  their bid. If they believed they                                                               
had  some chance  of bringing  that  Point Thomson  gas into  the                                                               
pipeline soon  after first gas,  they would  show up and  bid the                                                               
gas,  even if  AOGCC  had not  approved it.  If  they could  look                                                               
forward  and feel  confident  that they  would  approve it,  they                                                               
would risk that  in their bid. With regard to  the financiers, if                                                               
Exxon, Conoco Phillips and BP came  forward and bid 4.5 b without                                                               
Point Thomson,  and committed  to 4.5  b over  the next  25 years                                                               
with  TransCanada, TransCanada  would have  a pipeline  and could                                                               
finance it.                                                                                                                     
                                                                                                                                
SENATOR THERRIAULT touched  again on the question  of whether any                                                               
new lessee  would be starting  from scratch with regard  to down-                                                               
hole technical information and said that was not true.                                                                          
                                                                                                                                
MR. PORTER  interrupted that it  would depend on who  the lessees                                                               
were.                                                                                                                           
                                                                                                                                
SENATOR THERRIAULT continued that it  could be an existing lessee                                                               
who already had access to all of that information.                                                                              
                                                                                                                                
7:35:59 PM                                                                                                                    
SENATOR  WIELECHOWSKI  went  back to  Senator  Doogan's  timeline                                                               
regarding  when the  gas would  be available.  He noted  that the                                                               
unit  owners intended  to  pull  10,000 of  the  5  or 6  million                                                               
barrels  per   day  of  condensate  which,   according  to  DNR's                                                               
calculations, would  take over  40 years at  that rate.  Based on                                                               
not getting started  for 6 years, they would be  looking at first                                                               
gas rolling  out of Point  Thomson under Exxon's current  plan in                                                               
2054. So yes,  they were promising to develop just  like they had                                                               
for the last 43 years.                                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI  said that  according to DNR's  testimony in                                                               
Anchorage, the  physics of the  gas cycling as proposed  by Exxon                                                               
didn't work.  He wondered if Mr.  Porter had an opinion  on DNR's                                                               
testimony.                                                                                                                      
                                                                                                                                
MR. PORTER maintained  it was completely irrational  for Exxon to                                                               
build a  $1.2 billion  facility and  then cycle  it for  40 years                                                               
producing  only 10,000  barrels a  day.  He stressed  this was  a                                                               
phase 1 process;  either it would work and they  would expand it,                                                               
or it wouldn't and they would  go to gas blowdown. What would not                                                               
happen would be 10,000 barrels a day for 40 years.                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI said  if this  is  the largest  undeveloped                                                               
field  in  North America,  and  if  the Superior  Court  affirmed                                                               
Alaska in taking  the leases back, shouldn't  they have producers                                                               
lining up to take those leases?                                                                                                 
                                                                                                                                
MR.  PORTER  agreed  it's  worth  a whole  lot.  That's  why  the                                                               
producers finally decided to move forward.                                                                                      
                                                                                                                                
7:39:54 PM                                                                                                                    
REPRESENTATIVE HAWKER followed up  on the Point Thomson testimony                                                               
in Anchorage.  A great  deal of  it seemed  to be  speculation by                                                               
dueling consultants over the proper  way to develop that reserve,                                                               
whether they  should do gas  cycling or go straight  to blowdown,                                                               
and how they should deal with the  oil rim. The oil rim seemed to                                                               
be  a very  critical factor  and he  couldn't understand  how the                                                               
experts could have such widely  differing opinions on how to deal                                                               
with it.  As he understood  it, there were two  exploratory wells                                                               
that had gotten  close to the oil rim and  could provide tangible                                                               
information. One  of those  wells was solidly  into the  oil rim;                                                               
the other  well got into  the mixing zone  where the oil  met the                                                               
gas liquids.  That test well  that was  solidly into the  oil rim                                                               
came up at 18 API.                                                                                                              
                                                                                                                                
MR. PORTER interrupted  that it was actually 11 API  and the well                                                               
in the mixing zone was 18 API.                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER confirmed  that the well in the  rim was 11                                                               
API, very  viscous, and  the one  in the mixing  zone was  18. He                                                               
asked Mr. Porter to explain those numbers to him.                                                                               
                                                                                                                                
MR.  PORTER  said  that  those   were  the  only  two  pieces  of                                                               
information available on that oil.                                                                                              
                                                                                                                                
REPRESENTATIVE  HAWKER   asked  if   he  was  correct   that  the                                                               
administrative consultant's  report, on  which DNR based  its own                                                               
proper plan of development, used 20.                                                                                            
                                                                                                                                
MR. PORTER answered  yes, that a debate was going  on between the                                                               
consultant  and AOGCC  as  to whether  11 API  was  truly a  good                                                               
number.  If it  was a  good number  and the  18 API  was a  mixed                                                               
number,  then 20  was probably  not appropriate  and they  should                                                               
have used  11. He  said the  right number  was somewhere  in that                                                               
range, but  they wouldn't know  for sure until they  punched some                                                               
more holes. He  added that they had used  the term "discontinuous                                                               
oil rim," meaning it would be  difficult to estimate how much oil                                                               
would come out of that particular section of the reservoir.                                                                     
                                                                                                                                
7:44:52 PM                                                                                                                    
REPRESENTATIVE  HAWKER asked  if  Mr. Porter  could distill  that                                                               
into layman's terms and tell him what it meant.                                                                                 
                                                                                                                                
MR. PORTER explained  that if that was the only  decision you had                                                               
to make, you  would punch some holes to see  if you could produce                                                               
that oil  rim. If  it was  really that  heavy, if  it was  11 API                                                               
gravity even under  high pressure, then the estimate  of value to                                                               
Point Thomson, the  amount of oil you would need  to produce, and                                                               
how  many years  you  would  need to  produce  it  would go  down                                                               
substantially.                                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER  said this was  one of his  favorite topics                                                               
in these debates;  the false precision of putting a  chart on the                                                               
wall and  asking them to believe  that what was up  there was the                                                               
truth.                                                                                                                          
                                                                                                                                
CHAIR  HUGGINS asked  Mr. Porter  what  he meant  by "punching  a                                                               
hole" and how much that would actually cost.                                                                                    
                                                                                                                                
MR. PORTER said the problem with  these wells was that there were                                                               
very  high  pressure  zones  down  below  that  required  special                                                               
drilling  equipment and  techniques that  would greatly  increase                                                               
the cost. He  had heard figures from $80 million  to $100 million                                                               
per well but could not really say how much it would cost.                                                                       
                                                                                                                                
7:47:04 PM                                                                                                                    
REPRESENTATIVE SAMUELS  said the  way he  understood it  was that                                                               
the  small  scale cycling  project  was  a  good idea,  but  they                                                               
didn't'  believe Exxon  would do  it. He  asked if  that was  too                                                               
broad a simplification of the situation.                                                                                        
                                                                                                                                
MR.  PORTER agreed  that  was fairly  accurate.  The problem  was                                                               
believing Exxon  would move forward.  He reiterated that,  from a                                                               
contract standpoint,  if you don't  believe someone, you  set the                                                               
contract  penalty  structure   accordingly.  DNR  tried  imposing                                                               
penalties for not  drilling, but Exxon just paid  them and didn't                                                               
drill. DNR's stance was that  they didn't need money, they needed                                                               
a well. Exxon  finally said they were ready to  drill a well, but                                                               
DNR didn't  trust them. It created  a catch 22 because  the state                                                               
was basically  saying to the  court that  they wanted out  of the                                                               
contract because they didn't trust  Exxon and, under the law, the                                                               
courts  could  not  allow  that  to stand  or  it  would  mean  a                                                               
sovereign could unilaterally jump out of any contract.                                                                          
                                                                                                                                
He  summarized that  DNR would  eventually  have to  come to  the                                                               
table  with  the producers  and  solve  the penalty  problem.  He                                                               
believed  and hoped  that both  parties  wanted to  come to  some                                                               
agreement;  if they  failed to  so, the  court could  very easily                                                               
hold against them on the unit termination issue.                                                                                
                                                                                                                                
7:51:32 PM                                                                                                                    
REPRESENTATIVE GARA said they had  been focusing on how Exxon was                                                               
supposed to  develop Point Thomson,  but the bigger  argument was                                                               
that they  didn't have  all the  information necessary  to decide                                                               
how  it  should be  developed  because  Exxon  had not  done  the                                                               
exploration they  needed to  do to  provide that  information. He                                                               
asked if that wasn't a strong part  of our case. Exxon had a duty                                                               
to explore, so the problem was  not so much that they didn't move                                                               
forward but that,  they didn't perform the  exploration they were                                                               
required to under the leases.                                                                                                   
                                                                                                                                
MR.  PORTER  said  that  was  true,  but  in  the  23rd  plan  of                                                               
development, they  proposed to  do that.  He stressed  that under                                                               
contract law,  the court wouldn't  look back at what  they didn't                                                               
do in  plans 1-21, only  at what  they were currently  doing, and                                                               
they  actually did  what they  were supposed  to do  in the  23rd                                                               
plan.                                                                                                                           
                                                                                                                                
REPRESENTATIVE GARA  objected that the  23rd plan came  out after                                                               
the state  had said "we're not  giving you any more  chances." Up                                                               
to the  22nd plan  they hadn't explored  like they  were supposed                                                               
to, so  the state  said "tough  we're not  playing this  game any                                                               
more." After the state sued  because they hadn't followed through                                                               
on  their obligations,  Exxon  made another  offer.  He felt  the                                                               
latest  plan wasn't  binding  because it  was  offered after  the                                                               
state filed suit.                                                                                                               
                                                                                                                                
MR.  PORTER corrected  that the  suit  was kicked  back into  the                                                               
administrative  process,  and  the  court didn't  care  what  had                                                               
happened in plans 1 through 22.  They cared about what was in the                                                               
23rd plan of development, which was  a proposal to the court as a                                                               
solution to unit termination.                                                                                                   
                                                                                                                                
7:55:18 PM                                                                                                                    
CHAIR  HUGGINS  interrupted  and  advised  those  who  wanted  to                                                               
continue  the conversation  that  Mr. Porter  would be  available                                                               
afterward. He asked Mr. Porter to wrap up.                                                                                      
                                                                                                                                
7:55:33 PM                                                                                                                    
MR. PORTER  said the  key on  this was in  the owners'  hands. He                                                               
hoped they would be able to  solve the problem with Exxon because                                                               
if they  fought it like  a battle, the  state would lose.  If DNR                                                               
approached  the Point  Thomson Unit  owners  as a  problem to  be                                                               
solved, the  state could win. He  did not think the  parties were                                                               
that far apart and was confident this was soluble.                                                                              
                                                                                                                                
7:56:49 PM                                                                                                                    
CHAIR HUGGINS thanked Mr. Porter for his insights and announced                                                                 
that they would begin again with a new presenter at 8:00AM                                                                      
sharp.                                                                                                                          
                                                                                                                                
CHAIR HUGGINS adjourned the meeting at 7:57:18 PM.                                                                            

Document Name Date/Time Subjects