Legislature(2007 - 2008)TERRY MILLER GYM
07/10/2008 08:00 AM Senate SENATE SPECIAL COMMITTEE ON ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB3001|| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB3001 | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE SPECIAL COMMITTEE ON ENERGY
HOUSE RULES STANDING COMMITTEE
JULY 10, 2008
8:04 a.m.
MEMBERS PRESENT
HOUSE RULES
Representative John Coghill, Chair
Representative John Harris (AGIA Subcommittee, Chair)
Representative Anna Fairclough
Representative Craig Johnson
Representative Ralph Samuels (AGIA Subcommittee)
Representative Beth Kerttula (AGIA Subcommittee)
Representative David Guttenberg
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Kim Elton
Senator Lyda Green
Senator Lyman Hoffman
Senator Lesil McGuire
Senator Donald Olson
Senator Gary Stevens
Senator Joe Thomas
Senator Bill Wielechowski
Senator Fred Dyson
Senator Thomas Wagoner
MEMBERS ABSENT
HOUSE RULES
All members present
SENATE SPECIAL COMMITTEE ON ENERGY
All members present
OTHER LEGISLATORS PRESENT
Senator Con Bunde; Senator Betty Davis; Senator Johnny Ellis;
Senator Hollis French; Senator Gene Therriault; Senator Gary
Wilken; Senator Lesil McGuire; Representative Bob Buch;
Representative Mike Chenault; Representative Harry Crawford;
Representative Nancy Dahlstrom; Representative Andrea Doll;
Representative Mike Doogan; Representative Bryce Edgmon;
Representative Richard Foster; Representative Les Gara;
Representative Berta Gardner; Representative Carl Gatto;
Representative Max Gruenberg; Representative Mike Hawker;
Representative Lindsey Holmes; Representative Kyle Johansen;
Representative Reggie Joule; Representative Steve Kawasaki;
Representative Wes Keller; Representative Mike Kelly;
Representative Gabrielle LeDoux; Representative Bob Lynn;
Representative Mike Meyer; Representative Mark Newman;
Representative Kurt Olson; Representative Jay Ramras;
Representative Woodie Salmon; Representative Paul Seaton;
Representative Bill Stoltze; Representative Bill Thomas.
COMMITTEE CALENDAR
HOUSE BILL NO. 3001
"An Act approving issuance of a license by the commissioner of
revenue and the commissioner of natural resources to TransCanada
Alaska Company, LLC and Foothills Pipe Lines Ltd., jointly as
licensee, under the Alaska Gasline Inducement Act; and providing
for an effective date."
- HEARD AND HELD
SENATE BILL NO. 3001
"An Act approving issuance of a license by the commissioner of
revenue and the commissioner of natural resources to TransCanada
Alaska Company, LLC and Foothills Pipe Lines Ltd., jointly as
licensee, under the Alaska Gasline Inducement Act; and providing
for an effective date."
- HEARD AND HELD
Presentations:
DENALI PROJECT: Bud Fackrell, President
TRANSCANADA WORKFORCE ISSUES: Mel Johnson, Director, Alaska
Pipeline Project, Major Projects
TRANSCANADA APPLICATION: Tony Palmer, VP, Alaska Business
Development
EXXONMOBIL: Marty Martin Massey, U.S. Joint Interest Manager,
ExxonMobil Corporation
CBI MEDIATION GROUP: Francis McGovern, Board Member CBI &
Professor of Law, Duke University
Joshua Gordon, Senior Associate
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
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06/20/08 (S) 9am - 5pm - Testimony <Invitation Only>
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07/01/08 (S) BILL CARRIES OVER FROM 3RD SPECIAL SESSION
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07/08/08 (S) 1pm - 4pm - Testimony <Invitation Only>
07/09/08 (S) ENR AT 1:30 PM TERRY MILLER GYM
07/09/08 (S) Joint w/(H) Rules
07/10/08 (S) ENR AT 8:00 AM 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) Subcommittee Assigned
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WITNESS REGISTER
BUD E. FACKRELL, President
Denali The Alaska Gas Company ("Denali")
POSITION STATEMENT: During the hearing on HB 3001 and SB 3001,
offered a presentation: "Denali, The Alaska Gas Pipeline."
TONY PALMER, Vice President
Alaska Business Development
TransCanada Alaska, LLC
Calgary, Alberta, Canada
POSITION STATEMENT: During the hearing on HB 3001 and SB 3001,
introduced Mel A. Johnson and outlined the presentation he and
Mr. Johnson would give.
MEL A. JOHNSON, Director
Project Management
Alaska Pipeline Project
TransCanada Alaska, LLC
Calgary, Alberta, Canada
POSITION STATEMENT: Gave a PowerPoint presentation during the
hearing on HB 3001 and SB 3001.
MARTIN MASSEY, U.S. Joint Interest Manager
ExxonMobil Corporation ("Exxon")
No address provided
POSITION STATEMENT: Gave a PowerPoint presentation during the
hearing on HB 3001 and SB 3001.
JOSHUA GORDON, Practitioner Consultant
Consensus Building Institute (CBI)
Cambridge, Massachusetts
POSITION STATEMENT: During the hearing on HB 3001 and SB 3001,
described the work of CBI.
FRANCIS McGOVERN, Board Member
Consensus Building Institute (CBI)
Cambridge, Massachusetts
POSITION STATEMENT: Gave a PowerPoint presentation during the
hearing on HB 3001 and SB 3001.
ACTION NARRATIVE
CALL TO ORDER
Chair Charlie Huggins called the joint meeting of the House
Rules Standing Committee and the Senate Special Committee on
Energy to order at 8:04:16 AM.
HB 3001-APPROVING AGIA LICENSE
SB 3001-APPROVING AGIA LICENSE
DENALI PROJECT
8:04:22 AM
BUD E. FACKRELL, President, Denali The Alaska Gas Company
("Denali"), provided a brief history of his background,
including that he graduated with a petroleum engineering degree
from the University of Wyoming. He further related that he as
spent 33 years in the oil and gas industry, during which he has
been in Alaska for two years and has been serving as the vice
president for BP Alaska. He said that he knows the North Slope
very well. Prior to coming to Alaska, Mr. Fackrell noted, he
was assigned to Abu Dhabi, which is the capital of the United
Emirates, by a large joint venture company. He explained that
he managed all of the offshore production at Abu Dhabi,
including extensive offshore production of oil & gas, and a
liquefied natural gas (LNG) terminal and transportation system.
He mentioned that he has run large, complex operations for BP
and Amoco around the world.
MR. FACKRELL, in response to Chair Huggins, directed members'
attention to a handout titled, "DENALI, THE ALASKA GAS
PIPELINE." Referring to slide 2, he explained that Denali is a
joint venture between BP and ConocoPhillips Alaska, Inc., each
of which has a 50 percent ownership in the venture. Denali is a
limited liability company (LLC), and thus it's a separate
company. The project headquarters will be in Anchorage. In
fact, he noted that he is in the process of negotiating a lease
for contract space in the city. Staff for Denali will come from
BP and ConocoPhillips Alaska, Inc. The Denali staff will work
on behalf of all of the sponsors of Denali.
8:07:46 AM
SENATOR THERRIAULT inquired as to the ratio of employees that
are new for Denali.
MR. FACKRELL stated that currently the project is in a
transition period and will be fully staffed for the first phase.
When fully staffed, nine vice presidents will report to him, he
noted. He then explained that there are six functions [of the
project] that will be fulfilled in a 50:50 split between BP and
ConocoPhillips. The leadership of those will be rotated.
Furthermore, there will be three project general managers and
each project will be staffed differently depending upon [the
manager]. The staffing will also be supplemented with
contractors.
SENATOR THERRIAULT inquired as to the ratio of new employees
hired for this project versus staff that has come from the two
parent companies.
MR. FACKRELL specified that currently 75 people are working in
the field. Those 75 people are essentially contractors who are
working on the field summer program. Another 50 people are
located in Anchorage, of which 50 percent are from BP and 50
percent are from ConocoPhillips. He specified that initially
there are two methods for obtaining employees. The first manner
would be through secondment of employees from BP or
ConocoPhillips into Denali. The second manner would be to hire
contractors.
8:10:52 AM
MR. FACKRELL explained that the first major milestone for Denali
is to have a successful open season. That open season will
occur prior to the end of 2010. He said that he expects to
spend about $600 million over the next 36 months to prepare for
the open season. Mr. Fackrell emphasized that it's critically
important to understand the route, as the pipeline will be
designed a foot at a time. In fact, there is a corridor between
Delta Junction and the Canadian border for which not much
information is available. The 2008 Denali summer program is
focused on that corridor and will spend $40 million dollars on
that program. In order to be prepared for a successful open
season, Denali needs to have a technically sound and viable cost
estimate, which he characterized as one of the most important
things to do.
8:12:25 AM
SENATOR FRENCH read from a letter submitted by a constituent,
which claims that Denali does not really exist and claims that
it was a public relations scam. Senator French offered that
this is Denali's opportunity to inform Alaskans as to how they
can find, contact, and apply for positions.
MR. FACKRELL stated that Denali is a real company that was
formed just a few months ago. He noted anyone can obtain
information about the company from its web site. He noted that
Denali is in the process of opening up an office and he has a
business card with a telephone number. He stressed that Denali
is real, and furthermore $40 million for a summer work program
is real. He related that currently over 20 contractors -
Alaskan companies - are working in the field today. He said
encourages young people to look at "our" web site, and he said
the office being set up is looking forward to hiring Alaskans.
The history of BP and ConocoPhillips clearly shows the hiring of
Alaskans "up and down our value chain."
8:15:13 AM
REPRESENTATIVE SAMUELS asked when there would be a physical
office for applicants.
MR. FACKRELL replied that currently he has temporary office
space on 36th Street in Anchorage. He relayed that he is in the
process of signing a lease on 28,000 square feet of office space
in Anchorage, which he hopes to conclude very soon to open in
September. Denali is also looking at office space that would
accommodate 45,000 square feet as the project grows.
REPRESENTATIVE SAMUELS questioned how the contractor job
postings and hiring would be addressed.
MR. FACKRELL explained that at this point in the project there
isn't a lot of work in the field, and furthermore much of the
field work is with contractors who would hire people to work for
them. As the project proceeds, the workforce will expand and
people will be pulled into the company itself. The first phase
of the project is building solid cost estimates, and therefore
engineering firms will be employed to do so. The workforce will
build over time, he remarked. Mr. Fackrell mentioned that the
web site will explain how to obtain jobs and what jobs will be
available as well as the potential education youth can focus on
to prepare for these jobs.
8:17:52 AM
REPRESENTATIVE GATTO expressed his surprise with regard to the
constituent letter received by Senator French. He related his
observation that Denali has spent an awful lot of money on full-
page advertisements describing a wonderful company that will
offer great opportunities for the state. As to speaking with
high school students about future [employment with Denali],
Representative Gatto pointed out that there are also those
individuals who are looking in the newspapers for work. He
stated his concern that Alaskans won't be hired by Denali;
therefore, he expressed the need for these full-page newspaper
advertisements to reach out with the necessary information for
potential applicants.
MR. FACKRELL responded that Denali is moving forward with the
project and will be spending $600 million to develop a viable,
technically sound cost estimate. He reiterated that Denali will
spend $40 million on the summer program, which he emphasized is
real work. Mr. Fackrell said, "I'm not asking you to trust me,
I'm asking you to watch me." He further related that Denali has
a project plan in place on which he will report to Alaskans via
the media. Hiring people in Alaska is very important to Denali,
he opined. Both [BP and ConocoPhillips] have been in the state
for 50 years during which time they have built infrastructure
and trained and developed individuals. He then related a number
of organizations in which [BP and ConocoPhillips] is involved in
terms of training and developing Alaskans. Mr. Fackrell pointed
out there will be less job opportunities are going to be less
until the construction phase is reached.
8:22:55 AM
CHAIR HUGGINS requested that Denali provide a roster [of
employees who are Alaskan].
8:23:21 AM
REPRESENTATIVE HAWKER related that he, too, has heard that
Denali is a fraud, a political ploy intended to mislead the
public and legislature. He asked if Denali is such.
MR. FACKRELL stated that [Denali] isn't committing $600 million
over the next three years as an advertising campaign. Rather,
Denali is currently staffing the organization. He echoed
earlier testimony that there are 75 people in the field. He
welcomed folks to visit Tok and observe the real work that is
being performed. He then expressed his desire to have his
leadership team staffed in the next couple of weeks. In fact,
in a few months Denali will be a full-fledged company. Denali's
major goal, he reiterated, is to have a successful open season
that would commence at the end of 2010. He further urged the
legislature to track the milestones of Denali.
8:26:11 AM
SENATOR STEADMAN inquired as to the recourse BP and
ConocoPhillips would face if Denali was a scam.
MR. FACKRELL highlighted that Denali has pre-filed with the
Federal Energy Regulatory Commission (FERC), and has obtained
approval. Furthermore, Mr. Fackrell related that he will
accompany the chair of FERC to the North Slope in order to have
an overview of the operations at the North Slope. He emphasized
that BP and ConocoPhillips are serious about the Denali project
and has provided the portfolio for the project to reach an open
season. He stressed the importance for BP and ConocoPhillips
that the project moves forward.
8:27:49 AM
SENATOR STEDMAN requested more precise information regarding the
recourse federal regulators could take were Denali to be found a
sham.
MR. FACKRELL stated that he would address that.
CHAIR HUGGINS inquired as to the objective of having the FERC
chairman come to the North Slope.
MR. FACKRELL stated that it is common for BP and ConocoPhillips
to host various parties on the North Slope. Alaska is an
important jurisdiction for FERC, and therefore [BP and
ConocoPhillips] are coming to look at Denali as well as other
operations in Alaska. He then reminded the committee that
[Denali] is a series of several mega-projects, the first of
which is a large gas treatment plant (GTP), which will be the
largest in the world once it's completed.
8:30:02 AM
REPRESENTATIVE LYNN asked why Denali didn't apply for a license
under the Alaska Gasline Inducement Act (AGIA), which had 20
must-haves.
MR. FACKRELL pointed out that BP and ConocoPhillips are the
owners, and thus the entity to which the aforementioned question
should be posed. However, he related that he was told that the
terms of AGIA didn't provide a viable way to move the project
forward and thus the decision was made to move forward with
Denali outside of AGIA. In further response to Representative
Lynn, Mr. Fackrell specified that his focus is on Denali and
moving it forward versus why the owners didn't choose to move
forward with AGIA. He offered to address the terms and
conditions of Denali during his presentation.
8:32:28 AM
SENATOR WIELECHOWSKI asked if Denali would be willing to file
written commitments with associated penalties for failure to
proceed.
MR. FACKRELL responded that his presentation and testimony will
be on the record. Furthermore, there will be a project plan
that will be managed. The first objective, he reiterated, is to
have a successful open season.
SENATOR WIELECHOWSKI inquired as to what guarantees the state
has that Denali will do as it specifies in its plans.
MR. FACKRELL reiterated that Denali will have a project plan
available for everyone to see and he will report on that plan.
SENATOR WIELECHOWSKI pointed out that the big difference between
AGIA and Denali is that under AGIA there are written commitments
and penalties that don't exist with Denali. He asked again if
Denali could provide any guarantees that the commitments Denali
makes will occur.
MR. FACKRELL reminded the members that Denali was formed by two
major producers in the state. From the start, Denali has
committed to having an open season by the end of 2010. He
opined that Denali has also demonstrated what it is doing, which
includes the earlier mentioned summer work program and the
engineering and design work required to reach an open season.
He reiterated that he will be announcing an office soon and
anticipates that by the end of the year there will be close to
150 [employees] and probably close to 300 [employees] by the end
of next year.
8:35:28 AM
SENATOR BUNDE pointed out that TransCanada doesn't yet have gas,
while the owner companies of Denali do. However, the owner
companies of Denali don't have right of way through Canada,
while TransCanada does. Therefore, he requested that Mr.
Fackrell address obtaining the right of way through Canada, as
it seems to be an essential piece for a successful open season.
MR. FACKRELL commented that a project like this has never been
undertaken, and permitting in both Alaska and Canada has
challenges. He stressed that BP and ConocoPhillips have large
companies operating in Canada, and therefore BP and
ConocoPhillips knows Canada. Denali will be using its
affiliates and will form an unincorporated joint venture in
Canada to work through the permitting process. He noted that
actually there will be more pipe in Canada than there will be in
Alaska.
CHAIR HUGGINS recalled that it has been said that the MacKenzie
Project will have to come first. He further recalled an article
in Ketchikan relating that the cost of MacKenzie has risen to
$16.2 billion in 2008. He asked if Denali has taken into
account "sister" projects and equated those to the Denali
project.
MR. FACKRELL stated that Chair Huggins is hitting on one of the
most important aspects of the Alaska gasline project: the cost
of the pipeline and the corresponding gasline. He emphasized
the need to have a technically sound cost estimate. The
shippers will also want to know the same. He highlighted that
BP and ConocoPhillips are two of the largest companies in the
world and have over 50 million miles of pipeline. Furthermore,
Denali will tap into the expertise of the two companies that
built the North Slope. Denali, he stressed, needs to understand
what this pipeline will cost as that will control the size of
the tariff as well as the scope of the project.
8:41:23 AM
REPRESENTATIVE KERTTULA inquired as to how much was spent on the
"over-the-top" route.
MR. FACKRELL said that since he wasn't involved in that effort,
he would have to obtain those numbers.
REPRESENTATIVE KERTTULA inquired as to what tax concessions
Denali [staff] has discussed.
MR. FACKRELL specified that Denali is a pipeline company, and
therefore he said he wouldn't be asking for any tax concessions
or tax certainty. However, the customers of the project will
likely ask for fiscal terms, which has been the testimony of all
the pipeline companies that have testified. Although Denali
doesn't need any conditions or terms, he opined that the
customers will most likely ask for those.
CHAIR HUGGINS recalled that the aforementioned article alluded
to fiscal terms. He remarked, "It was the first time that I had
seen in writing that it was one of the measures ... that was
given ... some accountability for not contributing to the
success of the project because the government of Canada had not
contributed those terms." He characterized MacKenzie as a
sister project to that of the proposed gasline in that it has
similar challenges.
8:43:44 AM
REPRESENTATIVE DOOGAN recalled that the last time the major oil
producers formed a pipeline company in Alaska, it was the
Alyeska Pipeline Service Company. The cost overruns from the
initial project estimate were said to be 800 percent, although
he suggested it was 1,000 percent. Therefore, Representative
Doogan voiced concern with regard to cost overruns. He then
inquired as to how much experience Denali and the [owner
companies] have with building such projects in a regulated
environment in North America.
MR. FACKRELL reminded the committee that BP and ConocoPhillips
own 50,000 miles of pipeline worldwide. "It is not uncommon for
producers to be involved in basin-opening pipelines," he said.
He provided examples of the aforementioned in which BP and
ConocoPhillips have been involved. Furthermore, [BP and
ConocoPhillips] learned a lot from the Trans-Alaska Pipeline
System (TAPS). He acknowledged that project management has
dramatically changed since TAPS. Still, [BP and ConocoPhillips]
are in the business of building projects and have experts in
project management. Furthermore, [Denali] will access major
contractors who [are experts in project management]. The
companies that can build the pipeline most efficiently are [BP
and ConocoPhillips], which have operated on the North Slope for
50 years. Additionally, [BP and ConocoPhillips] already have an
Alaskan workforce that has been trained and developed. Mr.
Fackrell said that although the Alaska project won't be easy, he
has great confidence that these two companies can manage this
project. Furthermore, this project will require the
construction of a gas plant, which BP and ConocoPhillips have
built before on the North Slope. Referring to the high cost of
building on the North Slope, he noted that it will take
engineering expertise to try to control [those building costs].
Ultimately, it's in the best interest of [Denali] to have the
lowest project costs because that will allow the company to
provide the lowest tariffs. He pointed out that in the end only
two parties - the State of Alaska and the customers - care about
the cost of the proposed pipeline, because the tariff will be
passed on to both.
8:48:58 AM
REPRESENTATIVE DOOGAN recognized that [BP and ConocoPhillips]
have been involved in pipelines. However, he inquired as to
where these two companies have actually built a pipeline.
MR. FACKRELL pointed out that BP built the approximately 1,000-
mile pipeline in Azerbaijan that passes through two countries.
He then highlighted the liquefied natural gas (LNG) project that
the companies built in Trinidad, where technology from Alaska
was utilized. Furthermore, the companies built the pipeline in
the Gulf of Mexico, which has pipeline in 9,000 feet of water in
some places. These two companies have the technology and
expertise to build projects. He acknowledged that the Alaska
project is a unique project. If the concern is that BP and
ConocoPhillips can't build the Alaska gasline, the focus should
be redirected, he said.
REPRESENTATIVE DOOGAN pointed out that TransCanada has a proven
track record of building large, long-distance pipelines, such as
the proposed Alaska gasline. He asked what BP and
ConocoPhillips [have built] that is comparable.
MR. FACKRELL responded that the pipelines [BP and
ConocoPhillips] have built that are comparable are in the
Caspian and the Gulf of Mexico.
REPRESENTATIVE DOOGAN requested that information in writing.
8:52:38 AM
REPRESENTATIVE JOULE pointed out the state has experienced a 30-
year monopoly with the producers owning TAPS. He inquired as to
some of the assurances that explorers would receive access in a
reasonable way. Additionally, of the 20 must-haves of the
state, Representative Joule inquired as to which Denali would be
able to accommodate in the process.
CHAIR HUGGINS offered to provide Mr. Fackrell with those must-
haves so that he could be prepared to address Representative
Joule's question after the break.
MR. FACKRELL stated that the pipeline would be an open access
line that would be open to all parties who want to nominate
space on the pipeline. That right of access is under Federal
Energy Regulatory Commission (FERC), which will control the
regulation of this pipeline. Denali wants to fill the pipeline
with gas, he said. Mr. Fackrell reiterated, "This is an open
access pipeline. All parties have the opportunity to nominate
gas or space into the pipeline." He then related that Denali
envisions that after FERC approval is received, Denali will
solicit interest in expansion from partners beyond that. Mr.
Fackrell opined that this proposed pipeline is going to allow
the North Slope to open up for gas exploration. [Denali], he
said, wants to be in a position in which those parties can be
brought in to fill the pipeline. He predicted a secondary
benefit of the gasline will be the discovery of oil, which he
said has been the case in locales such as Trinidad.
REPRESENTATIVE JOULE inquired as to the meaning of "open
access." He noted that TransCanada has committed to an open
season every couple of years.
MR. FACKRELL specified that Denali plans to solicit interest in
the expansion of the pipeline every two years.
8:56:43 AM
REPRESENTATIVE GARA, regarding open access, observed that FERC
clarifies that there will be a presumption of rolled-in rates in
the case of voluntary expansion; however, if the state forces
the company into a mandatory expansion, that would be done under
incremental rates, wherein higher rates could be charged to
newcomers. He asked if Denali would commit to certain
provisions contained in AGIA that mandate its engaging in a
certain schedule of voluntary expansions so that the state could
take advantage of the rolled-in rate provision. He said "many
of us" believe that rolled-in rates are fairer to newer
explorers.
MR. FACKRELL responded that there is a balance between ensuring
new customers and bringing customers in later. He said Denali
would be following FERC's regulations, which are the presumption
of rolled-in rates, up to the point of the subsidizing every two
years. In response to Representative Gara's reiteration of his
original question, Mr. Fackrell stated that [Denali] did not
file an application under AGIA, thus it will not embraced
everything under AGIA. He said the fact that Denali will
solicit for expansion every two years "addresses this issue."
He reiterated that Denali will follow FERC rules regarding a
presumption of rolled-in rates.
REPRESENTATIVE GARA said he hears that response as Mr.
Fackrell's having said that Denali will not follow the AGIA
requirements on voluntary expansions. Regarding tax policy, he
said Denali has made a big deal about the $500 million subsidy
required by AGIA. He asked if Mr. Fackrell's companies - BP and
ConocoPhillips Alaska, Inc. - are not going to ask for more than
$500 million in tax breaks "as a condition for your company to
be allowed to move full-speed ahead on the gas line."
MR. FACKRELL said he expects the customers want the fiscal terms
settled before signing up for $100 billion of commitments with
tariffs. He said, "I'm not asking for any tax fiscal condition
with Denali, but I fully expect that the customers of this
pipeline - whoever has the pipeline - will ask for fiscal
certainty."
REPRESENTATIVE GARA recollected that when he asked TransCanada
if it will move ahead regardless of the tax policy or demand tax
breaks for producers, it answered that that is not its business.
He told Mr. Fackrell that whether or not his company commits to
move ahead even without tax breaks in excess of $500 million is
a yes or no question.
MR. FACKRELL read from the TransCanada application as follows:
TransCanada will rely on the State of Alaska to take
all feasible actions exclusively within its authority
as a sovereign power to ensure favorable economic
environment for potential shippers for the project.
These actions include engaging the ANS producers to
reach agreement on a commercially reasonable and
predictable upstream fiscal regime that balance[s] the
needs of the state and ANS producers.
MR. FACKRELL said he thinks all the pipeline companies are
expressing the same idea.
REPRESENTATIVE GARA corrected Mr. Fackrell, indicating that
TransCanada said it would not get involved in the tax debate.
The committee took an at-ease from 9:03:13 AM to 9:10:48 AM.
9:12:48 AM
CHAIR HUGGINS asked Mr. Fackrell to respond to the list of the
20 must-haves.
MR. FACKRELL, regarding the list, spoke of terms of service. He
reviewed that Denali would be an open-access pipeline, which
means all parties would have the opportunity to nominate space
in the pipeline - a process controlled by FERC. He said rates
will be distance-sensitive for local use, recognizing the
communities in Alaska should not have to bear the rates of
"someone farther down the pipeline." He said the company will
be looking at its rate structure to consider whether it should
even offer some differentiation within Alaska itself. Mr.
Fackrell, regarding project design, said the company has applied
for efficient expandability, because expansion is necessary in
order to include new customers. He spoke again of the expansion
solicitation. The extension of the pipeline from Alberta into
the Lower 48, he said, would be controlled by the
competitiveness of the market; at this juncture, he said, it is
unknown whether or not that additional pipe would be built, but
that route is an option.
9:17:12 AM
MR. FACKRELL continued his response to the must-have list. He
confirmed there would be an open season every two years,
distance-sensitive rates, expandability of the pipeline, and
solicitation of customers.
CHAIR HUGGINS asked that Mr. Fackrell review the remainder of
the list with his staff and get back to the committee with his
answers.
REPRESENTATIVE FAIRCLOUGH, regarding the trend to increase
exploration, said some legislators think the best of both worlds
would be having the Denali project for the gas it appears to
have and TransCanada Alaska as the pipeline builder; however,
TransCanada says that under AGIA, it cannot cooperate with
Denali in a project. She remarked that Denali will need a
partner in Canada and Alaska needs the gas to go into open
season. She asked for information about possible obstacles in
that regard.
MR. FACKRELL related that the owners have said they are open to
bringing in partners who can add value to their project, and
they have already been approached by a number of parties
regarding joining Denali. Having spent 15 years running joint
venture companies, Mr. Fackrell said he knows "when you come
into a joint venture company, you have to leave your mother
company, if you will." He said since he does not work for BP
any longer but works for his "owners," he has to do what is in
the best interest of both of his owners.
REPRESENTATIVE FAIRCLOUGH specified that she wants to know what
language in AGIA would prevent TransCanada from engaging in a
partnership with Mr. Fackrell's owners.
9:22:45 AM
REPRESENTATIVE COGHILL said Representative Fairclough's question
is important, especially since the legislators must vote on a
license that may put Mr. Fackrell's party and [TransCanada] in
"restricted conditions." He questioned whether those in charge
of the Denali project have had talks with the folks at
TransCanada to date regarding a joint venture.
MR. FACKRELL said that question would have to be asked of his
owners.
REPRESENTATIVE COGHILL offered his understanding that [a joint
venture] could happen, but it would just be more costly once the
State of Alaska has joined together in partnership with
TransCanada. On another note, he said since Mr. Fackrell works
for two producers, it is okay to presume that there is 4 bcf
available for commitment to an open season. He asked if there
is a study underway that Mr. Fackrell can show the legislature,
which supports the anticipation of a 4 bcf line.
MR. FACKRELL said the plan is to construct a system that will
deliver 4 bcf of gas to the North American market, which will
include a large gas treatment plant located on the slope, a
pipeline to Alberta, and potentially a pipe to the Midwest. The
focus will be on getting to a successful open season by the end
of 2010, having a cost estimate, and providing comfort to
potential customers that the cost estimates and tariffs are the
lowest possible.
9:27:28 AM
SENATOR HOFFMAN asked about Denali's construction plans in
Canada and whether there had been any dialogue with Canada about
that. He also asked about any specific debt:equity ratios for
financing.
MR. FACKRELL replied that "we" are not committing to the
debt:equity ratio specified in AGIA, but are going out to the
financial community to determine what the best possible
financing would be. He reiterated that the objective is to have
the lowest tariffs possible for customers in order to encourage
them to sign contracts. He said, "We want to have the
flexibility to finance the pipeline in whatever way to drive
that." He added that the biggest element of the tariff would be
the cost of the project, which is one of the reasons that "we"
are going to be spending $600 million over the next 36 months -
to get a technically sound process before going to open season.
MR. FACKRELL, regarding Senator Hoffman's question about FERC,
related that Denali does not have any agreements with the
provinces in Canada at this juncture. He said, "Most of my
owners have large subsidiaries in Canada who are working with
them now, and we're forming an incorporated joint venture in
Canada, and I fully expect to tap into that. And we have people
in Canada who know the landscape and work with the government,
and we will be using those people to help us secure those
agreements."
SENATOR HOFFMAN asked Mr. Fackrell if he has had any preliminary
conversations with TransCanada toward working with them to use
those rights of way.
MR. FACKRELL answered that he has had none at this time, and he
said he does not know if BP or ConocoPhillips Alaska, Inc., have
had conversations with TransCanada.
9:30:53 AM
REPRESENTATIVE KERTTULA asked for examples of protection in
place for potential oil spills resulting from corrosion.
MR. FACKRELL explained that the gas pipeline differs from past
oil pipelines. It will be a high-pressure, 2,500 psi line. He
indicated that the processing plant will be removing CO2, H2S,
and other impurities. There are not the sediments flowing
through a gas pipeline that there are with oil. He spoke of
regular maintenance conducted by means of "pigging." There will
be no liquids in the pipeline. He offered further details. In
response to a follow-up question from Representative Kerttula,
he said the diameter of the gas pipeline would be determined by
economics, but it would be a large diameter.
9:33:36 AM
REPRESENTATIVE GARDNER asked that Mr. Fackrell add to the list
previously requested by Representative Doogan which pipelines
are currently owned and operated by the same people who are
producing and shipping the gas. Furthermore, she said she would
like him to provide the cost estimates done, and she would like
to know how closely the final costs aligned with those
estimates. Representative Gardner said she also wants to know
the distinction between tax certainty and fiscal terms.
9:35:09 AM
SENATOR FRENCH referred to Senator Hoffman's previous question
regarding the desired debt:equity ratio. He said that ratio is
important to the state, because "the higher the debt ratio, the
lower the tariff." He expressed his wish that Mr. Fackrell
would provide more information in order to compare Denali's
debt:equity plan with that of TransCanada.
MR. FACKRELL responded that the goal is to have low tariffs.
The debt:equity ratio has not yet been determined, he said.
SENATOR FRENCH asked when that number will be determined.
MR. FACKRELL said in order to have a successful open season, a
tariff and the financing must be determined, and he said "we"
are committed to having a successful open season by the year
2010.
CHAIR HUGGINS suggested that as Mr. Fackrell talks about the
timeline, it might be appropriate to discuss when a decision
would be made regarding the debt:equity ratio.
MR. FACKRELL noted that there is a timeline included with the
materials he provided to the committee.
9:38:25 AM
SENATOR THERRIAULT said one of the problems with the Alaska
Stranded Gas Development Act (SGDA) was that there was no
commitment for the entities created that there was any direct
tie-back to the capital of the parent companies. He asked what
assurance Denali could give that there will be that connection
between the companies involved in this LLC and the balance
sheets of ConocoPhillips Alaska, Inc., and BP.
MR. FACKRELL stated that one of the objectives of Denali's plan
is to spend the necessary funds to get to a successful open
season by 2010. He projected he would be spending about $600
million over the next 36 months. This summer, he related, he is
spending $40 million on a field program. He indicated that
there is a willingness to staff the operation fully.
SENATOR THERRIAULT referred to two memorandums, one dated
December 18, 2006, and one dated May 22, 2006, both of which he
said raised concerns about the business structure that was being
proposed at that time. Referring to Denali's LLC status, he
read as follows:
A second important lacking term is an imposition of an
affirmative duty on the managing members to develop
and promote the gas pipeline to act in the best
interest of the gas pipeline company. A standard
obligation under most state, corporate, and limited
liability companies' statutes. To the contrary,
utilizing the Delaware LLC statute, which permits
parties great feeding in negotiating LLC agreement
terms, the LLC agreement essentially waives these
standards of fiduciary duties and permits the members
to the pipeline company to act in their own interest,
even if contrary to pipeline company interest.
SENATOR THERRIAULT spoke to a higher standard of the managing
partner that that partner does not take action that is contrary
to the intent of the business entity. He said Denali is
organized under [the] Delaware [statute], such that it can
negotiate that type of protection into the agreement, but it
does not have to do so. He stated, "The default is a much lower
standard." He explained as follows:
If we have "xyz" company that is managing you -
managing Denali - and ... if an expansion happens and
it delivers gas into the Lower 48, which lowers the
price of gas, which is not in the best interest of
that managing member's parent company, then that
member can take steps to block that expansion from
happening.
SENATOR THERRIAULT asked Mr. Fackrell if his LLC agreement is in
writing and available for the legislature to view. He said a
lot of his concerns could be answered by seeing that document.
MR. FACKRELL offered to find out if the document is public
record.
SENATOR THERRIAULT reiterated his concern about open access and
how it relates to the LLC structure. He said even under FERC,
if an expansion is forced, there is no presumption of rolled-in
rates. He questioned, "So, is it truly an open access pipeline
if the cost of getting into the game for the new shipper is so
high that they're priced out of the market?" He added that that
is one of the concerns that could be answered in the LLC
structure. He said, "The one thing that the companies continue
to challenge under the FERC [regulation] package that was put
out was the initial design of the pipeline. And we got such a
muddled court decision on that, that the FERC language that we
got, I think, ... [has] basically been rendered inoperable."
9:45:43 AM
REPRESENTATIVE CRAWFORD referred to the idea that Denali "plans"
to solicit customers, when other points made about rates and
projects, for example, use the word "will." He wondered why the
word "plans" was used rather than "will." He also referred to
the idea of the flexibility to use existing or new
infrastructure out of Alberta. He said he read an add that 5
million tons of steel would be used for the Denali project,
while TransCanada has said it would use 2.25-2.5 million tons of
steel. He said that seems to guarantee higher tariff rates for
the Denali project. His third concern was regarding project
labor agreements. He shared his previous experience working
under project labor agreements, which he said resulted in his
earning 72 percent of the wage he could have been earning. He
questioned whether one of the reasons Denali did not commit
under the AGIA process was because "you" did not want to live
under AGIA's project labor agreement that would have a company
negotiate a project labor agreement with Alaska's labor unions.
9:49:30 AM
MR. FACKRELL, regarding the estimated amount of steel needed,
explained that 5-6 million tons would be needed if the company
extends the pipeline to Chicago.
REPRESENTATIVE CRAWFORD clarified that if the existing pipeline
in Canada is not used, tariffs are guaranteed to double.
MR. FACKRELL said that is not the case because "we are not
talking about binding people to the pipeline all the way to
Chicago." Only the market will drive that, he added. He noted
that both ConocoPhillips Alaska, Inc., and BP have existing
labor agreements on the slope, and fully anticipate having labor
agreements with "the representative work force that exists in
the state today." He reiterated that Denali is committed to
having an open season by 2010 and spending $600 million to make
that happen. He related that there would be five off-take
points in Alaska, although it has not yet been determined where
those points will be, because "we" want to work with the other
parties inside the state that are considering projects.
Regarding "plans" versus "will," Mr. Fackrell said it would not
be a stretch to use the word "will" on that item.
9:53:27 AM
SENATOR STEDMAN requested an explanation of a true open access
pipeline versus an open access pipeline.
MR. FACKRELL responded as follows:
Our pipeline will be open to all customers to bid for
a space in the pipeline. We will look under FERC
rules, we will look at expanding the pipeline and ...
soliciting customers every 10 years. ... We want to
have the pipeline full of gas. We want to have people
come into the pipeline. And that's the process we're
going to be using. I can't differentiate the "true"
from the other; I'll just talk about what we're going
to do. And our pipeline is open to all customers who
want to bid on the pipeline.
MR. FACKRELL, in response to Senator Stedman, concurred
regarding FERC's control in the matter. He added that the
Denali project would comply with the rules of FERC.
SENATOR STEDMAN asked Mr. Fackrell, "Are you aware that FERC has
guidelines for open access pipeline, and also different
guidelines for a true open access ... [pipeline], or are we just
in the realm of spin and verbiage differentiating those two?"
MR. FACKRELL said BP and Conoco Phillips Alaska, Inc., will work
closely with FERC in understanding FERC's rules and regulations.
SENATOR STEDMAN requested Mr. Fackrell to report back to the
chair if he finds out there is a differentiation by FERC between
"true open access" and "open access."
MR. FACKRELL said he would.
9:56:35 AM
MR. FACKRELL, in response to Representative Doll, clarified that
it has not yet been determined how long the contract for
customers of the Denali project could be, but it may be up to 25
years. He said conversations with customers prior to commencing
the open season would determine the length. He admitted that 25
years is a long period of time; however, he related the
importance of customers who are committing $100 million having
confidence that the cost estimate is sound.
9:58:11 AM
SENATOR ELTON noted that the commitment by TransCanada is shown
within the contract. He said he would like those involved with
the Denali project to illustrate their commitment in a
measurable way. He suggested they may do so by addressing the
items within the AGIA contract. Next, Senator Elton requested
the following:
You were going to respond to a couple of questions
that arose on the pipelines that your companies have
built and operated. And I wonder if, as you do that,
if you can answer a few more questions. First, ...
are you still an owner of those pipelines? Second, if
you're still an owner of those pipelines, perhaps you
can tell us how many other shippers that aren't owners
of the pipeline are participating or transporting gas
on those pipelines. And then, third, ... if you could
... give us a comparison of the wage those
independents pay on your pipelines, compared to the
rates that the owners pay on those pipelines.
MR. FACKRELL replied that he could provide the terms of the
Denali Project but may not be able to comment on the difference
in rates.
The committee took an at-ease from 10:02 a.m. to 10:20 a.m.
SENATOR BUNDE questioned if the approval of TransCanada will
harm the Denali project or be counterproductive in getting any
gasline for Alaska.
MR. FACKRELL shared that Denali is going forward no matter what
the state decides. He voiced concerns regarding the TransCanada
contract. First, he emphasized the need for a level playing
field, and he indicated that it is not fair that approval of
TransCanada's permit will impact the Denali project and slow it
down. Second, he said while he is "sitting in an open season
ready to go," customers are going to need to know what the
fiscal terms are for their contracts.
10:24:09 AM
REPRESENTATIVE SEATON asked if the aforementioned $600 million
will be spent exclusively on the Alaska section of the pipeline
or, if not, what portion would be spent on the Canadian section
of pipeline.
MR. FACKRELL replied the $600 million is an estimated total, but
there is no definitive breakdown for the pipeline in Canada.
The Denali project would start in Alaska, because the gas and
data in Alaska are known factors. However, he said a larger
portion of the pipe will be in Canada, so a good percentage of
the money will be spent in Canada. He said, "One of the reasons
that I'm really pushing my owners to work with me to get my
executive team named [is] because I want those people in place
to take ownership of those kinds of questions." He estimated
that he would have a better idea of where the money will be
spent in the next couple of months.
REPRESENTATIVE SEATON questioned how the $600 million estimate
was derived when it is yet unknown how much will be spent for
the longest portion of the pipeline.
MR. FACKRELL explained that ConocoPhillips Alaska, Inc., and BP
understand what needs to be built, have experience with field
work in Alaska, are making some assumptions regarding the field
work that will be done in Canada, and are familiar with
engineering companies, contracts, and price schedules;
therefore, he said he feels comfortable with the $600 million
estimate.
REPRESENTATIVE SEATON recollected that Mr. Fackrell had said
[his owners] would have an unincorporated, joint venture in
Canada and a 50:50 partnership here, while perhaps seeking other
partners in Alaska. He asked how that combination of
unincorporated and corporate ventures would work, and why the
structure between Alaska and Canada is different.
MR. FACKRELL related that attention to laws in both countries
would be taken into account.
REPRESENTATIVE SEATON, regarding open access, recalled that Mr.
Fackrell had said that the use of the word "will" would be
applicable in relation to soliciting customers. Under AGIA and
the TransCanada proposal, there is a commitment [by TransCanada]
that it will expand "as long as there's a reasonable economic
and reasonable engineering increment, which has been defined as
a single compressor." He asked whether there would be a
commitment within the Denali project that there will be
voluntary expansion as long as the solicitation yields at least
"that amount of gas" requiring only one additional compressor or
"could Denali go through the process and require a FERC
mandatory expansion at that point?"
MR. FACKRELL answered that the plan is to solicit customers
"over to you," and work out the process for expansion.
Obviously, he said, adding compression is the simplest and
cheapest extraction method possible.
REPRESENTATIVE SEATON said the question is not what the easiest
way to do it would be. He clarified that he wants to know
whether - if gas is solicited at an open season that is in "a
reasonable engineering increment" - Denali is going to commit to
move forward with voluntary expansion and not require a
mandatory expansion through FERC.
MR. FACKRELL reiterated that Denali would commit to solicit
expansion every two years, and through those solicitations make
a determination as to whether it is viable to expand the
pipeline or not. If those requirements are there to expand the
pipeline, then Denali would do so.
10:30:44 AM
REPRESENTATIVE SEATON clarified that AGIA does not require the
addition of non-economic or non-engineering increments. He said
AGIA requires a pipeline company to agree in advance that if
there is solicitation and gas nominated that is in a reasonable
economic and engineering increment, it will put that gas "in."
He reiterated that he wants to know if Denali will guarantee
expansion.
MR. FACKRELL reiterated Denali's plan.
REPRESENTATIVE SEATON asked if the decision regarding voluntary
or mandatory expansion is made by the pipeline company or by the
owners of the pipeline.
MR. FACKRELL said Denali would make an evaluation as customers
come in, and then it would make a recommendation to its owners.
REPRESENTATIVE SEATON asked Mr. Fackrell what the time frame of
the open season would be.
10:34:04 AM
MR. FACKRELL referred to slide 14 of the Denali PowerPoint to
illustrate his answer. He said an open season is a formal
process regulated by FERC in the U.S. and by NEB in Canada,
whereby pipeline companies seek customers to make long-term
transportation commitments to the project. The contracts
obligate the customers to pay costs whether or not they ship the
gas, and they give banks the necessary confidence to lend money
to the project, he said. He said the chart on the slide shows
the start of the open season to be scheduled for 2010. He
reiterated that prior to that time, there will be discussions to
"try to frame up that process." Next would be an application
for approval of the open season bid package, followed by a 60-
day period for public [comment]. Then FERC would approve the
package and there would be 90 days to conduct the open season
itself. Mr. Fackrell noted that the end of the chart shows
there are one to two months at the end of the process for
signing the precedent agreements, posting the results of the
open season, and filing the copies of the agreements with FERC,
at which point financing is secured.
10:36:08 AM
CHAIR HUGGINS asked for an estimate of what it would take to get
to a FERC certificate.
MR. FACKRELL referred to slide 13, entitled, "Success Case
Project Timeline." The timeline shows that there is a three-
year period in which to conduct open season, and [after two
years of permit approvals] the process of project sanctions
begins. He said Denali would be spending $2-$3 million to get
to that point. He offered further details.
10:38:09 AM
SENATOR WIELECHOWSKI referred to a letter from himself and
Senator French, and asked Mr. Fackrell to offer yes or no
answers to some of the question in the letter. First, he asked
if Denali is willing to commit to soliciting firm commitments to
ship gas in the pipeline within two to three years.
MR. FACKRELL answered yes.
SENATOR WIELECHOWSKI asked if Denali is willing to commit to a
firm date by which it will apply to FERC for a certificate
authorizing the pipeline.
MR. FACKRELL replied that he will work with the schedules he
just reviewed in the PowerPoint slides. He added that Denali is
going to manage the project and abide by a schedule that will be
available for the legislature to approve.
SENATOR WIELECHOWSKI asked if Denali is willing to commit to
capital cost overrun measures that will protect the state and
shippers from an unreasonably high tariff.
MR. FACKRELL stressed his commitment to avoiding cost overruns
on the project. He said the most important part of his proposal
is to get a sound cost estimate, and he stressed the need to "do
proper front-end loading on projects." He said after working in
Alaska for two years, he is concerned about the cost of working
in the Arctic and ensuring that "we understand what we're
doing."
10:40:24 AM
SENATOR WIELECHOWSKI related that the US Attorney General has
testified before U.S. Congress to recommend against a producer-
owned pipeline, saying that it is not in the best interest of
the United States. He asked Mr. Fackrell how he intends to "get
around that."
MR. FACKRELL said he was not aware of that; however, he said he
has seen no restrictions on producer-owned pipelines in all his
experience dealing with pipelines. He said he would provide a
list of producers who have dealt with pipelines in the past.
CHAIR HUGGINS asked Senator Wielechowski to provide the source
related to the comments he reported were made by the attorney
general. He asked legislators to consider that producers can
buy into the AGIA process and own the pipeline.
10:41:54 AM
REPRESENTATIVE GATTO questioned Mr. Fackrell's experience with
the Denali project. He commented on the phrase, "Don't trust
us, just watch us," and said he hopes Mr. Fackrell didn't mean
those first three words "in any way that was said." He further
questioned Mr. Fackrell's lack of knowledge about the project.
REPRESENTATIVE GATTO said he wants to know how Denali would
treat voluntary and involuntary expansions. Next, he asked if
Mr. Fackrell's company is averse to shipping into the local hub,
"or is Chicago the destination for you." He recalled that Mr.
Fackrell has repeatedly stated that he wants the lowest tariff
possible. He continued:
But we've just had some decisions handed down by the
courts that show that your companies have overcharged
us in the TAPS line and are about to refund $600
million to the state, and will be required to maintain
a lower tariff forward. That doesn't speak well for
the statement that you made that our goal is the
lowest tariff possible, because your companies were
doing some cost shifting that the courts decided was
improper.
REPRESENTATIVE GATTO asked Mr. Fackrell if he had read the "20
must-haves" [related to AGIA].
MR. FACKRELL answered in the affirmative.
10:46:37 AM
REPRESENTATIVE GATTO began to list the 20 must-haves and
speculate Denali's position on each.
CHAIR HUGGINS interjected that Mr. Fackrell had been given the
list previously and had been asked to respond to each must-have.
REPRESENTATIVE GATTO emphasized that in that response he would
like to find out with which of the must-haves Denali would not
want to comply, and why.
MR. FACKRELL, regarding the issue of trust, told Representative
Gatto that he would not have said, "Don't trust us," but would
have said, "You don't have to trust us, we're going to show
you." He explained:
That was because I don't believe you should trust us.
Trust is very important to me. [It's] very important
that we have credibility, but there seems to be some
speculation out there that we can't be trusted. So,
I'm not asking you to do that. ... I'm asking you to
just watch us.
REPRESENTATIVE GATTO persisted in asking for a yes or no answer
regarding whether or not Mr. Fackrell had not actually said,
"Don't trust us," and he concluded that Mr. Fackrell is "getting
around the question."
10:48:50 AM
CHAIR HUGGINS noted that Mr. Fackrell had issued an invitation
to view the field work done by Denali.
10:49:12 AM
REPRESENTATIVE LYNN asked Mr. Fackrell to describe why he might
recommend a "no" vote from the legislature regarding
TransCanada's proposal. He observed that ConocoPhillips Alaska,
Inc., and BP have put out extensive advertising, possibly to get
the public to lobby the legislature to vote against TransCanada
- advertising, which, as far as he knows, is not matched by
TransCanada. He asked what aspects of the Denali project he
should consider in making the critical decision of whether or
not to accept TransCanada's proposal.
MR. FACKRELL replied, "My owners have chosen not to build under
AGIA, because they don't believe it's the best way to move the
project forward." He said personally he believes that the
producers need to be involved in the pipeline. Without that
involvement, he warned, the state could face the risk of not
having a pipeline in the future. He said [ConocoPhillips
Alaska, Inc., and BP] are the parties that understand how to
build and operate a pipeline and are going to be focused on
having the lowest tariff possible.
REPRESENTATIVE LYNN remarked that he does not think it is the
purpose of the legislature to keep the producers from putting
gas into the pipeline
10:52:27 AM
REPRESENTATIVE ROSES addressed the commitment to spend money to
get to an open season. He questioned why it would take $600
million for Denali, but only $84 million for TransCanada.
MR. FACKRELL explained, "This is the biggest project that's ever
been privately financed in North America." He said "we" believe
that it is necessary to spend around $600 million to prepare a
technically sound, viable cost estimate, to prepare a tariff to
be able to submit through the open season.
10:54:05 AM
MR. FACKRELL, in response to a question from Senator Thomas
regarding his prior experience, stated that his role has been
managing large and complex businesses worldwide. He related
that almost every business on which he has worked has included
pipeline projects to some extent. He said although he has not
managed a pipeline company, he has managed the construction of
off-shore and on-shore facilities, the pipelines connecting
those, and pipelines to market - "much broader than that."
SENATOR THOMAS asked if, in dealing with the development of the
various fields, Mr. Fackrell has found that the pipeline drives
the completion of the delineation of the resources.
MR. FACKRELL responded that the pipeline needs to be a leverage
point. He said a critical mass is necessary to justify the
pipeline - "to break open a basin." Once that critical mass is
there, exploration may go beyond that. He offered further
details. He said it is anticipated, as has happened with oil,
that once the pipeline is there as leverage, companies are going
to start exploring for gas.
10:57:10 AM
SENATOR THOMAS asked what difficulties might surround the right
of way into Canada.
MR. FACKRELL said it would present a big challenge. Physically
getting the pipeline will be the easiest part, he said. The
tough part will be getting the permits and rights of way, and
following the FERC and NEB processes.
SENATOR THOMAS referred to information [found on slide 13 of the
aforementioned PowerPoint] and said he assumes the
"Review/Approval" shown under "Phase 3" has to do with permit
approvals given by FERC and NEB.
MR. FACKRELL said when all the pieces are in place and final
sanction is received, then the company moves forward.
SENATOR THOMAS mentioned six off-take points. He asked if
potentially there are any points that were initially considered
that would subsequently not be considered.
MR. FACKRELL explained that the project team has been talking
about five potential take-off points, including Fairbanks. He
mentioned the Yukon and Delta Junction. In response to a
follow-up question from Senator Thomas, Mr. Fackrell said the
number of take-off points needs to be decided before a detailed
design is made.
11:00:10 AM
REPRESENTATIVE SAMUELS noted that the Denali project would spend
$600 million to get to an open season, while TransCanada is
going to "go all the way to the certificate" for $611 [million].
He questioned the discrepancy between those dollar amounts and
what is proposed to be covered by them. He asked how much
Denali would spend to get a certificate.
MR. FACKRELL reemphasized his belief that it would take $600
million to have a successful open season. He said, "From that
point forward, we're going to have to ramp up our spending to be
ready to execute the project on this time scale." He added,
"We're not talking about hundreds of millions now, we're talking
about perhaps $2-$3 billion to get us out to ... FERC approval
of the project and ready to start construction."
11:02:55 AM
SENATOR FRENCH noted that Denali has vowed to press ahead even
if Alaska awards the contract to TransCanada. He said
ConocoPhillips Alaska, Inc., and BP have been clear all along
that a promise of tax certainty is their biggest must-have
before going forward with a pipeline. If Alaska chooses
TransCanada, it will be giving that promise to those companies
that step up to their first binding open season and will be
committed to that choice, unable to change it without paying
treble damages. He said, "So, when you tell me you're going to
proceed with your project, it tells me that somewhere in your
business plan, you ... or your parent company owners envision
the state paying treble damages to TransCanada so that you can
become the holder of that tax promise.
MR. FACKRELL said he thinks that question should be addressed to
the owners. He stated his view that fiscal terms need to be
reached before getting to open season or there will be no
customers signing up for the pipeline.
SENATOR FRENCH used an example to clarify his point as follows:
If we say yes to TransCanada, it would be as if you
were both proposing to build a home in Anchorage, and
one home came with a promise that there'd be no
property tax increases on that house for 10 years, and
the other one ... didn't have that promise. And 9
homeowners out of 10 would pick ... the house that's
never going to have its property taxes increase.
That's very, very valuable. And your open season
won't be able to offer that to your shippers; that
will ... only apply to the gas shipped in the
TransCanada pipeline. And so, that, to me, is what I
see as a big logical chasm.
MR. FACKRELL shared his view that the customers would be asking
for the same thing no matter the project, and that thing will be
fiscal terms. He added, "Everyone's been saying that."
11:06:16 AM
REPRESENTATIVE GARDNER noted another project and the dollar
amount spent on it. She pointed out the difficulty of trying to
understand the numbers.
REPRESENTATIVE GUTTENBERG said he thinks that if the open access
issue starts downstream from the gas treatment plant and the
upstream side of the gas treatment plant has its own regime,
tariffs, and access issues, then the state needs to be apprised
of that.
MR. FACKRELL responded that if Representative Guttenberg is
asking whether Denali is going to build and operate the gas
treatment plant on the slope, the answer is yes. He said that
is "a crucial piece of this whole scheme." He offered further
details.
REPRESENTATIVE GUTTENBERG asked about the take-off points. He
thought there may be a need for gas to come in at the foothills,
also. He said, "Not only are the ... take-off points ...
outputs, but also in-puts."
MR. FACKRELL thought that conversation should happen in order to
adjust some of the off-take points. He reiterated that the
pipeline would be an open access pipeline.
11:11:26 AM
REPRESENTATIVE GUTTENBERG asked if the parent companies are
interested in the gas liquids - in "taking that product all the
way down to the end."
MR. FACKRELL explained that all of the hydro carbon liquids
would be in the gas. He explained the procedure to remove them
and the potential for reinjection. He gave examples where that
might be possible. He concluded, "If they're not taken anywhere
along the process, they would be sold by the previous
customers."
REPRESENTATIVE GUTTENBERG asked if that was the assumption going
forth to the open season.
MR. FACKRELL answered yes.
11:14:00 AM
REPRESENTATIVE HAWKER pointed out that the first benchmark point
Tony Palmer has made in numerous presentations is that
TransCanada is a monopoly and has exclusive rights in the Yukon.
He requested that Mr. Fackrell comment on that as a premise, and
"how you anticipate ... getting across the border."
MR. FACKRELL said that both BP and ConocoPhillips Alaska, Inc.,
have subsidiary companies in Canada that work with regulations
there. He said, "We do not believe they we are shut out from
(indisc.) or from access to the acreage down that corridor. We
believe we will have rights to ... access right of ways - get
permits."
REPRESENTATIVE HAWKER asked if Denali anticipates working with
TransCanada at the border.
MR. FACKRELL said the owners would entertain that possibility.
REPRESENTATIVE HAWKER asked Mr. Fackrell if he thinks Alaska's
granting exclusive rights to TransCanada would make it more
difficult for Denali to conduct discussions toward looking for
value-added partners in Canada.
MR. FACKRELL expressed concern regarding the aforementioned
issue of having a level playing field within Alaska. He
indicted that a TransCanada permit could slow the Denali project
down.
REPRESENTATIVE HAWKER countered that he was referring to
Denali's ability to conduct productive business negotiations
with TransCanada.
MR. FACKRELL deferred that question to the owners.
11:18:45 AM
MR. FACKRELL turned to his PowerPoint presentation, noting that
previous questions have resulted in many of the slides having
already been reviewed. He directed attention to slide 3, which
shows the pipeline route. He said there would be a gas
treatment plant in Prudhoe Bay, and a pipeline into Alberta.
The map on slide 3 shows several other lines into the [Lower
48], and Mr. Fackrell said whether or not those lines are built
depends on the customers and the flexibility it may provide to
those customers outside of the existing system in Canada. He
noted that slide 3 shows the intent is to move 4 bcf/d down the
pipeline "to both markets."
MR. FACKRELL turned to Slide 4, which addresses gas treatment
plants. He noted that the central compression plant was built
in 1977, the central gas facility was built in 1986 to extract
natural gas liquids (NGLs), and the proposed new gas treatment
plant is larger than both of those and will be the largest plant
on the planet when built.
11:20:55 AM
MR. FACKRELL noted slide 5 depicts TAPS on the right, with the
proposed Denali pipeline on the left. He said other than being
side by side, there is no similarity in the amount each pipe can
carry or the regulatory body that has jurisdiction over them;
FERC and NEB would have more restrictions and controls on the
gas pipeline than on the oil line. He said the oil line will be
buried, except in areas where there are river crossings or where
the earth is seismically active. Slide 5 also gives information
about the steel used, he said.
MR. FACKRELL spoke of the near-term Alaskan programs shown on
Slide 6, which are: job training programs, in-state gas
feasibility, and infrastructure upgrade studies. He said [BP
and ConocoPhillips Alaska, Inc.,] are made up of Alaskans, and
the Denali project will be committed to hiring Alaskans.
11:23:04 AM
MR. FACKRELL returned to slide 8, which relates to possible
[off-take] points, including the Yukon, Fairbanks, and Delta
Junction, and he reiterated that during discussion leading to
open season, there will be discussion about where those points
should be.
MR. FACKRELL turned to Slide 9, which shows infrastructure
upgrade studies. Those studies include roads, bridges, and
ports. He noted that the Haul Road is 30 years old. He said
this work needs to begin soon and has to be in place by the time
construction of the pipeline has begun. The pipe is twice as
heavy as the pipe used for TAPS and will take a beating on the
road system, he said. The numbers being considered regarding
infrastructure are in the millions to billions, he noted.
MR. FACKRELL briefly covered the Denali terms of service on
Slide 10, including: rates will be distance-sensitive, the
project design will provide for efficient expandability, Denali
will solicit customers for interest in expansion every two
years, and flexibility to use existing or new infrastructure out
of Alberta to the Lower 48 will be based on the needs of the
customers.
11:24:45 AM
MR. FACKRELL discussed the 2008 summer work program and
additional work as depicted on Slide 11. He said there are 75
people in the field working on the summer program. He
emphasized the importance of knowing where the pipe will be.
There are contaminated sites along the route, as well as
military bases, for example. He said there are hydrologists,
archeologists, and ecologists working in the field.
11:25:36 AM
MR. FACKRELL listed who's working with Denali right now, as
shown on Slide 12. He once more highlighted the success case
project timeline shown on slide 13, noting that within a year
infrastructure projects need to start in order to be complete by
the time FERC approval is secured.
11:26:45 AM
MR. FACKRELL moved on to slide 14 and reiterated his previous
testimony regarding open season. He talked about the technical
and financial strength of BP and ConocoPhillips Alaska, Inc., as
shown on slide 15. Each company has over 50 years of experience
and knows how to operate the slope and work in an Arctic
environment. Both companies have more than $300 billion in
[combined] market capitalization. He expressed delight that
those two companies are backing the Denali project.
11:27:50 AM
MR. FACKRELL shared the timeline of Denali's progress, as shown
on slide 16. The Denali company has a full project under way.
The prefiling process with FERC has been submitted. He offered
further details about the steps that are being taken.
11:28:46 AM
MR. FACKRELL concluded by commenting that Denali is committed to
this project and is focused on having a successful open season
and instilling confidence in customers. He asked the
legislative body to watch the Denali Project as it progresses.
11:30:39 AM
REPRESENTATIVE DOOGAN questioned the confidence of the estimates
of gas available by 2019.
MR. FACKRELL responded that estimates are made on the best data
available. Consideration is made by weighing how big the
pipeline will be versus the gas going in to it. He said more
will be learned prior to the open season. He remarked that 4
bcf/d is what ends up in the market, but "it's going to be about
4.5 bcf, actually, at the inlet to the plant."
REPRESENTATIVE DOOGAN asked if the owner companies would have to
be consulted before expansion occurs.
MR. FACKRELL explained that Denali would make recommendations to
the owners to approve.
REPRESENTATIVE DOOGAN recollected that there has never been a
voluntary expansion of a pipeline wholly owned by producers;
therefore, he questioned why expectations would change with the
gas pipeline.
MR. FACKRELL said he cannot answer that question.
11:33:42 AM
SENATOR STEDMAN observed that the state would be spending large
sums to improve infrastructure. He referred to slide 9, which
shows the Port of Haines. He said both Denali and TransCanada
will be making decisions, but until they get to "the point of no
return," the state does not really know if it will get a gas
line or not. He asked Mr. Fackrell to explain how the timeline
would work so that the state would not be caught spending
millions or billions of dollars in infrastructure improvements
in preparation for the construction of the gasline, with Denali
or TransCanada deciding not to proceed.
MR. FACKRELL pointed to the timeline and stressed that if the
open season succeeds, confidence increases to make investments.
He pointed out that the state would need to make some
infrastructure upgrades anyway to perpetuate the operation of
the oil pipeline. Some infrastructure investments must occur
prior to any project. The process needs to be interactive.
SENATOR STEDMAN asked where the actual point of no return is
found on the timeline.
MR. FACKRELL responded that after open season, comes permit
approval, at which point the company will have to start
increasing its spending rapidly. With that increase in spending
comes increased commitment.
11:38:31 AM
REPRESENTATIVE GARDNER directed attention to slide 3, and asked
if there are estimates on how much spare capacity will be in the
blue lines on the map [those routes shown going into the Lower
48]. She stated her assumption that those figures would have to
be known in order for a decision to be made to build a line to
Chicago, for example. Next, Representative Gardner, regarding
the distinction between fiscal terms and tax certainty, said she
would like to see a definitive list of all the possible elements
of the phrase, "fiscal terms."
MR. FACKRELL, to Representative Gardner's first question, said
that capacity exists in the system today. He deferred
Representative Gardner's second question, regarding fiscal
terms, to the producers who would be testifying the next day.
11:40:09 AM
REPRESENTATIVE GARA acknowledged that TransCanada Alaska
Company, LLC, and the producers would not be at the table if
they questioned the economics. He recalled statements that the
producers would be better because they may not sell to an
independent pipeline company, and he questioned why that would
be the case.
MR. FACKRELL responded that the producers spend a lot of money
to ensure a technically competent cost estimate, which will
instill confidence in customers.
REPRESENTATIVE GARA questioned whether the producers' cost
estimate would be any better than TransCanada's. He expressed
concern that the producers would favor the Denali project by
offering to sell gas, but not to TransCanada. He asked Mr.
Fackrell if he meant "to say anything like that."
MR. FACKRELL deferred to the producers once more.
11:42:53 AM
REPRESENTATIVE RAMRAS asked if Mr. Fackrell thinks it likely
that BP and ConocoPhillips Alaska, Inc., would "nominate gas
into the Denali open season."
MR. FACKRELL responded that if there is confidence and the
fiscal terms are available, then there is a reasonable chance
the companies will nominate gas.
11:43:55 AM
REPRESENTATIVE SEATON referred to the term, "distance-
sensitive," on slide 10, and questioned if that means everything
in Alaska would be at a lower rate than going to Alberta and
back and an Alberta tariff would not be paid, or if the rate is
"per mile from the North Slope to each take-off point."
MR. FACKRELL explained that "anything in Alaska is going to be
lower than rates outside of Alaska for sure." He said what is
yet to be determined is whether there will be more than one zone
within Alaska.
REPRESENTATIVE SEATON said he is trying to figure out "why the
pipeline would turn down a half a billion dollar investment that
wouldn't go into the tariffs if your total intent on that is to
keep the tariffs as low as possible."
MR. FACKRELL noted that the companies that build the pipeline
need the financial strength to do so. Also, another
determination is what the requirements are of getting that
funding. He said a company can take $500 million, but it
doesn't do so for free.
REPRESENTATIVE SEATON asked Mr. Fackrell to confirm that from a
pipeline company's view, having that money up front would lower
tariffs on the project, so considerations for not taking the
money would have to do with the owners of the pipeline.
MR. FACKRELL said the decision has to do with whether [taking
the money] would allow for a successful project or whether there
would be restrictions that would prevent that success.
11:47:55 AM
SENATOR THERRIAULT noted that the time estimates allow two years
each for application preparation and approval from FERC and NEB.
He asked, "Isn't that a little optimistic for NEB approval? It
seems that Mackenzie is now up to, I think, seven years."
MR. FACKRELL said he would not argue that the schedule (on slide
13) could be an optimistic one; however, he said FERC and NEB
would control the pace of approvals.
11:49:16 AM
SENATOR WIELECHOWSKI questioned how much autonomy Denali has
from BP and ConocoPhillips Alaska, Inc.
MR. FACKRELL emphasized that FERC will be looking closely at the
proposals. He acknowledged that BP and ConocoPhillips Alaska,
Inc., are the owners, but noted that the relationship with the
customers would be related by FERC. "So, we will and we are
bringing those processes to deal with that, so that we ensure
that we maintain those differences between the shipper and a
pipeline."
SENATOR WIELECHOWSKI expressed concern regarding that
relationship and whether BP and ConocoPhillips Alaska, Inc.,
would nominate gas to their own project. He recalled that Mr.
Fackrell had said that would not necessarily happen. He
remarked, "And so, when you say that, we're right back to the
Stranded Gas Act; we're right back to: 'Well, maybe you
nominate, maybe you don't - it depends on what kind of ...
concessions you get.'" He said he feels that is a bit of a
shell game.
MR. FACKRELL said he understands why it may appear to be a shell
game, but he does not want it to be one. He reiterated that the
players involved expect that in order to get customers, those
customers will want to know the fiscal terms. He suggested
Representative Wielechowski ask the producers about the terms.
11:53:23 AM
CHAIR HUGGINS clarified that the legislature has the power to
set fiscal terms through a public process regardless of which
project is moved forward.
11:54:29 AM
REPRESENTATIVE FAIRCLOUGH observed that Alaskans are concerned
about an in-state line and availability of gas. She asked
whether it is the pipeline company or producers that selected
the route to go into the U.S. market by way of Canada, and she
questioned why the Denali project is not considering the
proposal to drop the oil down into Valdez and remove it by
tanker.
MR. FACKRELL explained that the producers evaluated all the
options for moving gas to market, including an LNG option, they
chose the route via Canada. He offered his understanding that
the administration validated that choice during its review of
the applications under AGIA.
REPRESENTATIVE FAIRCLOUGH said Mr. Fackrell's response
highlights her point that criteria from TransAlaska and the
administration support TransCanada's proposal as being
economical, and it appears that it would not be economic to move
into the Valdez market as a first step.
The Joint Senate Special Committee on Energy and House Rules
Standing Committee was recessed at 11:56 a.m.
CHAIR HUGGINS called the meeting back to order at1:08 p.m.
TRANSCANADA WORKFORCE ISSUES
1:08:49 PM
TONY PALMER, Vice President, Alaska Business Development,
TransCanada Alaska, LLC, introduced Mel A. Johnson and outlined
the presentation he and Mr. Johnson would give.
1:09:27 PM
MEL A. JOHNSON, Director, Project Management, Alaska Pipeline
Project, TransCanada Alaska, LLC, gave a brief history of his
resume and work history. He noted that he has worked for
TransCanada for 27 years, and has been in a senior leadership
role for 15 years.
MR. JOHNSON commenced his PowerPoint presentation. He said he
would discuss the commitments that TransCanada has made in
relation to AGIA, and would offer a review of the project
phases, which would provide the context for addressing the
workforce requirements TransCanada envisions for the project as
it moves forward. He said he would also talk about strategy as
it relates to the Alaska workforce, risks and opportunities in
workforce planning, and workforce preparation and training. He
specified that during his presentation today he will be focusing
on Alaska, and the numbers he cites would be in reference to
"the Alaska section" - the gas treatment plant and Alaska
pipeline and facilities up to the Canadian border.
1:15:34 PM
MR. JOHNSON addressed slide 3 of the PowerPoint, entitled, "AGIA
Commitments." He listed those commitments: to hire qualified
residents, to contract with businesses located in the state, to
use hiring facilities in the state run by the Department of
Labor & Workforce Development, and to negotiate a project labor
agreement prior to construction. He said he has been intrigued
by some of the Internet systems already in place, such as the
Alaska Legislative Computer System (ALECSYS) Infobases and the
Alaska Career Information System (AKCIS).
1:17:07 PM
MR. JOHNSON turned to slide 4, entitled, "APP Project Phases."
He noted that the development phase is divided into: the
proposal phase - an almost two-year phase that spans the
issuance of licenses up to the end of the open season; and the
four-year definition phase. The intent of the proposal phase is
to define the market - the scope, cost, and schedule of the
project. In play in this phase is the front end engineering
design (FEED). The main effort is on developing cost estimates,
he said.
1:18:37 PM
REPRESENTATIVE GUTTENBERG referred to FERC and NEB approval time
spans and the Denali presentation. He asked Mr. Johnson what he
sees as the difference in expectations (between TransCanada and
Denali).
MR. PALMER noted that the four years includes the preparation of
the materials for the application, and he offered his
understanding that Denali "also had a two-or-more-year time
frame." He clarified that when Mr. Johnson refers to project
definition, he is talking about the time required to complete
the engineering work post open season, to make the application,
and subsequently to receive approvals. He said he thinks
TransCanada's timing is similar [to Denali's]. He suggested
that using the Northern Pipeline Act process in Canada will be
more expeditious than the NEB process. He offered an example to
illustrate his point.
REPRESENTATIVE GUTTENBERG asked if TransCanada has a "jump on
this process."
MR. PALMER answered yes. He said TransCanada already holds a
certificate of public convenience. No other party has such an
asset or a single window regulatory agency for the project in
Canada.
1:20:51 PM
MR. JOHNSON returned to slide 4, noting that "the real bulk and
completion of the front-end engineering and design" takes place
in the definition phase. The technical, environmental, and
regulatory effort made during this phase is tremendous. The
execution phase, he said, is just under four years, and includes
preparation time for preconstruction and the construction
itself. The last phase, he noted, is the operations phase.
MR. JOHNSON moved on to slide 5, which is entitled, "Alaska
Section Workforce Requirements (Averages - Full Time
Equivalents)." Slide 5 shows how many people will be needed in
the workforce during each phase as follows: proposal, 100-150;
definition, 275-400; execution, 7,000-9,000; and operations, 50-
80. In regard to the proposal phase, he said TransCanada's
internal team would be 20 people managing the work; the rest of
the people would be hired through contracts and subcontracts.
The majority of those resources would be hired in Alaska, he
said, while those hired internally will be those people in
TransCanada who have previously developed these projects:
experienced engineers, project managers, commercial people,
environmental folks, and the people who will implement the open
season. Within the definition phase, the internal team will
total about 100, with the rest of the workers hired in Alaska.
1:25:30 PM
MR. JOHNSON, in response to questions from Representative
Johnson, noted that the numbers listed on slide 5 for the first
three phases - proposal, definition, and execution - are
inclusive of what TransCanada would need for the gas treatment
plant (GTP). If another entity takes responsibility for
building and operating the GTP, the numbers would be "a subset
of these." Mr. Johnson related that he excluded the GTP from
the numbers set for operations, which he explained is a function
of "speaking here to what we're really confident in, with
regards to the numbers." He said he is not aware of any
restrictions in Canada to hire [a certain percentage of
Canadians].
MR. PALMER added that there is no specific percentage, but the
Canadian government would try to maximize the number of
Canadians hired on the Canadian side of the project, just as
Alaskans would look to have Alaskans hired on the state's side
of the project.
1:27:55 PM
SENATOR MCGUIRE expressed appreciation for the presentation, but
said she will be looking for more specific information prior to
voting on the issue. She said she wants to know what "key
internal roles" are being envisioned.
MR. JOHNSON said he would try to be more specific, while also
giving an idea of the process and when more clarity could be
expected.
CHAIR HUGGINS said he would like a comparison of how Alaskans
would be involved during the proposal phase for TransCanada as
compared to Denali.
1:30:20 PM
MR. JOHNSON replied, "What's in the plan does become a real
significant enabler for how we're going to be able to move
ahead." Part of TransCanada's role, once it obtains the
license, is to clearly define the roles it will require to move
ahead during each phase, what the organization looks like, and
the overall approach for filling the roles. TransCanada will
describe the types of skills, education, background, and
experience required as each phase is approached. He said it is
important to inform Alaskans about the opportunities that will
be available. He said he sees the previously mentioned on-line
sources as being a means by which to communicate the
opportunities available. He said a multifaceted approach is
typically used for a project like this to make people aware of
the opportunities. Mr. Johnson stated that TransCanada's
objective is to fill the roles that become open with good,
qualified, experienced people, and the company is committed to
focusing its search in Alaska for a lot of the work. He gave an
example of an internet site set up for the Keystone project, and
he offered further details.
1:34:26 PM
MR. JOHNSON, in response to Chair Huggins, reiterated that of
the 100-150 people needed for the proposal phase, 15-20 would be
the core Canadian team, and TransCanada's preference would be to
hire the balance from Alaska's work resource. Regarding the 20
core people, he noted that there are a couple roles for which
there are openings. He said TransCanada will look internally to
fill some of those roles, but currently will look in Alaska.
One role that would be hired from within Alaska, he said, is the
role that will provide governance and leadership related to
community and land issues as the project is developed. He said
it would also be necessary to hire expertise in terms of the
people who would be working under the direction of that leader.
That, he noted, would be subcontracted work. He stated that it
makes good business sense to hire locally. One of the real
advantages of doing so is that there are people in Alaska who
have experience in mining.
1:38:46 PM
MR. JOHNSON, in response to a question from Representative
Samuels, stated that when TransCanada obtains the license, it
would aggressively move ahead on establishing a location for the
project office, and he thinks the most logical place to set that
office up initially is in Anchorage.
REPRESENTATIVE NEUMAN asked how TransCanada would ensure that
small construction companies would have access directly to the
company's hiring office.
1:41:52 PM
MR. JOHNSON said that would depend on how the work is bundled
and how the company moves forward. He said project labor
agreements will be focused on "the construction effort" and will
be negotiated ahead of time. He said it is the prime
contractors that will be responsible for going out and getting
the subcontracts. He stated that the commitments to which
TransCanada will bind the prime contractors, include:
commitments under AGIA and TransCanada's own internal safety
commitments and qualifications. He talked about striking a
balance between ensuring there are opportunities for the smaller
companies while simultaneously trying to ensure there are not
"too many layers in all the administrative costs." He
continued:
There are a lot of factors that go into that. ... One
of the major factors in determining ... whether to
bundle it all under single large contracts or smaller
contracts is really a function of where the market is
at. And if you're in a real heated market and
everybody's busy and working, then you really are
forced, if you will, to go and try to bundle the
contracts to be larger, just to attract the work
force. Now, that may not have very ... many specifics
to it, but those factors that you talked about are all
factors that we take into account when we are putting
the look together.
1:44:42 PM
REPRESENTATIVE NEUMAN said there is no lack of qualified labor
in Alaska. He explained that he wants to make sure the highest
qualified Alaskans get hired for the jobs. He asked Mr. Johnson
to describe those internal commitments.
MR. JOHNSON said that TransCanada's intention is to meet
commitments made under AGIA. He said although it would be
illegal to give percentages, the intent is to maximize the use
of businesses and labor in Alaska. He said it makes good
business sense to hire locally.
1:46:48 PM
REPRESENTATIVE FAIRCLOUGH asked how many of the 100-150 [workers
hired for] TransCanada's [proposal phase] would be living "in
the community in which you choose to lease space."
MR. JOHNSON answered that the number hopefully would be as many
as possible. Canadians on the internal team of the initial
phase will likely not move to Alaska, he said.
REPRESENTATIVE FAIRCLOUGH said she would like to know the size
of the lease space TransCanada will be using. Also, she asked
what the difference is between a qualified applicant in Alaska
versus a qualified applicant "for employment with TransCanada."
MR. JOHNSON said he would get back to Representative Fairclough
regarding the issue of lease space. [Due to technical
difficulties Mr. Johnson's subsequent comments were
indiscernible.]
The committee took an at-ease from 1:51 p.m. to 1:55 p.m.
[During this time audio testing occurred.]
MR. JOHNSON returned to his PowerPoint presentation, directing
attention to the information on slide 11, entitled, "Workforce
Risks and Opportunities." He said he thought there were
parallels between Commissioner Bishop's plan and his own
information.
MR. JOHNSON listed the benefits, which show on slide 11, as
follows:
· High profile, anticipated project
· Good potential for multi-year, year round construction
effort
· Strategies have been largely developed
· Time available to act on strategic initiatives
· TransCanada support and involvement with AGIA Training
Strategic Plan
MR. JOHNSON said anticipation is a good thing. Furthermore, he
said having work that is ongoing is a positive aspect of the
project. Regarding strategies, he said there has been an effort
to take lessons learned from TAPS and other projects, and "feed
those forward into some real good solid strategic endeavors."
He said although it is frustrating that it takes 10 years to
develop a project and get it built and operating, from a
management perspective, that gives the time necessary to
anticipate a lot of the challenges and risks and come up with a
means to overcome them. Post licensing, Mr. Johnson said, there
is a definite role for TransCanada and other industry players to
be involved and participate and use the framework of the plan
developed in Alaska "to be able to move that forward."
MR. JOHNSON listed the risks, which show on slide 11 as follows:
· 'Heated' labor market factors
· Demographic profile of workforce
· Potential for significant in-migration
MR. JOHNSON said currently it is difficult to attract labor to
projects because of competition in the Lower 48, across Canada,
and internationally. Demographically, the work force is aging,
and it is more difficult to make certain young adults going to
school now understand what kind of career decisions to make. He
said because of its size, the [oil pipeline] project has more of
these types of challenges; however, TransCanada knows how to
mitigate some of that risk.
2:02:19 PM
SENATOR THOMAS asked how many "spreads" are anticipated over the
length of the line and how many contractors would "occupy
those." Also, he asked if TransCanada has specific contractors
that have been "generally good for you."
MR. JOHNSON responded that TransCanada has seen large spreads in
Alaska over two construction seasons. Regarding contractors, he
said it is too early to say who would be working with the
project. He said one issue that will be faced in the future is
how much risk will be shifted to the contractors - a decision
based on whether the contract is for "engineering procurement
construction" or "engineering procurement and construction
management." He stated his belief that there will be multiple,
large engineering, procurement, construction, maintenance (EPCM)
contractors working with TransCanada, "and it'll be the majors
on a project like this."
2:05:26 PM
MR. JOHNSON, in response to Representative Cissna regarding the
socio-economic impacts of the project, said there is a process
toward understanding what those are. He explained that there
are some impacts that are similar to any project in the world,
while others are unique to a community, area, or certain
demographics. He said TransCanada tends to be policy-driven
when it comes to socio-economics; the company has clear policies
regarding corporate responsibility to the environment and to the
Native. However, he said TransCanada tries to "work
cooperatively with the community ...."
REPRESENTATIVE CISSNA asked for an indication of what has been
done in the past.
MR. JOHNSON said he could offer examples of what has been done
in the past, but he specified those examples would not be
"proscriptive as to how we're going to deal with particular
issues here."
SENATOR MCGUIRE pointed out that regarding the proposal and
definition phases, slides 7 and 8 show that Alaska-based
subcontracts will be used as supplemental contracts. She said
she thinks that is the concern that Alaska will be a
"supplement."
2:09:11 PM
CHAIR HUGGINS told Mr. Johnson he would like information
regarding TransCanada's experience with reciprocity and
professional licensing across national boarders, including any
instances in which TransCanada resolved conflicts.
MR. JOHNSON said the issue was raised in regard to the
professional recognition for engineering done by Canadians in
Alaska and Alaskans in Canada. The Association of Professional
Engineers, Geologists, Geophysicists of Alberta (APEGGA) was
asked what the requirements would be in a situation in which a
Professional engineer in Alaska wanted to work in Canada. The
response is in writing and Mr. Johnson offered to make that
available. He said the response essentially listed a number of
requirements. The only additional requirement above and beyond
the education and experience requirement is the completion of a
professional practice examination, which tests the engineer on
ethics and professionalism. That exam, he indicated, would
provide recognition of the opportunity for an Alaskan engineer
to work in Canada.
CHAIR HUGGINS said he thinks Alaska is ultimately seeking
reciprocity in order to even the playing field.
2:11:53 PM
MR. PALMER reviewed some of the issues that came up during his
[presentations] over the last month or so. The first issue is
regarding in-state gas and where TransCanada stands in relation
to the ENSTAR Natural Gas Company and Alaska Natural Gas
Development Authority proposal. Based on TransCanada's
understanding of that proposed project, he said, if [the line]
is less than 500 million [bcf/d], both in design capacity and
flow, in advance of the large pipeline going into service, that
would not be in breach of AGIA.
MR. PALMER said a second question was regarding the existing
rate base value in Alaska, the Yukon, and British Columbia. He
said the current rate base of June 2008 is $2 million. He
indicated that the costs between 2003-2008 for Foothills Yukon
plus Foothills North BC combined are $20.1 million. Approval
will need to be obtained from NEB on the Canada side and from
FERC on the Alaska side. Mr. Palmer stated:
Because TransCanada has only included costs from 2003
subsequently - and very modest costs for the actual
assets that we're putting forward here - we're doing
so on the basis that in the event that other partners
come to join us, they would do just the same. So, if
they seek to include costs earlier than 2003 or higher
on a pro rata basis, you would see that TransCanada
would not feel that its shareholders should be
unjustly discriminated against in that circumstance.
But we're doing so to be very competitive, and if you
look at the assets that we're proffering in Canada for
$20.1 million, I would suggest to you that's a very
good deal.
MR. PALMER said another issue that has been raised is regarding
rolled-in tolls. He highlighted a key distinction that
TransCanada, pursuant to the AGIA "must-haves," is committing to
voluntarily expand the pipeline in engineering increments every
two years based on the customer response. He said it is true
that FERC makes that decision, but it is also true that there
are "two forks in the road." He explained, "If the company
offers to voluntarily expand, there's a rebuttable presumption
of rolled-in tolls. And I've described to you what the cost
differential could be - about 5.9 bcf/d for rolled-in versus
incremental. So, that's what happens with an AGIA pipeline."
Mr. Johnson said in the case of a non-AGIA pipeline, if the
company does not voluntarily expand and goes "down the mandatory
fork in the road," and in the event that there is a subsidy,
where tolls go up, then there will be incremental tolls. He
offered his understanding that Mr. Fackrell had said that in the
case of the Denali project, there would be a rebuttable
presumption of rolled-in tolls up to the point of a subsidy.
2:18:42 PM
REPRESENTATIVE SAMUELS asked for clarification that starting at
4.5 bcf/d, using compression only, the engine increment is 250,
which is a "quarter of a 'b'."
MR. PALMER affirmed that is correct.
REPRESENTATIVE SAMUELS questioned what would happen if a lesser
amount was offered during the open season - whether that would
mean having to wait until the 250 amount was reached.
MR. PALMER said one alternative is to wait. However, he said
the customer would also have the option of making a capital
contribution to aid construction to cover the difference. They
could advance the money until the additional customers show up.
REPRESENTATIVE SAMUELS said he assumes someone might choose the
second option if the wait was expected to be long.
MR. PALMER said once the expansion was in place and the
additional $100 million a day showed up, the customer [who had
advanced the money] would get the credit "at the point when the
new customers came on to make up the 250." He added that that
is standard practice.
REPRESENTATIVE SAMUELS asked Mr. Palmer to clarify by using an
example in which Representative Samuels is the customer who
comes in with "100" and Senator Huggins comes in later with
"150," and Representative Samuels has chosen to "have the
additional capital." He surmised who would be "the big winner."
MR. PALMER responded as follows:
Actually, Representative Samuels ..., at the point he
comes in, ... you would receive a refund of a portion
of your capital contribution.
MR. PALMER, in response to Representative Samuels, confirmed
that that is normal practice in his business.
2:21:21 PM
MR. PALMER returned to responding to questions that had been
asked previously. He affirmed that TransCanada's initial open
season would provide for a simultaneous opportunity for
customers at Valdez, just like customers in Alberta or along the
main route of the pipeline. TransCanada will hold an initial
open season that would allow customers to simultaneously
nominate along the mainline route to Alberta or Valdez. A party
could also nominate a delivery point at Delta Junction rather
than Valdez, and then that third party could construct a
pipeline away from Delta Junction. He said just like any other
point on the pipeline route, in the event that a customer wishes
to take delivery and their ultimate "burner tip" is downstream
of that, that customer would make its own arrangements away from
TransCanada's pipeline either to construct its own pipeline or
it would make arrangements with a third party.
SENATOR ELTON stated his understanding that TransCanada would
accommodate an LNG project if a shipper were willing to commit
enough gas. He referred to a one-page handout [included in the
committee packet], entitled, "TransCanada's Alaska Pipeline
Project." He noted that the third bullet point read that the
project would include "an LNG option (if insufficient gas is
committed through Canada)." He interpreted that as another
threshold or qualifier to the willingness to "do an LNG pipe or
an LNG spur." He asked if that is correct.
MR. PALMER observed that the handout was likely created six or
more weeks ago and is inaccurate. He clarified that
insufficient gas committed through Canada is not a condition for
TransCanada's providing LNG service. TransCanada would hold an
open season in 2010 if they are granted a license. He
maintained that TransCanada would construct a line if sufficient
volumes are committed to Valdez to make an LNG project, with all
the same terms and conditions as a customer along the route of
the Alberta pipeline would have.
2:24:58 PM
SENATOR ELTON asked if the LNG option extended out into the
future or was only an option for the initial open season.
MR. PALMER observed that TransCanada is committed to offering
the service during the initial open season and deferred his
remarks on whether the option would be available during
subsequent open seasons.
2:25:51 PM
MR. PALMER returned to his list of questions. He explained that
TransCanada would do sufficient work - environmental,
engineering, and field work - to advance an LNG project before
the initial open season, as it would for a pipeline to the
Alberta hub. To another past question he asserted that
TransCanada would construct a pipeline to Valdez on its own time
without a pipeline through Canada if there are sufficient
volumes for an LNG project, but not for a pipeline through
Canada. Customers would still have to meet the standard
conditions just as they would have to if the gas were going to
Alberta or the Lower 48. He offered an example.
MR. PALMER, referring to Senator Elton's question regarding LNG
plans for the future, observed that he does not know what
TransCanada is going to do in four years time. He pointed out
that the first open season is in two years and the second open
season is in four years. He said, "It will depend on what the
circumstances are, as to what I get in the initial open season,
what volumes I get - if any - to either location." That will be
determined as TransCanada moves forward.
MR. PALMER addressed the question of whether the line to Delta
Junction and Valdez to accommodate an LNG project would be done
first if there are sufficient gas commitments for both a
pipeline through Canadian and an LNG terminal. For this
scenario, TransCanada would have to know that the Valdez line
could be completed in advance of the Canadian project and there
were sufficient volumes such as 4.5 bcf/d committed to Alberta
and 2 bcf/d committed to Valdez. He said he does not imagine
that this scenario would occur, but observed that generally
TransCanada would proceed with caveats. He explained that if a
48-inch pipeline was constructed from Prudhoe Bay to Delta
Junction, to ultimately move 6.5 bcf/d, TransCanada would have
to know with certainty that the Canadian volumes were going to
come shortly thereafter, or the LNG project would have to pay
for the entire 48-inch line until the additional customers show
up. He said that is standard procedure.
MR. PALMER referred again to Senator Elton's question and
clarified that TransCanada would be willing, if requested, to
construct a line from Delta Junction to Valdez during all open
seasons following the initial open season if there were
sufficient gas commitments for an LNG project and all the
standard shipping conditions had been met.
MR. PALMER said he cannot answer the question of whether
TransCanada would proceed in the FERC permitting process for
both projects during the initial open season if there were
insufficient gas commitments for either the pipeline through
Canada or an LNG project. He observed that the decision would
depend on the information that is received during the open
season. He offered examples of different scenarios, saying
TransCanada would have to consider the circumstances at the
time.
2:31:02 PM
MR. PALMER, in response to another question that had been
submitted, affirmed that a shipper would be allowed to nominate
gas for off-take at Delta Junction to Valdez during all open
seasons following the initial open season. That holds true for
any location along the line. He could not answer whether this
would occur even if there is not sufficient gas through Canada.
2:33:53 PM
MR. PALMER said he thinks Mr. Johnson addressed members'
questions regarding workforce development and engineering
reciprocity during his testimony. Regarding what the state gets
for its $500 million investment, he agreed with Mr. Fackrell
that "no party gets the $500 million for nothing." He said the
state will obtain certain value for the incentives and
inducements it provides. He stated, "When parties speak to a
level playing field, you will note that TransCanada is taking in
significant obligations to the State of Alaska as the result of
the license, if you choose to grant it to us." He stated his
belief that Alaska would retain a reliable and capable partner
committed to advancing the interests of the state. TransCanada
has agreed to hold an open season every two years and to
voluntarily expand in engineering increments, which Mr. Palmer
called a very significant commitment. He added that TransCanada
would provide for expansion of the project and pointed to the
necessary drilling and employment that would come from
expansion. TransCanada would promote long-term development and
is committed to going beyond a failed open season to proceed
toward a FERC certificate. He reiterated TransCanada's
commitment to building a pipeline to Valdez for an LNG project
if the market commits to the project. Finally, he said,
TransCanada is committed to delivering gas to Alaskans.
2:36:08 PM
MR. PALMER said another question he has been asked over the last
few months relates to TransCanada's capital cost performance.
He said TransCanada's internal review of its projects between
1990-2003 that use 42- to 48-inch pipe show that the company's
capital costs are 19 percent lower than those of its competitors
in Canada and 38 percent lower than those of companies in the
U.S. He emphasized that TransCanada's records, reputation, and
expansions show that the company is motivated to control costs.
He said all the numbers he has provided have been unchallenged
"by any party with any facts" over the past five years.
MR. PALMER noted there have been comments that granting a
license to TransCanada under AGIA will preclude partnerships
with producers. To that, he suggested that the legislature
examine TransCanada's application in which it openly offers a
partnership with producers or any other party that commits gas
to its project in the initial open season. In the event
TransCanada is granted a license, in addition to the field,
engineering, and other work necessary, it will continue on its
present path for many years, seeking an alignment with customers
and partnerships, if desired. Mr. Palmer said TransCanada could
not go outside the boundaries of AGIA to strike a deal without
the state's concurrence. If TransCanada is the State of
Alaska's partner, it will be restricted by the bounds of the
license, just as the state will be, because that is the nature
of any partnership. TransCanada is seeking a partnership with
the current lease holders and will continue to do so if granted
the license.
MR. PALMER suggested that the proposal by TransCanada does match
the goals of the State of Alaska. AGIA was written to address
the entire development. He pointed out that TransCanada has met
the 20 must-have credentials of the state. TransCanada placed
in front of the State a comprehensive application. The
administration undertook a six-month review of that application,
and that review remains unchallenged. He said TransCanada
proposes to attract customers if granted a license. Independent
pipelines seek customers on a commercial basis, and TransCanada
has been successful in doing that over the past fifty years.
Mr. Palmer said TransCanada thinks it is too early at this stage
to enter mediation. He said he has never gone into mediation
during attempts to attract customers. At this stage of
development, TransCanada will be able to seek a deal. If the
legislature decides to grant the license, it will capture the
must-haves. He said TransCanada does not create obstacles to a
deal; it facilitates a deal.
2:43:37 PM
SENATOR BUNDE opined that the notion of "an all-Alaska pipeline,
LNG, et cetera," is wishful thinking, because the credible
information he has received shows there is not likely to be an
export license granted or renewed by the federal government;
however, he noted that Mr. Palmer has said on several occasions
that TransCanada would be interested in building an LNG line to
Valdez. He questioned where the market for such a project is.
MR. PALMER responded that TransCanada believes that the LNG
project is inferior to the project through Canada on the way to
the Lower 48. However, it is the business of TransCanada to
build pipelines to where customers want to deliver gas. If
customers can find a market and make the project work,
TransCanada will build the pipe.
2:46:22 PM
REPRESENTATIVE SAMUELS noted that Mr. Palmer has said
consistently that TransCanada cannot make a deal with Denali or
"the producers." He asked if Mr. Palmer is referring to
TransCanada, the mother ship, or to its subsidiary, TransCanada
Alaska. He asked, in other words, if TransCanada could form
another subsidiary that could then make a deal. He observed,
"Because the license is issued to Foothills and TC Alaska, not
to the parent corporation."
MR. PALMER offered his understanding that that restriction
"applies to TransCanada, generally."
2:47:09 PM
SENATOR MCGUIRE asked how many deals have been structured
through mediation.
MR. PALMER answered zero.
SENATOR MCGUIRE asked what the traditional method is by which
TransCanada puts together pipeline deals. She said, "The idea
of a mediation isn't a threat; it's really just about putting
together a deal that makes sense." She expressed concern that
two years from now TransCanada will have an open season, people
will not commit their gas to a line, there will be a competing
line, and TransCanada will then be locked in years of
litigation, thus "we miss this golden opportunity that we have."
MR. PALMER said although he would like to see a circumstance
where all parties align to support the project, that usually
evolves over time and it is not unusual to see competing
projects. He said when alignment does happen, it can be early
or late in the process and is done between commercial parties,
after the governments involved have established a structure
under which the project will proceed. He said over the course
of his 22-year career in the pipeline business, he has only seen
two pipelines built from the same supply to the same market, and
they were both financial failures. He relayed that in every
circumstance in which he has been involved, there has been a
resolution in some form or another; either one party wins and
the other loses, or they come together in some fashion over the
course of the open season process or subsequent to that.
SENATOR MCGUIRE noted favor of competition; however, she
remarked that AGIA prevents competition. The government
subsidizes only one winner. She asked if Mr. Parker had seen a
proposal as the one presented.
MR. PALMER responded that he has never seen a structure
precisely like this, but he said he has seen structures where
governments establish the rules that the pipeline companies must
follow or "go outside of those and compete in a different
fashion." He said he does not believe there is a structure
established by the State of Alaska under AGIA that precludes a
deal to be established. He added, "If I had thought so, we
would not have applied."
2:52:40 PM
CHAIR HUGGINS asked Mr. Palmer if TransCanada has ever been
involved in a process that requires the company to get FERC
certification without having adequate financing or "commitment
to gas."
MR. PALMER said he has not; however, he said when this project
came forward 30 years ago, that is "exactly how it went to
FERC." In response to a follow-up question, he said that
original project succeeded in obtaining a FERC certificate. He
surmised that the reasons that project did not get completed had
everything to do with the market supply and demand; it did not
have to do with not having a commitment to gas.
2:53:24 PM
SENATOR THERRIAULT asked what would happen to the data if
TransCanada withdrew their proposal.
MR. PALMER responded that in the event that TransCanada
withdrew, the State would receive the information for the Alaska
portion of the project. There are certain provisions under
which the state would purchase [the data] from TransCanada and
certain provisions under which TransCanada would provide it at
no cost to the state.
2:54:53 PM
SENATOR WIELECHOWSKI commented that much of the decision
[regarding TransCanada's application] is based on credibility
and trust, and he said he has great respect for the way
TransCanada's representatives have conducted themselves during
the entire presentations. Specifically, he expressed
appreciation for the forthright manner in which Mr. Palmer
answers questions.
2:55:48 PM
REPRESENTATIVE RAMRAS asked what TransCanada would do if Denali
had a successful open season and TransCanada failed two
consecutive open seasons.
MR. PALMER explained that provided its application was accepted,
TransCanada would hold its open season in 2010. He offered his
understanding that Denali would hold its open season in early
2011. TransCanada's next scheduled open season would be held in
2012. TransCanada would meet its obligation under AGIA and seek
FERC certification every two years to hold an open season
regardless of whether or not it is successful in attracting
customers. In response to a follow-up question, he said if
after such events the state wished to pull out, then TransCanada
would have to "examine its circumstances at the time" and decide
whether it also wished to withdraw or would seek to continue.
He emphasized that the decision would be "dependent upon the
circumstances exactly at that time, not just on what had
happened in the open seasons."
REPRESENTATIVE RAMRAS asked if that is when TransCanada would
decide whether to ask the state for treble damages.
MR. PALMER responded that if the state sought to withdraw and
TransCanada agreed, then clearly there would be no treble
damages. Conversely, if the state sought to withdraw and
TransCanada did not, then "we would have to look at the
circumstances as established under AGIA." He indicated that
neither the state nor TransCanada is in the business of wasting
money.
The Joint Senate Special Committee on Energy and House Rules
Standing Committee was recessed at 3:00 p.m.
CHAIR HUGGINS called the meeting back to order at 3:17 p.m.
EXXONMOBIL
3:18:23 PM
MARTIN MASSEY, U.S. Joint Interest Manager, ExxonMobil
Corporation ("Exxon"), said he has worked in this position since
2001 and is responsible for Exxon's development of Alaska's gas
resources. Mr. Massey observed that the legislature is focused
on doing what is in the best interest of Alaska, and Exxon has
taken an active interest in the state's deliberations. He
acknowledged that the state questions whether or not Exxon is
"really on board to make a project happen."
MR. MASSEY began his PowerPoint presentation. As shown on slide
1, he stated his intention to demonstrate Exxon's commitment to
the development of Alaska's gas resources and readiness to work
with the state, TransCanada, BP, or ConocoPhillips Alaska, Inc.,
to put in place that which is necessary to the success of the
project. He acknowledged the legislature's frustration that
more progress has not already been made, but asked its members
to recognize that this project is extremely important to the
state.
3:20:38 PM
MR. MASSEY said he would cover what needs to be put in place to
ensure a successful project, and he said he would do that by
addressing the following four questions: What is the right
initial capacity for the pipeline?; How much gas is needed?;
What is the value to the state and the producers?; and What is
needed to ensure royal class project execution? Mr. Massey
introduced the following members of his team: Jim Brown of
Exxon's World Wide West Marketing Company; Mark Nelson of
Exxon's Commercial Group; Norman Porter of Exxon's Treasurers'
Organization; and Jim Morris, Exxon's Commercial Attorney. He
said these people will make themselves available to address
topics with the legislature over the next couple days.
3:22:20 PM
MR. MASSEY referenced slide 2, which illustrates how Exxon is
motivated to develop Alaska gas. He said Exxon has been in
Alaska for over 50 years and has been a key player in Alaska's
oil industry development. The corporation holds the largest
working interest at Prudhoe Bay and is the largest lease holder
of discovered North Slope gas. He said Exxon is in the business
of developing oil and gas resources and has proven throughout
the world that it can do it well. He emphasized the importance
of the development of Alaska's gas resources to Exxon by drawing
attention to the bar chart on slide 2, which shows that an
Alaska gas pipeline project would allow Exxon to add over 1.5
billion oil equivalent barrels, which is more than Exxon's
production total has averaged per year over the last five years.
Furthermore, the project has the potential to double Exxon's
current U.S. gas production - the key measure of any oil
company's performance. Because of the size of Exxon, only the
largest projects impact its performance in any significant way,
he said. The Alaska gas pipeline project would have a clear,
positive impact on the corporation's worldwide results.
MR. MASSEY said Exxon has been working hard to develop the gas
ever since Prudhoe Bay was discovered and has to date invested
more than $180 million looking for a way to bring Alaska gas to
market, including the early pipeline studies and the LNG and gas
to liquid study. The corporation's activity has increased
significantly in the past decade, which is a result of the
change in oil prices. Since the development of the Alaska gas
inducement Act, Exxon has provided testimony and has engaged in
the public comment process on the [TransCanada] application.
Exxon is aligned with the administration's determination that a
gas pipeline to [the Lower 48] will result in the best value to
the State of Alaska and the producers. He noted that earlier
this year, Exxon committed to putting Point Thomson on
production; the [plan of development (POD)] proposed provided
valuable information "to remove any doubt ... about how best to
produce the hydrocarbon resources at Point Thomson," including
the major gas resource in the [Point] Thompson sand. He relayed
that Exxon is pursuing a large-scale gas pipeline project and it
continues to pursue smaller sales where there is a market. He
offered an example where Prudhoe Bay gas was sold to Fairbanks
Natural Gas, which, it is said, hopefully addressed some of the
energy needs of those in Interior Alaska. He offered his
understanding that that is the first sale of North Slope gas
"off of the North Slope." He said Exxon is working to determine
the best way to move forward an Alaska gas pipeline project, and
it firmly believes that a successful project requires the
support of all three major producers and the State of Alaska.
3:26:58 PM
MR. MASSEY highlighted slide 3, entitled, "4.5 BCFD Balances
Tariff, Revenue and Resources." He said a pipeline of
approximately 4.5 bcf/d will provide the best chance of
achieving a viable project - a determination that came from a
detailed technical analysis of pipeline hydraulic and cost. He
offered his belief that the state's data is consistent with this
analysis. He said the chart on slide 3 is based on data
provided to the public by the administration and consultants.
It shows that when the pipeline throughput is 4.5 bcf/d - shown
as a green bar on the slide - the tariff is $4.73. When the
capacity is reduced to 3.5 bcf/d, the tariff increases to $5.71.
If the pipeline is expanded to 5.9 bcf/d or even 6.5 bcf/d, the
tariff is the same or a little lower than what is achieved at
the 4.5 bcf/d level. Mr. Massey called that 4.5 bcf/d level the
"sweet spot." The difference of about $1 between the 4.5 bcf/d
and 3.5 bcf/d impacts the state; the lower amount reduces the
"NPV5" [related to net present value] by $14.5 billion.
Producer profits would see similar percentage reduction. Mr.
Massey emphasized the importance of going with a 4.5 bcf/d pipe.
MR. MASSEY said the hydraulics and cost analysis show that the
pipeline should provide low-cost expansion. For example,
expanding from 4.5 to 5.9 or even 6.5 [bcf/d] could result in
essentially the same tariff. Low-cost expansion means
significant incentive for exploration, he said. Although the
initial pipeline capacity will be determined during the open
season, 4.5 bcf/d "appears to be the right pipeline size," he
said.
3:30:37 PM
MR. MASSEY turned to slide 4, entitled, "Critical Elements -
Point Thomson/Open Access." The chart on slide 4 shows the
following known resources: Prudhoe Bay at 24 tcf, Point Thomson
at 8 tcf, and 3 tcf in other fields, for a total of 35 tcf. The
chart also shows that 50 tcf is needed to keep the pipeline full
at 4.5 bcf/d for 25 years, which means that another 15 tcf of
yet-to-find gas needs to be discovered, developed, and produced
during that 25-year period. Mr. Massey said he thinks that
illustrates how critical Point Thomson gas is to the project.
He said it is estimated that Point Thomson could provide gas
production of approximately 1 bcf/d. Without Point Thomson's 8
tcf of known resources, the amount of yet-to-find gas needed
would increase to 23 tcf or essentially "another Prudhoe Bay."
MR. MASSEY related that through extensive technical work, Exxon
has determined that a Point Thomson gas sales development will
produce and recover a majority of the condensation of gas
reservoirs. However, he said Exxon also recognizes that a gas
pipeline project is still many years away and there is still
some uncertainty about how best to produce Point Thomson. For
this reason, Mr. Massey said, Exxon and the 26 other lease
holders developed a current plan of development, which consists
of a gas cycling project estimated to cost over $1.3 billion.
The project, he relayed, would bring Point Thomson under
production by the end of 2014. More importantly, he added, the
project would provide the information needed to remove any doubt
about how best to produce Point Thomson. Mr. Massey said Exxon
will perform the engineering studies necessary to prepare
individual Point Thomson lease holders to participate in a gas
pipeline open season. He stated that there is no faster way to
bring Point Thomson on production and ensure Point Thomson gas
will be available for a gas pipeline. He said the gas from both
Prudhoe Bay and Point Thomson can keep the pipe full for well
over 10 years, which should be enough time for exploration and
development of the additional 15 tcf gas needed.
MR. MASSEY said the previous slide showed that it may be
possible to build a 5.9 bcf/d pipeline with essentially the same
tariff, which would certainly generate more revenue; however,
the gas is not available at this point in time to support a 5.9
bcf/d pipeline. Mr. Massey opined that it makes sense to build
the pipeline at 4.5 bcf/d and then plan for low-cost expansions.
He said significant gas exploration and development activity is
expected, but will take time, and it is unlikely that shippers
will make a commitment until that gas is discovered.
MR. MASSEY, returning to slide 4, said Exxon recognizes that the
issue of open access has "long been on the minds of Alaskans and
those in the industry." He said it is an important concern for
Exxon, as well; however, the corporation does believe that
necessary insurances are in place. He said substantial
expansion capacity at low cost should be available, so, there
are good reasons to expand the pipeline. The regulatory
framework of FERC and NEB is based on the concept of open
access, he noted. The U.S. government recognizes that an Alaska
gas pipeline would be a unique undertaking. Additional rules
were established by U.S. Congress and FERC which specifically
apply to Alaska; these rules provide further assurances that
explorers can obtain certain capacity on the pipeline through
expansions. Mr. Massey related that Exxon is willing to discuss
other assurances that would make the State of Alaska comfortable
that explorers would have access to "the pie."
3:38:13 PM
SENATOR WIELECHOWSKI, acknowledging his question related to
another topic, asked Mr. Massey what Exxon's plan is regarding
payment to the plaintiffs in the case related to the Exxon
Valdez oil spill.
MR. MASSEY acknowledged the concern legislators have expressed
to him over the years regarding the case. He said the incident
was tragic and is something Exxon deeply regrets. He said the
corporation has worked hard to address the impacts of the spill
and put in place necessary assurances in its operations to
prevent such incidents from happening again. He said Exxon will
abide by the Supreme Court order.
3:40:03 PM
SENATOR WIELECHOWSKI, returning to the present topic, observed
that a report shows that many pipelines are being constructed
even though crude reserves can only provide throughput for 10
years or less. He said the throughput from Prudhoe Bay and
miscellaneous fields equally 27 tcf, which according to the
Department of Natural Resources' calculations provide for 11-12
years of throughput. Three examples of the history of pipelines
in the Lower 48 show that companies have started building
pipelines with throughputs of only 5, 8, and 9.3 years. He
asked Mr. Massey if he disagrees with the reports that "we need
more than that to get the pipeline started."
MR. MASSEY stressed the magnitude of the project and stated that
Exxon would not know until the open season whether or not there
have been sufficient firm transportation commitments made in
order to get financing. He said it is the judgment of Exxon
that just a 10-year commitment will not be adequate to get
financing for this project, "given the risk, scale, and
complexity that we're facing to put this project in place." The
market will ultimately decide that, he added.
3:42:35 PM
REPRESENTATIVE GARA returned to the issue of the Exxon Valdez
oil spill and offered his understanding that Exxon has already
been ordered to pay approximately $500 million, while the
corporation has taken the position that it is "entitled to
further trial court litigations." He asked Mr. Massey if Exxon
is going to pay the amount that was in the supreme court order
or continue with the litigation.
MR. MASSEY said he does not think Exxon has taken the position
that it "would or would not." He stated his understanding that
the Supreme Court decision is final and will go back to "the
process that the courts go through to make that judgment final,"
and when it is final, Exxon will pay.
REPRESENTATIVE GARA, returning to the topic at hand, concurred
with Mr. Massey regarding the importance of Point Thompson in
relation to the gas line. There has been talk of mediation, he
said, but mediation only works when both parties are ready to
take part in it. He asked if Exxon has formally proposed
mediation to the State of Alaska resolving Point Thomson.
MR. MASSEY said Exxon has not offered mediation but is fine with
mediation if that is what the administration would like to do.
He offered his understanding that the administration, through
the legal process, did not want to engage with Exxon until it
got through the administrative process that it had been asked to
complete. He stated his expectation that once that is over,
Exxon will be able to meet with the administration, resolve this
issue, and move forward. He emphasized the importance of such a
resolution, because work is underway to date. He offered
examples. He said DNR has issued Exxon a land use permit. The
next proposal will be drill permits, which he said he hopes DNR
will approve.
REPRESENTATIVE GARA requested that when Exxon does offer to
partake in mediation with the administration, that the
corporation submit that offer in writing to the legislature.
3:46:56 PM
REPRESENTATIVE GARA observed ExxonMobil would start off at
10,000 barrels a day in oil production. He said Point Thompson
is an oil field first and a gas field later; to get the gas out
to have a 4.5 bcf/d line, a certain amount of oil has come out
first. He stated that at 10,000 barrels a year, "we'll never
get there; it'll take 40 years." He asked Mr. Massey how
quickly Exxon would "ramp up" and get the oil out in order to
get to gas sales.
MR. MASSEY answered that Exxon is investing $1.3 billion to get
2,000 barrels a day. He said it just so happens that the right
design, given the compression and well capacities for an initial
state is 283 feet a day of injection and 10,000 barrels a day.
He shared his expectation is that it will not take long from
"the first time we put this on production" to get the
information that will show Exxon which path to take. One path
would be expansion, another path might show that the oil
condensate recovery is not adequate, thus the company should
"back up and be ready for gas sales." A third option might lead
Exxon to "some combination of additional gas cycling and gas
sales." He said he thinks the data today will show that gas
sales are best to do at Point Thomson, but he recognizes there
is "some uncertainty in that." Exxon is ready for any course of
action, he stated. He said the data that will be gained from
the proposed project would remove any doubt about how best to
produce the Point Thompson sand.
3:49:55 PM
SENATOR BUNDE said he is pleased to hear that ExxonMobil is
willing to work with all players. He asked for more information
regarding cycling and information on the estimated timeline. He
asked if approval of AGIA would hurt the success of a pipeline
as other consultants indicated.
MR. MASSEY noted that cycling works in many places in the world.
Point Thomson is a high pressure, large reservoir with large
distances between the wells. The proposal for the initial
production system - to give it the best chance of success - is
to "put two wells a fair distance apart, but actually right in
the heart of a reservoir." The condensate would be stripped out
of the gas through a process of high pressure separation, and
the gas would then go through several stages of compression and
"be put back into the ejection well." The wells are so far
apart, it would be many years before there would be any
interference between the two, but the pressure in the reservoir
would remain high and less liquid would be lost by putting the
gas pipe in the ground.
MR. MASSEY spoke to booking reserves. He said reserves and
production are Exxon's lifeblood; they are how the company
measures its success. One step toward booking reserves is in
discerning whether the project will be viable and generate an
adequate return. The next question is to ask whether the
project is "sufficiently far along that you know you're going to
complete it." Mr. Massey offered his understanding that on big
projects, some companies will actually book some of the reserves
when the project is sanctioned, because at that point in time
they are comfortable that once sanctioned, the project will
follow through. Basically, reserves are booked once confidence
is achieved.
MR. MASSEY explained his nonresponse to the question regarding
whether or not approval of AGIA would hurt the success of a
pipeline, by stressing that the question must be answered by the
legislature. He said it is not the right of the company to
advise the legislature, only to provide it with information. He
said based on the deliberations he has heard thus far, the
legislature's focus is "clearly on doing what's right for
Alaska." He suggested the following questions to ask in
arriving at a decision:
Does AGIA help align the parties to achieve a
successful project? Does AGIA bring the producers and
the state together such that we can reach alignment on
what's necessary to allow a project to go forward. If
your answer to that question is yes, then I'd vote
yes; if your answer is no, then I'd vote no.
3:55:27 PM
REPRESENTATIVE KERTTULA observed that the source for the
information on slide 3 was from Black and Veach, and she stated
her assumption that Exxon has done its own internal projections.
She asked Mr. Massey if he would share those projections and
compare them to the ones provided by Black and Veach.
MR. MASSEY stated that Exxon's analysis, done in 2001-2002, with
the other producers, is consistent with the one on slide 3. The
report of a sweet spot being 4.5 bcf/d does not surprise him.
He said Exxon estimated that low-cost expansion would not
increase the tariff.
3:56:50 PM
REPRESENTATIVE KERTTULA asked if Mr. Massey would share
information regarding Exxon's "internal rate of return hurdle."
MR. MASSEY said Exxon does not have a hurdle rate or single
number; its management considers the total risk/reward of a
particular project before deciding whether to invest.
3:57:38 PM
REPRESENTATIVE LYNN observed that Exxon chose neither to apply
under AGIA nor partner with Denali, but apparently ships gas
"with either one." He said he would also like to know with
which AGIA "must-haves" Exxon has chosen not to abide.
MR. MASSEY said both questions would be covered when the next
slide is shown.
3:59:01 PM
REPRESENTATIVE GRUENBERG, [in relation to the previously
referenced oil spill case], mentioned a case in Miami in which
the district court judge found that Exxon had delayed paying a
judgment for years because "the internal rate of return on the
money that Exxon held far exceeded the interest it had to pay on
the punitive damages in the judgment." He questioned if Exxon
is doing the same thing by "not paying the money that the
Supreme Court has ordered it to pay now," and whether the
corporation plans to "use the additional money it will earn
internally if it delays paying it until the case winds its way
back down to the district court, which really has no discretion
but to issue the same order the Supreme Court has already
ordered." He asked, "How much money will Exxon earn on that
judgment if it delays paying it."
MR. MASSEY responded, "No, we are not delaying it." In response
to a follow-up question, he said he does not have information
regarding how much Exxon will be paying on that money.
4:00:50 PM
SENATOR THERRIAULT referred to Point Thomson. He questioned if
Exxon would consider relinquishing the leases if it does not
decide to move forward, as some of its partners have indicated.
MR. MASSEY pointed out that this is the first time that Exxon
has ever committed to bring Point Thomson on production during a
POD period. If that production is not achieved during a POD,
then all the state's remedies regarding violation of the POD
would exist. He said senior management has delivered a
commitment to develop the field and has offered milestones. If
the Superior Court agrees that those milestones have not been
met, then "the unit is terminated." There are no preconceived
notions of what Exxon will and will not do. Everything is on
the table for discussion, he said.
SENATOR THERRIAULT noted that Exxon's POD has retroactive
provisions, and he questioned why the state would consider
accepting them.
MR. MASSEY observed that Exxon had felt that it would be more
palatable to the state if the POD period was extended so that
there would be "a firm commitment during the POD period to put
it on production." The corporation realized there may be some
concern about that long period, so it said it would provide
regular updates throughout that whole process. Regarding
retroactivity, Mr. Massey said, "We guessed that's what the
state would want to do." However, he said if that is not the
case, and another solution would work better, the corporation
would "sit down and resolve that issue."
4:05:54 PM
CHAIR HUGGINS asked if Exxon has evaluated the Denali project.
MR. MASSEY noted that ExxonMobil has had discussions as to how
Denali might participate. The issue for Exxon is that it will
not have a successful project until the state and the producers
"align on what is necessary to make this project a go." He
acknowledged that it makes no sense for two projects to go
forward in competition.
CHAIR HUGGINS asked if, compared to Denali and TransCanada,
there are any differences in the criteria that Exxon considers
regarding "the commitment process of its gas potential in the
future."
MR. MASSEY responded that if alignment has not been achieved by
open season, there will be tough decisions to make regarding to
which pipeline to commit the gas. He concluded, "It's really
hard to predict today exactly how that might play out. I don't
have a good answer on that."
The Joint Senate Special Committee on Energy and House Rules
Standing Committee was recessed at 4:08 p.m.
CHAIR HUGGINS called the meeting back to order at 4:21 p.m.
CHAIR HUGGINS asked how Exxon views federal loan guarantees in
relation to their importance to the gas pipeline viability and
execution.
MR. MASSEY replied that his understanding after reading the
license application is that loan guarantees are critical factors
in moving a pipeline project forward. He added, "I don't know
if they're going to be available or not. I believe they're in a
situation where they still have to be scored and funded, and I
don't believe that has occurred. If we had access to them, we
would seriously look at it." Mr. Massey surmised that those
entities that back the federal loan guarantee could make loan
guarantees so expensive they would not be worth "going after."
He suggested that Exxon could use its financial strength to "put
the pressure on that to make sure it's done at the lowest
possible ... cost."
4:23:56 PM
MR. MASSEY returned to his PowerPoint presentation. He
discussed slide 5, entitled, "FT Commitments - Real Risk and
Cost to Producers." He noted that Black & Veatch calculated the
NPV10 to be $13.5 billion. Black & Veatch made a simplifying
assumption by treating the firm transportation cost as an
operating expense, which it said did not materially impact the
economics of the producers. Mr. Massey said this assumption has
an enormous impact on producer economics, because it does not
reflect the reality that firm transportation commitments
represent real risk and operate differently than an operating
expense by the financial markets. He explained that since an
uncommitted operating expense cannot be used to support the
proposed project like a 25-year, ship-to-pay firm transportation
commitment can, "clearly something of value has transferred from
the shipper to the pipeline developer and lender." He said
Exxon, like many economists and finance practitioners, believes
that firm transportation commitments are long term and debt-like
in nature. He said these financial commitments should be
capitalized, and there is a lump sum cash flow in the year they
are made.
MR. MASSEY stated, "Hearing the commitments in this manner
significantly reduces Black & Veatch's estimate of a producer's
economics." As shown by the yellow [arrow] on slide 5, producer
economics are dropped from $13.5 billion to essentially zero
NPV10. Mr. Massey explained that for this project, as a gas
shipper on a pipeline, there are two choices: The one option is
to invest in the project as a pipeline affiliate, investing a
share of the capital. The other option is to make a long-term
financial commitment to the pipeline developer to reimburse the
developer for its actual - not estimated - costs, plus a return
on its investment. In the second scenario, the shipper, through
the firm transportation commitment, is paying for the ultimate
cost of the pipeline, the profit that pipeline building
requires, and the economic financing costs. Mr. Massey
clarified as follows:
Because these [are] long-term, binding commitments to
pay for the project, regardless of whether the gas
flows, we treat these commitments as if we were
investing based on the value of those firm
commitments. When you think about it this way, the
economics have to be (indisc.) for us, because we're
making a commitment to a third-party pipeline
available, like TransCanada, because we're paying for
their actual costs, plus their profits, and
potentially higher financing costs. This is
conceptually no different than looking at the true
cost of leasing a car rather than purchasing it
outright.
4:27:43 PM
MR. MASSEY said he thinks it is important for the legislature to
understand the economics involved, and he said he can tell that
the legislators understand the value of firm transportation
commitments. He brought attention to the red arrow on slide 5,
which shows there could be additional risks, including a change
in fiscal terms, an increase in tariffs, exposure to higher costs
and lower natural gas prices. Some of these factors are
difficult to predict, he said, but it is prudent to recognize
them when doing an economic analysis. He indicated that when
Exxon considers those risks against Black & Veatch's analysis,
the NPV10 for the producers drops to well below zero. Mr. Massey
offered to share Exxon's analysis and concluded that "we are in
a much different place on the economics for a producer for a
third-party pipeline." He said this information does not make
the product unattractive; Exxon is willing to bear a price risk
and, if an owner in the project, will also bear its share of
capital risk. He added, "However, from our perspective, the
other risks that I've outlined need to be mitigated."
MR. MASSEY highlighted the keys to developing a commercial
project, which are shown in a box in the lower-left portion of
slide 5. First, the producer ownership needs to be equal to the
firm transportation (FT) commitment it makes. Exxon intends to
make an FT commitment equal to its throughput, and its ownership
would be equal to that on a percentage basis. With that
approach, he said, any pipeline profits from transporting
Exxon's gas would go to Exxon rather than a third-party pipeline
developer. Mr. Massey said Exxon thinks it can also work to
achieve lower financing costs, and being able to participate in
the project means it can develop the project at the lowest
possible costs. He said the cost of building the pipeline will
drive the ultimate tariff. Second, Mr. Massey noted, Exxon will
at some point have to align with the state on fiscal and tariff
predictability. Third, world-class project execution is
imperative to minimize the total cost of the project. The
Alaska Natural Gas Pipeline is unprecedented in terms of scope,
cost, and financing requirements. As a means of offering
perspective, Mr. Massey relayed that a 20 percent overrun in
this project would cost the state over $5 billion of NPV. The
value comes from the net back of the gas, he said. He
reemphasized that a project of this magnitude requires the
combined resources, skills, expertise, and financial strength of
all parties involved in order to succeed.
4:32:48 PM
SENATOR WIELECHOWSKI referred to slide 5 and the impact of $200
billion in firm transportation commitments. He noted that the
reserves can be booked once the transportation system is in
place, which would have a positive impact on Exxon's stock price
and its financial health. He observed that Bergman Sax said
this is not carried as a debt, but rather as a footnote. He
asked Mr. Massey if he agrees with that statement.
MR. MASSEY responded that financial markets look at the
footnotes. He noted that the total footnote Exxon has on the
unconditional obligations is only $3 billion for "the total of
our company." He stated, "With this one, our share of the phone
transportation commitments [is] ... going to go from $3 to $75
or possibly $80 billion. There's no question the financial
market is going to look to that in determining ... the impact on
that company in having that obligation - if we make it to ... a
third-party pipeline."
SENATOR WIELECHOWSKI noted that any jurisdiction would change
the equation.
MS. MASSEY disagreed. He stated that in any major project,
Exxon has established with the government the terms under which
it will apply for that project, "essentially for the life of
that project." He said there is a binding obligation between
Exxon and any country with which they enter into an agreement,
in terms of what the fiscal terms will be. He reiterated that
there really is no project of the same magnitude, in terms of
risk and exposure. He concluded, "For us to be able to properly
assess the economics of this project, we have to understand how
we're going to share the revenue from the project and to predict
that within a reasonable range. That, he said, is "a mess" and
is "normal business."
SENATOR WIELECHOWSKI observed that on Juneau 7, 2008, Pedro Van
Meurs, Ph.D., [President, Van Meurs & Associates Limited],
stated, "It can no longer be recommended for governments to
provide comprehensive fiscal stability." He asked Mr. Massey if
he concurs or disagrees.
MR. MASSEY said he cannot answer without understanding the
context in which that statement was uttered.
4:36:45 PM
REPRESENTATIVE DOOGAN asked what the advantage would be to
TransCanada in the case of a 4.5 bcf/d, fully subscribed
pipeline at open season, "if they're the ones who go to the open
season and you subscribe and then they've got to sell out ...
essentially the whole stake in the pipeline."
MR. MASSEY answered as follows:
Our requirement is they do not need unequal people to
a throughput. In your hypothetical [example], if ...
all of us have our same position, then the ownership
to the pipeline company will depend on if they can buy
some gas from us at the wellhead and they ship it
themselves. Are they able to buy gas from the state
for their share of gas, and they decide to ... take on
the shipping cost for that portion of the gas? So,
there are many ways to get at it so a pipeline company
can have ownership in the pipeline project, but I will
admit this is a tough hurdle to overcome if all of us
indicate that that's what a requirement we have to
make the project viable.
REPRESENTATIVE DOOGAN offered his understanding that the
presence of fiscal predictability on slide 5 means that AGIA
does not provide sufficient fiscal predictability for Exxon. He
asked if that is correct.
MR. MASSEY responded that AGIA offers no fiscal predictability.
He said there is an indication that the legislature has said it
will work to "not change for 10 years." However, he said that
is not a contractual relationship, so the legislature has the
ability to make changes related to its production taxes from day
one. He said it is necessary to look at the total bill - the
tax rate, "your share of the take," and "my share of the
revenue" - and to determine: "How long does that need to go
for?"
MR. MASSEY emphasized the importance of figuring out what the
share will be and whether or not it can be predicted over "the
turn of this project." With a prediction comes the ability to
run the economics, whereby a determination regarding viability
can be made. Without viability, the project will not move
forward.
REPRESENTATIVE DOOGAN remarked that fiscal predictability is
problematic, not just in terms of duration, but that "it's not
solid enough for you, basically."
MR. MASSEY responded, "It's a complete deal."
MR. MASSEY, in response to a question from Representative Doogan
regarding tariff predictability, recalled a former slide showing
a range of tariffs that could occur depending on different
pipeline capacities. He said it is first known what the
pipeline capacity will be and how much gas is going to be
available and what tariff rate that will provide. Other issues
that need to be "nailed down," he said, are related to the
debt:equity ratio and the handling of cost overruns, for
example. He said he thinks "you get close to that when you get
to the open season."
REPRESENTATIVE DOOGAN remarked that the tariff is inherently
unpredictable because it is a function of the cost of building
the pipeline, which, despite everyone's best efforts, is
"unknowable." He said Mr. Massey is talking about "as
reasonably precise and upfront predictability as you can get in
there."
MR. MASSEY reiterated that as a producer who owns the pipeline,
Exxon is willing to share the capital risk, "because that's what
we do."
4:42:57 PM
SENATOR HOFFMAN asked if the tax structure currently on the
books is acceptable to Exxon.
MR. MASSEY indicated that there is more to it than just
considering the tax rate. Other questions to consider include:
whether the state will take the gas in kind; whether the state
will take cost rate in kind; and whether Exxon will be
responsible for shipping the state's share of gas that it is
currently responsible for through lease agreements. He said it
is a hard question for him to answer. He explained, "I need to
understand what pieces are put together to do it, so that I can
predict what that share of revenue is going to be over the long
term, and I can't do that with just the one piece that you're
talking about."
SENATOR HOFFMAN commented that the one surety is that the tax
structure Mr. Massey recommends won't go any higher.
4:45:28 PM
SENATOR FRENCH summarized that Mr. Massey had previously said
Exxon had troubles with the tax structure, both in terms of its
strength - being statutory rather than contractual - and its
short duration.
MS. MASSEY responded that he had not meant to comment on the
length. The issue is the needs of each entity and finding
creative solutions to minimize Exxon's risk while helping the
state achieve its goals. Figuring that out dictates the
confidence level. He said it is difficult to answer
hypothetical questions today.
SENATOR FRENCH explained the reason he brought the subject up is
because the last time any state entity engaged in a lengthy
negotiation with an oil company, the result was the SGDA
contract two years ago. He recalled a conversation he had with
Mr. Massey and Kevin Jardell at the time, when he said in
frustration, "You guys still want 30 years of tax stability,"
and Mr. Massey responded, "35." He said that was a funny moment
that showed that Exxon is "a hard-nosed negotiator," and it
showed him how hard it would ever be to arrive at some kind of
agreement. He said he thinks that's why the state took the
approach in AGIA to make its "last, best offer in that statute"
with 10 years of statutory tax stability being the best offer
within the confines of the Constitution of the State of Alaska.
He said he thinks it is important for Alaskans to know that
"we've made that kind of promise only once before in the 50-year
history of the state." He encouraged Mr. Massey to value the
state's offer as being its word as a body to whoever nominates
gas in the first open season. He said he realizes it is
conceivable that a future legislature could change that, but
from his perspective, it is a solemn promise from the state to
maintain that tax structure. If that is not enough of an
inducement, he said, he thinks the state should know that before
getting to open season.
4:49:00 PM
SENATOR STEDMAN asked why the state should look at "locking down
oil taxes" when the economics of the gas will "carry" the
economics of the gasline investment.
MR. MASSEY responded that last year Exxon proposed to the
legislature in a contract that "there was a period of
instability that was associated with that deal." He explained,
"That doesn't mean it has to be in this deal." He said it
depends on the totality of the deal and whether Exxon can
predict well enough what the shares will be for Exxon and the
state. The last deal made sense at that particular point in
time, but it does not necessarily make sense now.
SENATOR STEDMAN observed that under the old concept, the
debt:equity ratio was 80:20. He asked if that is still a good
ratio.
MR. MASSEY agreed that the last deal was set at 80:20. He
offered his understanding that a change to 70:30 would result in
.35 cents on the tariff. He spoke of the confidence instilled
by sponsors in a project that is financially strong. He
reiterated that the open season would provide more information.
4:53:19 PM
REPRESENTATIVE SEATON, referring to slide 2, observed that
Alaska gas would be approximately 50 percent of Exxon's total
volume of production. He asked if Exxon also owns "50 percent
of all the pipelines that you ship that other 50 through."
MS. MASSEY pointed out that in the Lower 48, Exxon is selling
all of its gas at the wellhead, and the buyers pay for the
transportation. The project in Alaska is a different situation,
since the pipeline will not get built without a firm
transportation commitment. Exxon wants to "own a piece of the
pipe equal to the transportation that we put through it."
REPRESENTATIVE SEATON, regarding slide 5, said he presumes a lot
of the additional risk is upstream costs.
MR. MASSEY answered that actually a good portion of the risk is
fiscal and related to the tariff.
REPRESENTATIVE SEATON noted that Mr. Massey's presentation seems
to include discussion of the necessity of Point Thomson. He
asked, "That's not a large function in here ... - the
development ... of Point Thomson?"
MR. MASSEY clarified that Point Thomson is included in Exxon's
analysis of the project; however, there is very little risk of
"increasing the exposure in the economics for that." The bulk
of the risk, he reiterated, is in fiscal, tariff, and [gas]
price.
REPRESENTATIVE SEATON questioned the additional risks for
upstream cost and, under the current fiscal structure, how much
of that risk would be born by the state rather than by Exxon and
the other owners of Point Thomson.
MR. MASSEY said he doesn't view it as the state bearing the
cost. He clarified that it is just another method to calculate
the taxes that will be paid. He said his taxes have increased
dramatically because of PPT and ACES. He acknowledged that the
state is paying the tax credit portion of a capital piece, which
is 20 percent, but that does not result in a lower tax - quite
the opposite.
4:59:00 PM
MR. MASSEY concluded his PowerPoint presentation, referring to
the summary information on slide 6. He reviewed that a
successful gas pipeline would require: 4.5 Bcf/d initial gas
sales with low cost expansions; Point Thomson gas; ownership
equal to FT; fiscal and tariff predictability; and world-class
project execution. He stated his belief that "aligning on all
these important considerations will maximize a value to the
state." He reemphasized Exxon's commitment to the development
of Alaska's gas resources, as well as its readiness to work with
the State of Alaska, TransCanada, ConocoPhillips Alaska, Inc.,
and BP to make this project happen.
The Joint Senate Special Committee on Energy and House Rules
Standing Committee was recessed at 5:02 p.m.
SENATOR HUGGINS called the meeting back to order at 6:34 p.m.
CONSENSUS BUILDING INSTITUTE
CHAIR SENATOR HUGGINS introduced the Consensus Building
Institute panel members. He noted that the task of the
institute is to look for solutions.
6:36:10 PM
JOSHUA GORDON, Practitioner Consultant, Consensus Building
Institute (CBI), described the work of CBI.
FRANCIS McGOVERN, Board Member, Consensus Building Institute
(CBI), described mediation as a process and acknowledged the
complexity of the situation in Alaska.
6:42:13 PM
MR. MCGOVERN introduced a PowerPoint presentation explaining the
mediation process. He described mediation as "structured
negotiation," during which a neutral, third party assists two
parties in their negotiation and attempts to help the parties
work toward a common solution that is both acceptable to
everyone and has longevity.
6:44:26 PM
MR. MCGOVERN said there are two models of resolving disputes.
One is a problem-solving model. In it, everyone is involved who
is potentially interested in the particular problem being
addressed. He said, "In the case of a public dispute, after you
get your core of problem solvers deciding what [the] potential
outcome might be, one moves out in concentric circles to make
sure that you involve everybody who's potentially interested in
the particular problem that you're addressing." The other
approach, he noted, is a consensus-building model. In it,
everyone comes to the table, and even though each person may
have a different view of what the problem is, an accommodation
can be reached. He offered an example. He stated, "The
strategy is: How do you get from here to there, in time, with
the available resources?" The fundamental model is in
litigation. However, in typical litigation, the parties are the
litigants. In mediation, he said, "you're not bound by a given
set of parties." Anyone believed to be an appropriate party can
be brought to the table. Sometimes it is helpful to bring in
additional issues to help solve a case, while other times it is
more helpful to "push some issues to the back" for clarity.
Unlike in litigation, information can be obtained in any manner
and any type of procedure may be used. He said, "To design a
dispute resolution process under mediation is about as broad as
you can possibly get." Mr. McGovern said mediation seems to be
a suitable mechanism for resolving disputes involving multiple
parties and interests.
6:48:24 PM
MR. MCGOVERN related that there are mediation styles, including:
facilitative, evaluative, empathetic, and assertive. Mediators
try to examine the interests, relative values, and opportunities
that would conclude in both parties being better off. They also
take advantage of differences - for example, when one party is
risk adverse and another is risk seeking. He pointed to a graph
in the PowerPoint which illustrates this. Mediators take into
account psychological and cultural tendencies in communication
and different bargaining styles. In understanding these
factors, it is possible for a mediator to keep parties from
getting upset, look at the bottom line, and come up with an
optimal solution for everybody.
6:55:26 PM
MR. MCGOVERN suggested first envisioning an acceptable solution
and then figuring out how to get there. He talked about using a
mediation variable and using feedback loops for updates, since
there are always changes, especially in natural resource cases.
He told the legislators that they need to define the problem at
hand. For example, whether the problem is that the bill needs
to be decided or if it is a bigger issue, such as ownership of
the pipeline, the tariff, the tax, and exploration. How the
problem is defined makes a big difference in how to proceed.
The greatest weakness is at the detail level.
MR. MCGOVERN described the process of defining the enterprise
narrative as a means of resolving disputes. He concluded his
presentation by playing video clips - of people playing chess or
playing "chicken" - to demonstrate various ways to solve
disputes.
7:01:16 PM
SENATOR BUNDE said TransCanada's goal is to sell gas, while the
goal of "the majors" is to sell gas and build a pipeline where
they can control costs and get reward for transporting the gas.
He speculated that TransCanada would probably like to mediate,
but he sees no incentive for the majors to mediate. He asked
Mr. McGovern if he sees a role for mediation when only one party
is willing to negotiate.
MR. MCGOVERN rephrased the situation as trying to get people to
negotiate who don't want to negotiate. He related a situation
in which he helped mediate an Exxon case. Based on earlier
discussions he has heard, Mr. McGovern said he thought the issue
was not one of mediation but of timing. He said he would be
astonished if all the parties involved would not be willing to
negotiate; however, the question is whether they are more
willing to come to the table before or after the vote on AGIA
has taken place.
7:05:45 PM
SENATOR THERRIAULT said he thinks it is important to determine
who the parties are that will sit at the table, which is what
the state is being asked to decide.
MR. MCGOVERN acknowledged that a critical component of mediation
is deciding who should be at the table, and he concurred that
the State of Alaska gets to make that decision.
SENATOR THERRIAULT said it seems that the point has not arrived
when a business negotiation takes place; however, he indicated
that business operations would engage if and when the AGIA
license is issued.
7:09:41 PM
MR. McGOVERN emphasized that Alaska is a sovereign that can
guide the negotiations or choose to have TransCanada negotiate
with a producer. He stated:
Understanding who's meeting when, where, and what kind
of coalitions are going to form - I can make a very
strong argument that the legislature and the
administration getting together and negotiating would
be much more powerful than almost anything else you
could ... do, because there would not be an
opportunity for any kind of divide and conquer.
MR. McGOVERN specified that a public dispute is very different
than the economic interest of the party. The legislature has
responsibilities beyond the economic interests of corporations.
He reminded the members that the state has plenty of
opportunities.
SENATOR THERRIAULT said it seems the legislature is on the brink
of making "that decision of governmental unity." If the
legislature agrees with the governor, those branches will be
unified in "how we see this thing going forward."
MR. MCGOVERN reiterated that there is a breadth of options
available, and how the state decides to put together the
negotiations is "absolutely critical."
7:11:57 PM
SENATOR WIELECHOWSKI asked if Mr. McGovern had come to attempt a
mediation between TransCanada and the producers. He noted that
there may be a completely separate all-Alaska line built. He
asked how Mr. McGovern defines the problem.
MR. MCGOVERN asserted that it was too early for him to define
the problem, and he said he thinks it is the state's decision to
define the problem. He suggested, "You could define it as a
problem of all Alaskans to come up with a solution that would
lead to a result that is satisfactory, so that whether or not
you have a negotiation as the senator was talking about between
"A" and "B" is tactical rather than strategic." He concluded,
"I'm not here to tell you what your problems are. All I'd like
to do is identify an analytic process that might help you engage
that issue."
SENATOR WIELECHOWSKI noted that 60 legislators may each define
the problem differently, and he asked Mr. McGovern how to
ultimately define the problem.
7:14:08 PM
MR. MCGOVERN gave an example of a mediation issue related to the
Snake River. He scrolled through a list of sixty cities and
showed a long list of the problems, the procedures, and the
information. He said compared to that case, 60 people is a
small group in which to find a consensus. In response to a
follow-up question, he said the Snake River case lasted through
two administrations.
REPRESENTATIVE DOOGAN said that there are many factors in the
gas pipeline issue and stories that are told, some of which
change frequently; therefore, he said, the issue is more
multifaceted than just 60 people. He asked how to mediate
factors outside the control of the parties.
7:17:46 PM
MR. MCGOVERN related a story demonstrating that there are many
techniques in mediation. He talked about building enough trust
to make it safe for the information to come out, and he said
this tends to be done in baby steps. Regarding how to
ultimately reach a conclusion in less than six years in dealing
with the situation at hand, he reminded the legislators that
there are built-in incentives to encourage parties to "do
something sooner rather than later." People need to understand
the natural incentives that they have. He encouraged focusing
on the positive side of issues as a technique to use to "try to
put the frogs in the wheel barrow" and to produce a satisfying
outcome.
REPRESENTATIVE DOOGAN said if the problem is defined as trying
to ship gas, the problem is that there are "some factors in the
equation that get you to that solution that are outside the
control of any of the parties that you might try to get into ...
whatever system you had - mediation, negotiation." He asked Mr.
McGovern how he would handle that.
MR. MCGOVERN said that is not a problem unique to issues related
to natural resources. Sometimes a time frame helps, he related.
Another option is to guarantee a "floor," while the other side
"gets the risk." He offered an example. Still another way is
to share the risk in a particular formulaic way. For example,
the deal could be made that only certain triggers would re-open
the negotiations. A dispute resolution mechanism can be put in
place so that if something happens that the parties did not
foresee, it would then be possible to go to arbitration or some
sort of dispute resolution mechanism. Probably the best idea,
he related, is to put in place mandatory discussions all along
to build trust, because then, when problems arise, the parties
involved have "a leg up in dealing with what the solution might
be."
7:23:13 PM
REPRESENTATIVE DOOGAN surmised, "And this would apply equally to
situations in which you're trying to solve more than one
problem."
MR. MCGOVERN confirmed that is true. He said, "In these kinds
of cases, you have to design the methodology and the way in
which you look at the issues specifically to this case." He
talked about trying to analyze the situation and make use of the
variety of techniques.
SENATOR MCGUIRE explained to the body that the idea [behind
hearing this presentation] is to empower the legislature. She
stated her concern that the negotiation involved is high risk,
because exclusivity will be given to some entity, while "hoping
that the rest will follow." She said two years from now, during
open season, the people who have the gas will have little
incentive to cooperate with the people who have the entity with
the exclusive license, and she questioned what the solution
would be if that were to happen. Senator McGuire said she
thinks the solution would be litigation, a situation which would
conclude in years of opportunity being lost. She expressed her
hope that the body would recognize that there are many ways to
think about solving problems.
7:26:35 PM
MR. MCGOVERN said he loves looking at disputes and trying to
figure out solutions, and he stated that it has been an honor to
come to Alaska and talk to so many who really care about the
future of the state. He said even though everyone may not
agree, they have a common goal and there is a way to come to a
consensus.
REPRESENTATIVE GARA asked Mr. McGovern if he has a position on
the state's trying to settle a case with sophisticated partners
"if the other side hasn't approached you about settling," and if
he has an opinion on whether the state will be in a stronger
position to negotiate if it moves ahead with a competing
proposal.
MR. MCGOVERN responded that he is not comfortable addressing the
details. He related his experience is that if there is
disparate bargaining power, it is extremely difficult to get an
agreement. Usually, the party with the least bargaining power
will try to buy some time to see if its bargaining power might
increase. He said he would be surprised, based on what he heard
today, that Exxon would "sit on their hands." However, he said
the state will not know whether or not Exxon will negotiate in a
way the state finds acceptable until they actually sit down to
negotiate.
7:30:20 PM
REPRESENTATIVE SAMUELS warned that if Alaska grants a license to
TransCanada, the state will be stuck with a corporate entity
looking after its shareholders' interests. He stated his belief
that TransCanada will be part of the gas pipeline, but asked Mr.
McGovern what steps he would recommend if the legislation being
considered does not pass.
7:32:11 PM
MR. MCGOVERN responded that he would probably do the same thing
whether it passed or not, which is to talk independently to the
parties at the table, learn from them who else should be
involved, and conduct a mediation assessment. He explained that
a mediation assessment means talking with relevant parties to
find out if there are worthwhile deals to be made and
arrangements or solutions that should not be made. During this
process, he said, it is possible to discover whether there is a
"potential zone of agreement."
REPRESENTATIVE GUTTENBERG offered a hypothetical situation in
which the answer to getting gas in the ground to market is to
build a pipeline, but there is no movement of those "in the
room" until an "elephant" is invited in, at which point there is
a lot of movement and interest. He asked, "Do you send it home
or do you invite it in?"
MR. MCGOVERN said there are so many variables inherent in the
hypothetical situation that it would be difficult to [answer].
For example, he indicated he would need to know "exactly what
kind of elephant" and "how big the doorway is." He stated, "You
are at a detail level where I'm probably not in a position to
really give you an answer that would in any way be helpful to
you." He said he would be glad to discuss various approaches
with Representative Guttenberg after the meeting, but cannot
answer his generic question "in the context of the situation
right now."
REPRESENTATIVE GUTTENBERG clarified his concern is that many
legislators are in the situation of having to "answer that
question."
7:35:42 PM
REPRESENTATIVE GATTO told a story and asked if the state is in a
position where its legislators have the authority and the public
wants the legislators to make the decision regarding what to do.
MR. MCGOVERN posited that Alaska is not like the Lower 48,
because it is a sovereign entity. He said he thinks of how
Russia, Mexico, Saudi Arabia, and Dubai - other sovereigns -
have "dealt with the issue." The question is what the State of
Alaska's values are regarding resource extraction. He related
that historically, most populations are "not real fond of
whoever extracts the resource." He said the question is whether
Alaska can design a situation in which its people are happy
about and have no regrets regarding the extraction process.
7:40:54 PM
REPRESENTATIVE CISSNA talked about the effect of having face to
face discussions. She referred to the issue of trust and the
feelings of having or not having power. She asserted that the
members had more power than they felt and that set-up was
essential.
MR. MCGOVERN shared an anecdote and talked about the
difficulties of negotiating both with public entities and with
corporations. He concurred with Representative Cissna regarding
the importance of having face-to-face discussions. He added,
"But you really have to trust the folks across the way, and the
only way you get people to trust each other is by ... getting
together over time and critically picking the right people."
7:45:58 PM
SENATOR THERRIAULT, regarding Mr. McGovern's previous comment
regarding the power in the executive and legislative branches
being unified, said there are 60 people in the legislature. He
asked how, other than voting unanimously in agreement with the
executive branch, the legislature can express unity on behalf of
the citizens of the sovereign.
MR. MCGOVERN stated his respect for the collective ability of
the body, and said he could think of fifty other ways to
accomplish the same goal. He clarified that the state chooses
how it would like to deal with the classic problem of
representative democracy. He said there are other ways besides
voting unanimously that the legislature can express unanimity in
terms of having a unified approach in dealing with the producers
and with the pipeline, including doing more after voting.
SENATOR THERRIAULT asked what Mr. McGovern would suggest after
or in addition to taking that vote to show a "unanimous position
for the citizens."
MR. MCGOVERN expressed his discomfort in making a value
judgment. He stated, "Your innovativeness as a group to come up
with ideas to accomplish that goal will lead you to do whatever
you think is appropriate." He said he can talk about options,
but, as a mediator, it is not his role to tell any legislator or
person what he/she should do. He reiterated that there are any
number of methods that could be used to show a consolidated
front with the legislature and the governor.
7:51:06 PM
REPRESENTATIVE RAMRAS pointed out that many of the questions
were framed in the present. He said a vote will be cast soon.
He questioned what the next step will be for the legislature.
He spoke about open seasons in the future. He asked Mr.
McGovern to provide a response with "broad strokes" regarding
the future.
MR. MCGOVERN said that is an apt question. He opined that in
terms of getting people on board, "the bigger the tent the
better." He observed that "a little dysfunction" exists in
regard to the knowledge level of the administration, the
legislature, and the people as a whole. For example, he said
the focus of concern by those he heard speak in Ketchikan is on
fuel oil prices and pot holes rather than on "some of these
other kinds of issues." He said he views members of the
legislature as emissaries to the populace, "to help bring the
populace into the posture that when a realistic deal can indeed
be done, ... the populace is ready for it ... [and] will accept
it." One of the great dangers in public disputes is when the
leaders are "out in front" and change course to match the
realities of the situation, but they don't bring the populace
along with them. He indicated that the time it takes to ensure
that the people of Alaska are comfortable with the legislature's
stance regarding the extraction of natural resources is time
well spent.
7:55:37 PM
REPRESENTATIVE DAHLSTROM brought up Mr. McGovern's discussion of
Alaska, as a sovereign, being different from the Lower 48. She
noted that companies have told the legislature that they have
experience in the Lower 48, and she asked Mr. McGovern whether
he thinks that experience is meaningful in terms of what the
companies can do in Alaska.
MR. MCGOVERN responded that in Texas, for example, most of the
leases are private and most of the pipelines are owned by
independent entities. In contrast, in Alaska there is one
pipeline and the state owns the resource. He compared that to
the federal government in the gulf. He said that creates a
different dynamic. He concluded, "So the model ... that you
might look at would be more closely akin to the federal
government in the Gulf [of Mexico], rather than the State of
Texas in dealing with the natural resources that it has."
Because of the location of Alaska and the fact that "that
pipeline is going to be one pipeline rather than competing
interstate pipeline," there will be a different dynamic in terms
of the way the state comes up with a solution, which means that
the negotiations should be slightly different.
7:57:56 PM
REPRESENTATIVE ROSES said he concurs with Representative Samuels
that the state, at some point in time, will end up in
partnership "with all these entities"; therefore, he said the
question becomes who gets the state to that partnership the
fastest and with the greatest certainty. He noted that Mr.
McGovern had shown slides showing commonalities and some slides
showing differences. He listed the factors that are the same or
similar: gas, producers, steel, contractors, route, market,
market price, regulator, and tariffs. He noted that the only
difference that has been discussed since Mr. McGovern has been
present is fiscal certainty. He asked how that difference is
defined. He said with the Denali project, it appears that the
state is the entity that will have to negotiate what that fiscal
certainty is. With TransCanada, he observed, it appears the
state has hired the corporation to serve as a sort of real
estate agent to whom the state will pay a commission. He
indicated that TransCanada will negotiate with the producers to
figure out what it needs and then come back to the state for
approval. He asked Mr. McGovern how he would suggest getting
differences to be an area of commonality.
7:59:56 PM
MR. MCGOVERN said [the answer] is complex; "the interests aren't
aligned depending upon the issue." Interests between shippers
may be aligned, but interests between exploration and shipping
may not be particularly aligned. He said what has impressed him
is regarding "the devil in the details" and Exxon's analysis
heard today. He explained:
It was at a level of generality that I just could not
evaluate ..., because there are certain assumptions
embedded in the words, and as a result I think it is
so complex that any kind of simplistic analysis is
probably counter-productive. I think you can do it
sequentially; you can have the issues one after the
other. You identify the parties. That is, the
analysis you're doing is absolutely correct, only it
seems to me, to use the pun you used earlier today,
you need to dig a well on each one of those issues.
SENATOR MCGUIRE emphasized the importance of defining the
problem. She asked Mr. McGovern if he could see value in the
state's having some kind of mediation process prior to a vote,
during which Mr. McGovern would help the administration and the
legislature identify what the issues are that should be nailed
down. She offered further details.
MR. MCGOVERN said normally what CBI would do is a mediation
assessment, which, if there were more time, would involve an
evaluation of the interests of the parties to discern what might
be a logical way to reach an agreement "wherein the details
would be put on the table so that folks could understand it
completely." However, given the time frame "since Monday," he
said he does not feel comfortable doing that at this point. He
reiterated that there is no question in his mind that the
legislature will "put something together"; it is just a matter
of timing.
[HB 3001 and SB 3001 were heard and held.]
ADJOURNMENT
There being no further business before the committee, the Joint
House Rules Standing Committee and Senate Special Committee on
Energy meeting was adjourned at 8:03:52 PM.
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