Legislature(2007 - 2008)BELTZ 211

02/25/2008 01:30 PM Senate JUDICIARY


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01:36:30 PM Start
01:37:06 PM Transcanada Withdrawn Partners Liability Issues
02:42:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Tony Palmer, TransCanada TELECONFERENCED
Withdrawn Partners Liability Issues
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                       February 25, 2008                                                                                        
                           1:36 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Hollis French, Chair                                                                                                    
Senator Lesil McGuire                                                                                                           
Senator Bill Wielechowski                                                                                                       
Senator Gene Therriault                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Charlie Huggins, Vice Chair                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Presentation: Tony Palmer, TransCanada Withdrawn Partners                                                                       
Liability Issues                                                                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record.                                                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
TONY PALMER, Vice-President                                                                                                     
Alaska Business Development                                                                                                     
TransCanada Corporation                                                                                                         
Calgary, Alberta, Canada                                                                                                        
POSITION STATEMENT:  Provided information and responded to                                                                    
questions related to withdrawn partners and liability issues.                                                                   
                                                                                                                                
WILLIAM MOGEL, Consultant                                                                                                       
Legislative Budget and Audit                                                                                                    
Saul Ewing Attorneys at Law                                                                                                     
Washington D.C.                                                                                                                 
POSITION STATEMENT:  Responded to questions related to withdrawn                                                              
partners and liability issues.                                                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  HOLLIS   FRENCH  called  the  Senate   Judiciary  Standing                                                             
Committee meeting to order at 1:36:30  PM. Present at the call to                                                             
order  were Senators  French,  Therriault,  and McGuire.  Senator                                                               
Wielechowski arrived shortly thereafter.                                                                                        
                                                                                                                                
        ^TransCanada Withdrawn Partners Liability Issues                                                                    
                                                                                                                                
CHAIR FRENCH announced  the committee will hear  from Tony Palmer                                                               
with TransCanada and one other  witness on the topic of liability                                                               
that may  or may not exist  with respect to former  partners in a                                                               
previous gas pipeline proposal.                                                                                                 
                                                                                                                                
1:37:06 PM                                                                                                                    
TONY   PALMER,  Vice-President,   Alaska  Business   Development,                                                               
TransCanada Corporation,  explained that  about 30 years  ago the                                                               
ANNGTC  (Alaska  Northwest  Natural Gas  Transportation  Company)                                                               
partnership was formed to pursue  the Alaska portion of a natural                                                               
gas pipeline project. In 1976  Congress passed the Alaska Natural                                                               
Gas  Transportation Act  (ANGTA) for  the Alaska  section of  the                                                               
project. It had nothing to do with the Canadian section.                                                                        
                                                                                                                                
MR. PALMER  said that in  November 2007 the two  remaining ANNGTC                                                               
partners,   both  of   which  are   controlled  by   TransCanada,                                                               
considered  whether  or  not  they  could  or  should  submit  an                                                               
application for  the AGIA  license. "We  concluded that  we would                                                               
not  do  so  due  to   the  uncertainties  from  some  historical                                                               
contingent  liabilities." He  said he  will explain  that in  the                                                               
course  of his  presentation. He  will  also make  it clear  that                                                               
ANNGTC made no  application under AGIA and has played  no role in                                                               
the  application that  two other  TransCanada  entities did  make                                                               
under AGIA.                                                                                                                     
                                                                                                                                
1:38:53 PM                                                                                                                    
CHAIR FRENCH  added that  the two  remaining partners  are United                                                               
Alaska  Fuels Corporation  (UAFC) and  TransCanada Pipelines  USA                                                               
and when  the partnership document  was executed, UAFC  was owned                                                               
by United  Gas Pipeline Company  (UGPC). He asked if  that entity                                                               
was  part of  the  TransCanada family  when  the partnership  was                                                               
formed.                                                                                                                         
                                                                                                                                
MR.  PALMER  said  no,  UGPC was  an  independent  U.S.  pipeline                                                               
company  called United  Corporation.  A  subsidiary of  Foothills                                                               
Pipeline Ltd. purchased UAFC in the early 1990s.                                                                                
                                                                                                                                
MR. PALMER  reiterated that ANNGTC  was formed in 1970s  to build                                                               
the  Alaska section  of the  pipeline. The  11 original  partners                                                               
comprised the  bulk of  the U.S. pipeline  industry at  the time.                                                               
Through the 1980s and 1990s  partners withdrew until just the two                                                               
aforementioned  TransCanada  subsidiaries   remained.  Under  the                                                               
partnership agreement all  rights to be treated  as partners were                                                               
forfeited  when they  withdrew. Section  15.9 of  the partnership                                                               
agreement specifically  states that  the withdrawn  partners have                                                               
rights  for certain  contractual  payments and  no other  rights.                                                               
Pursuant  to  the  Palin  Administration's  request,  TransCanada                                                               
supplied  the partnership  agreement  and  responded to  specific                                                               
questions.                                                                                                                      
                                                                                                                                
CHAIR FRENCH  asked what was  happening in the gas  business that                                                               
caused the other partners to withdraw.                                                                                          
                                                                                                                                
MR.  PALMER  summarized  that  the  project  was  formulated  and                                                               
received approvals  in the mid  to late 1970s and  completion was                                                               
to be in the early 1980s. However,  in the late 1970s a number of                                                               
changes occurred  in the natural  gas business  including changes                                                               
in the supply/demand balance and in  the price of natural gas. At                                                               
that  time both  the  U.S. and  Canada went  from  a shortage  of                                                               
natural gas to  a period of surplus. Despite the  best efforts of                                                               
the sponsors  and governments  on both sides  of the  border, the                                                               
project  was deferred.  By 1981  it  was clear  that the  project                                                               
wouldn't  proceed on  schedule, but  there would  be delivery  of                                                               
"prebuild"  gas  from  Western  Canada.  "In  1981  and  1982  we                                                               
constructed-in  Canada-the prebuild  sections of  this project  …                                                               
because  the Alaska  project  was going  to  be deferred-at  that                                                               
point-for 7  years." As  time passed  more gas  was found  in the                                                               
Lower 48 and Canada and gas  prices dropped. Clearly in the short                                                               
term the gas  wasn't needed. Between 1981 and  1984 partners were                                                               
withdrawing. "That is what was  happening in the gas business and                                                               
the result  for this project  was deferral. As we've  seen today,                                                               
that project has been deferred an additional 25 years."                                                                         
                                                                                                                                
1:43:57 PM                                                                                                                    
SENATOR WIELECHOWSKI joined the meeting.                                                                                        
                                                                                                                                
SENATOR  THERRIAULT  noted   that  withdrawn  partners  forfeited                                                               
rights  to be  treated as  partners,  but they  were entitled  to                                                               
contractual rights.  He asked if they  obtained those contractual                                                               
rights at the time that they withdrew.                                                                                          
                                                                                                                                
MR.  PALMER   explained  that  Section  4.4.4   of  the  original                                                               
partnership agreement  gave partners specific  contractual rights                                                               
for repayment  under certain circumstances. The  thought was that                                                               
a partner that  withdrew would have an  opportunity for repayment                                                               
of the original capital contribution  plus a return. The original                                                               
partners contributed  about $24  million each. The  original cost                                                               
of capital rate approved by FERC  was 14 percent. Had the project                                                               
proceeded  in the  early 1980s,  the assets  that were  developed                                                               
would  have  been  used  to develop  the  project.  Those  assets                                                               
included  engineering   environmental  and  legal  work   to  get                                                               
permits; a certificate from FERC;  and rights of way. The project                                                               
didn't  go  forward but  the  contractual  right to  payment  was                                                               
specific and in the original partnership agreement.                                                                             
                                                                                                                                
1:46:36 PM                                                                                                                    
MR. PALMER  said the withdrawn  partners are entitled  to payment                                                               
only in  certain circumstances. First  is when ANNGTC  builds the                                                               
pipeline,  which it  does  not contemplate  doing.  Second is  if                                                               
payment would not cause undue hardship on the partnership.                                                                      
                                                                                                                                
1:47:28 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if any  of the withdrawn partners have                                                               
indicated they  are owed payment  or if  they have been  asked to                                                               
sign a waiver of rights.                                                                                                        
                                                                                                                                
MR. PALMER replied  no withdrawn partner has  filed or threatened                                                               
to  file a  claim against  the  partnership. "We  would not  have                                                               
expected   one.  This   partnership  has   not  constructed   the                                                               
pipeline." Several  years ago  TransCanada tried  to reconstitute                                                               
the  partnership with  the withdrawn  partners but  that was  not                                                               
successful. "But  they have never posed  a claim to us  in the 30                                                               
years of the partnership."                                                                                                      
                                                                                                                                
CHAIR FRENCH  read the  final sentence  in Section  4.4.4(i) that                                                               
says, "This  right of reimbursement  shall be subordinate  to the                                                               
rights  of any  creditor of  the Partnership."  He asked  what it                                                               
means   from  a   business  perspective   to  have   debt  that's                                                               
subordinate to someone else's.                                                                                                  
                                                                                                                                
MR. PALMER  said it  means that  not only  must ANNGTC  build the                                                               
pipeline and not only must  any payment not impose undue hardship                                                               
on  the partnership,  but if  there are  creditors this  right of                                                               
reimbursement   would   stand   behind    that.   In   terms   of                                                               
prioritization, this  claim would stand  below any debt  that was                                                               
financed. Clearly you wouldn't expect  parties that might finance                                                               
this project  to agree to be  behind such a potential  claim from                                                               
former equity holders since it's risen  to $9 billion. That is 24                                                               
million for  each party  compounded at 14  percent for  30 years.                                                               
Clearly  the original  assets that  were developed  don't have  a                                                               
value anywhere near that.                                                                                                       
                                                                                                                                
1:51:14 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if dissolution  documents have  been                                                               
filed and when the last partnership meeting took place.                                                                         
                                                                                                                                
MR.  PALMER replied  there have  been  no dissolution  agreements                                                               
filed and  the last  partnership meeting  was held  several years                                                               
ago.  Other  than  the   unsuccessful  reconstitution  effort  by                                                               
TransCanada subsidiaries  in the  early part  of the  decade, the                                                               
partnership has been relatively inactive for several years.                                                                     
                                                                                                                                
CHAIR FRENCH  noted that the  last partner withdrew 14  years ago                                                               
in 1994 leaving  two partners that are  wholly owned subsidiaries                                                               
of TransCanada.                                                                                                                 
                                                                                                                                
MR.   PALMER   clarified   they're   indirect   subsidiaries   of                                                               
TransCanada. He  continued to say that  the remaining TransCanada                                                               
partners  in ANNGTC  are not  the AGIA  applicants and  they have                                                               
neither  current nor  future duties  to  the withdrawn  partners.                                                               
Also,  neither the  two remaining  TransCanada  partners nor  any                                                               
other  TransCanada   entity  owes  any  duty   to  the  withdrawn                                                               
partners. "We have  no obligation to continue  pursuing a project                                                               
that  was formulated  some 30  years ago…where  the last  partner                                                               
withdrew some  14 years ago."  There is not a  non-compete clause                                                               
in  that  partnership  agreement  and no  TransCanada  entity  is                                                               
prohibited  from  pursuing  a different  project.  When  Congress                                                               
passed  ANGPA in  2004 that  enabled  other parties  to pursue  a                                                               
project under a specific piece of legislation.                                                                                  
                                                                                                                                
MR.  PALMER said  with regard  to TransCanada's  AGIA applicants,                                                               
there are  two separate  entities to pursue  the project  in each                                                               
country  -  Foothills  Pipelines  in Canada  under  the  Northern                                                               
Pipeline Act and  TransCanada Alaska Company LLC  in Alaska under                                                               
ANGPA.  "The co-applicants  are  not, nor  have  they ever  been,                                                               
partners   in  ANNGTC.   They  are   completely  separate   legal                                                               
entities."  The AGIA  application also  does not  contemplate the                                                               
use  of  any assets  owned  by  ANNGTC.  So the  original  assets                                                               
developed  by that  partnership have  not  and will  not be  used                                                               
going forward.                                                                                                                  
                                                                                                                                
CHAIR FRENCH asked him to expound upon what those assets are.                                                                   
                                                                                                                                
MR. PALMER replied they include  the original FERC certificate, a                                                               
federal  right  of  way, coastal  zone  management  permits,  and                                                               
extensive engineering and geotechnical work.                                                                                    
                                                                                                                                
CHAIR FRENCH asked if the FERC  certificate is the same type that                                                               
will be pursued under a new pipeline proposal.                                                                                  
                                                                                                                                
MR.  PALMER   replied  the  certificates  are   similar  but  not                                                               
identical.                                                                                                                      
                                                                                                                                
1:55:21 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if the  Canadian rights of  way (ROW)                                                               
belong to the partnership.                                                                                                      
                                                                                                                                
MR.  PALMER  said  no;  the structure  in  Canada  is  completely                                                               
separate from  the one in  the United States. The  legal entities                                                               
are  separate, the  regulatory approvals  are  separate, and  the                                                               
pipelines were to physically interconnect at the border.                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  any information  obtained through                                                               
the  ANNGTC  partnership   is  being  used  to   pursue  an  AGIA                                                               
application.                                                                                                                    
                                                                                                                                
MR. PALMER replied, "We have used none; we intend to use none."                                                                 
                                                                                                                                
MR. PALMER said  to follow on the previous  question he'd address                                                               
the Canadian  section of  the line.  He explained  that Foothills                                                               
Pipelines  Ltd.  was  certificated under  the  Canadian  Northern                                                               
Pipeline  Act to  build  the Canadian  section  of the  pipeline.                                                               
Foothills Pipelines Ltd. is a  separate legal entity from ANNGTC.                                                               
TransCanada owns  100 percent of  Foothills today. "There  are no                                                               
withdrawn  partner  issues  in   Canada.  There  never  were  any                                                               
withdrawn partner  issues in Canada.  Foothills has  no potential                                                               
future  contingent  liability  and   ANNGTC  does  not  hold  any                                                               
authorizations under  the Northern Pipeline Act  or otherwise for                                                               
any  facilities in  Canada.  And vice  versa  Foothills holds  no                                                               
certificates in the U.S. under ANGTA."                                                                                          
                                                                                                                                
MR. PALMER  said that  TransCanada Alaska  Company LLC  will deal                                                               
with  the Alaska  side of  the border  for the  application under                                                               
AGIA. That  entity has no  liability to ANNGTC  or to any  of the                                                               
withdrawn  partners.   The  application  contemplates   that  the                                                               
capital expenditures and the scheduling will start from scratch.                                                                
                                                                                                                                
     When ANNGTC looked in the fall  as to whether or not it                                                                    
     should  pursue the  project, it  examined a  contingent                                                                    
     liability  of  potentially  $9 billion  growing  at  14                                                                    
     percent a year versus the  value of those assets, which                                                                    
     were significantly  diminished from what they  had been                                                                    
     30  years ago  when the  project was  going to  proceed                                                                    
     immediately. We  also considered the cost  to construct                                                                    
     the Alaska component of the  project. Those of you that                                                                    
     have examined  in detail our application  would see the                                                                    
     capital cost of constructing  the Alaska portion of the                                                                    
     project is  in the order  of $10 billion. We  knew that                                                                    
     ANNGTC  could  not  compete  with  any  third-party  by                                                                    
     incurring $10 billion to construct  the project plus an                                                                    
     additional 9  [$9 billion] and be  competitive with any                                                                    
     third party. That was impossible.  We concluded that it                                                                    
     was not viable to proceed.                                                                                                 
                                                                                                                                
     Also the…administration asked us  a key question and we                                                                    
     responded…earlier this  year that we've put  forward an                                                                    
     additional  safeguard.  In  the highly  unlikely  event                                                                    
     that  there's ever  a claim  comes home  to TransCanada                                                                    
     from any  of these  withdrawn partners  and we  have to                                                                    
     pay money to  those-and I hope we've  described for you                                                                    
     that we think  that will never occur-but if  it does we                                                                    
     will not include  it in the rates to  the customers. We                                                                    
     think that's the critical issue  for shippers. We think                                                                    
     that's  the  critical  issue  for  the  state  that  is                                                                    
     clearly a  tax collector  and royalty  collector. We've                                                                    
     made that  clearly and definitively in  our response to                                                                    
     a request from the state.                                                                                                  
                                                                                                                                
CHAIR FRENCH  added that an  independent attorney also  looked at                                                               
the issue and  decided that the contingent  liability couldn't be                                                               
added to rate payers.                                                                                                           
                                                                                                                                
1:59:29 PM                                                                                                                    
MR. PALMER,  turning to  other issues,  explained that  last week                                                               
ANNGTC withdrew the application it  filed in 2004 under the state                                                               
ROW Act. ANNGTC has  held and paid for a federal  ROW for 20 some                                                               
years,  but that  will  expire in  2010.  The TransCanada  Alaska                                                               
Company LLC has no rights to  that federal ROW and it wasn't used                                                               
in its AGIA application. "TransCanada  Alaska Company LLC intends                                                               
to submit new applications according  to our schedule in 2011 for                                                               
both federal  and state  rights of way  for the  pipeline project                                                               
proposed in our AGIA application."                                                                                              
                                                                                                                                
MR.  PALMER emphasized  that ANNGTC  believes there  would be  no                                                               
merit to  any claim that  a TransCanada entity would  be required                                                               
to pay  ANNGTC's contingent obligations to  withdrawn partners if                                                               
the pipeline project  proposed in the AGIA  application is placed                                                               
in  service. Since  TransCanada  entities have  no liability,  it                                                               
necessarily follows  that other  parties involved in  the project                                                               
wouldn't either. "Our  co-applicants have already unconditionally                                                               
and unequivocally committed  not to include in  the project rates                                                               
any  amounts  that any  TransCanada  entity  may somehow  in  any                                                               
unlikely case be required to pay  as a result of those contingent                                                               
claims." He reiterated  that no claim has ever been  made or even                                                               
threatened by withdrawn partners.                                                                                               
                                                                                                                                
MR. PALMER summarized the AGIA  application by TransCanada Alaska                                                               
Company LLC has  nothing to do with ANNGTC, its  long history, or                                                               
its  contingent obligation  to withdrawn  partners.  A claim  has                                                               
never been made or threatened  by withdrawn partners. TransCanada                                                               
has  offered  an  additional  safeguard  by  indicating  that  it                                                               
commits to  never including any  potential ANNGTC  liabilities in                                                               
project tolls.  "Although this matter  has been  debated somewhat                                                               
in the press,  we hope we have been fully  responsive both to the                                                               
administration and to this committee today."                                                                                    
                                                                                                                                
2:02:12 PM                                                                                                                    
CHAIR  FRENCH  highlighted two  areas  where  the public  may  be                                                               
confused. One is  the overlap in the  corporate structure between                                                               
former ANNGTC partners and current  AGIA partners. Referring to a                                                               
corporate flowchart he said it appears  as though one of the AGIA                                                               
partners  is a  wholly owned  subsidiary of  TransCanada Pipeline                                                               
USA Ltd.  and a former ANNGTC  partner. On the other  side of the                                                               
corporate structure  a former ANNGTC  member is at the  bottom of                                                               
the corporate  chart and an  AGIA applicant  is above it.  To the                                                               
layman  it appears  as though  there's a  corporate overlap  even                                                               
though they're  clearly distinct  legal entities from  a business                                                               
standpoint.                                                                                                                     
                                                                                                                                
MR. PALMER responded as follows:                                                                                                
                                                                                                                                
     Clearly  as  a business  man,  those  are separate  and                                                                    
     distinct   legal    entities.   And   there    are   no                                                                    
     obligations…firstly  for the  ANNGTC partners  that are                                                                    
     remaining  in  TransCanada's   corporate  structure  to                                                                    
     pursue  this project.  They have  no obligation  to the                                                                    
     withdrawn  partners  to  pursue the  project.  Many  of                                                                    
     those withdrawn  partners withdrew  some 25  years ago.                                                                    
     As  you  described,   the  last  non-TransCanada  party                                                                    
     withdrew 14  years ago. …  They are no  longer pursuing                                                                    
     this project under ANNGTC. They  are not precluded from                                                                    
     competing  for this  project-could  have  made an  AGIA                                                                    
     application. In  fact, some of the  parent companies of                                                                    
     the  former  partners  at least  considered  making  an                                                                    
     application  under   AGIA.  They  had   no  non-compete                                                                    
     obligations   as  did   not   the  TransCanada   ANNGTC                                                                    
     remaining  partners. So  there  is  no obligation  from                                                                    
     TransCanada's entities that remain  in ANNGTC to pursue                                                                    
     that project.  They have no  obligations to  the ANNGTC                                                                    
     partners other  than a contractual right  to payment if                                                                    
     ANNGTC  completes the  project. I've  described to  you                                                                    
     why ANNGTC  is not a  viable entity and  cannot proceed                                                                    
     with  it.  So that  firstly  deals  with the  remaining                                                                    
     TransCanada  entities.   If  those  entities   are  not                                                                    
     precluded  from  pursuing  a  different  project,  then                                                                    
      surely the separate and distinct legal entities that                                                                      
         we've put forward are not obliged and have no                                                                          
     obligations to those original partners.                                                                                    
                                                                                                                                
2:05:35 PM                                                                                                                    
SENATOR McGUIRE asked why the partnership wasn't dissolved.                                                                     
                                                                                                                                
MR.  PALMER  replied  TransCanada  will  have  to  consider  that                                                               
circumstance  in  the future,  but  at  present it's  focused  on                                                               
pursuing  the  AGIA  application.  There  isn't  any  urgency  to                                                               
dissolve  the partnership,  but the  remaining two  partners have                                                               
concluded  that ANNGTC  can never  viably advance  a project.  He                                                               
understands why the  question is posed but it  doesn't affect the                                                               
AGIA application or the project if it proceeds.                                                                                 
                                                                                                                                
2:07:28 PM                                                                                                                    
CHAIR FRENCH pointed  out that from a public  perspective the two                                                               
projects overlap.  The former  partnership was  going to  build a                                                               
pipeline  along  the highway  route  to  Canada and  the  current                                                               
proposal is for different subsidiaries  to build a pipeline along                                                               
the same general  route. He asked if it's a  different project or                                                               
if it's  a different  set of  subsidiaries building  the pipeline                                                               
that makes it different.                                                                                                        
                                                                                                                                
MR. PALMER  replied there  are some  similarities, but  there are                                                               
also  clear  distinctions  between the  project  contemplated  by                                                               
ANNGTC 30 years  ago versus the project today.  They are separate                                                               
legal entities  operating under separate legislation.  ANNGTC was                                                               
pursuing  a project  under ANGTA  while  the current  TransCanada                                                               
applicant within Alaska  is pursuing a project  under ANGPA. Both                                                               
projects  are to  build a  pipeline  along a  similar route  from                                                               
Prudhoe Bay to the Alaska/Yukon  border. The current project will                                                               
connect at  the border  with Foothills  Pipelines. Just  as there                                                               
was no commercial connection before,  there will be no commercial                                                               
connection  under the  AGIA application.  Also it's  been clearly                                                               
stated  that   TransCanada  owns   100  percent  of   ANNGTC  and                                                               
TransCanada Corporation  owns 100  percent of  TransCanada Alaska                                                               
Company LLC so there are  no withdrawn partnership issues because                                                               
TransCanada is the only owner.                                                                                                  
                                                                                                                                
2:10:17 PM                                                                                                                    
CHAIR  FRENCH asked  about physical  differences between  the two                                                               
projects such as pipe size and thruput.                                                                                         
                                                                                                                                
MR. PALMER  said the original  project expected the volume  to be                                                               
2.3  bcf/day and  pipe diameters  varied. Some  were smaller  and                                                               
some  were larger.  At that  time there  were no  restrictions on                                                               
diameter,  volume  or pressure.  Today  the  pressure is  clearly                                                               
higher and hopefully  the volume will be 4.5  bcf/day. The actual                                                               
route  hasn't  been  defined  but  it's expected  to  be  a  very                                                               
similar.                                                                                                                        
                                                                                                                                
CHAIR  FRENCH asked  if FERC  certification happened  before open                                                               
season 30 years ago. He  understands that now open season happens                                                               
first.                                                                                                                          
                                                                                                                                
2:12:04 PM                                                                                                                    
MR. PALMER explained that the  gas business was very different 30                                                               
years ago  and he doesn't recall  that there was an  open season.                                                               
He believes  that all the  original pipelines that  were partners                                                               
were merchant  pipelines, meaning that  they bought gas  and sold                                                               
it to  local distribution companies.  They did not  transport gas                                                               
for  third parties  as is  done exclusively  today. The  original                                                               
partnership  agreement  indicates  that almost  all  the  parties                                                               
intended to  become shippers. Only  TransCanada Alaska  said only                                                               
that it may become a shipper.                                                                                                   
                                                                                                                                
SENATOR McGUIRE asked  if he knows of any  legal opinions related                                                               
to piercing  the corporate veil  and other issues he  raised that                                                               
might be helpful to the committee.                                                                                              
                                                                                                                                
MR. PALMER  said that  any discussions  that TransCanada  has had                                                               
with its  attorneys are subject to  privilege. The administration                                                               
asked the same question and received the same answer.                                                                           
                                                                                                                                
2:14:12 PM                                                                                                                    
CHAIR  FRENCH  relayed that  he  asked  legislative legal  for  a                                                               
memorandum about  piercing the corporate  veil and that's  in the                                                               
packet.  Copies  are  available to  any  interested  reporter  or                                                               
member of the public, he added.                                                                                                 
                                                                                                                                
SENATOR WIELECHOWSKI asked  if any of the  withdrawn partners got                                                               
back any of their original investment.                                                                                          
                                                                                                                                
MR. PALMER  replied they did  not receive any refund  of original                                                               
capital  contributions. Under  Section  4.4.4 withdrawn  partners                                                               
received   a  contractual   right  to   recover  their   original                                                               
contributions plus a return  under the aforementioned conditions.                                                               
Exiting partners often  leave behind any rights,  but that wasn't                                                               
the case here. "If the project  was constructed by ANNGTC and the                                                               
other conditions were  met, they had an  opportunity for recovery                                                               
of their original contributions plus a return."                                                                                 
                                                                                                                                
2:15:33 PM                                                                                                                    
SENATOR  THERRIAULT asked  if he  agrees with  the legal  opinion                                                               
that FERC wouldn't  allow TransCanada to charge  back through the                                                               
tariff structure any of the potential $9 billion liability.                                                                     
                                                                                                                                
MR.  PALMER replied  that he  read  the legal  opinion but  since                                                               
TransCanada  has  unequivocally  stated  that  it  wouldn't  seek                                                               
repayment he didn't give it extensive review.                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  asked what work  was done as  a partnership                                                               
to  advance  the project  after  the  11 original  partners  each                                                               
contributed about $25 million.                                                                                                  
                                                                                                                                
MR.  PALMER  explained  that   the  partnership  was  formulating                                                               
applications  to FERC,  it  was doing  engineering  work, it  was                                                               
doing environmental work, and it was  doing field work. It was on                                                               
a  path to  complete the  project.  The partnership  did in  fact                                                               
obtain a  FERC certificate and  other permits. It did  the normal                                                               
work that a pipeline group -  partnership as opposed to company -                                                               
would do to  advance and complete a project and  be ready to move                                                               
forward to  construction. That's what  the $250 some  million was                                                               
expended on.  "But at the  point where  the project was  going to                                                               
proceed  the  marketplace   changed."  That  changed  marketplace                                                               
didn't  allow the  project to  get customers  or go  forward. The                                                               
ultimate  result was  a failed  project.  By 1981  some of  those                                                               
original  partners  were  withdrawing despite  having  spent  $24                                                               
million just three years earlier.                                                                                               
                                                                                                                                
2:19:25 PM                                                                                                                    
SENATOR  THERRIAULT asked  about  the report  to  FERC about  the                                                               
escalating debt and if there's been a similar report every year.                                                                
                                                                                                                                
MR.  PALMER explained  that  each year  through  2006 ANNGTC  has                                                               
filed FERC  Form No.  2. It  describes the  contingent liability,                                                               
calculates the  number, adds the annual  AFUDC, and theoretically                                                               
puts forward  an asset value.  Clearly though, neither  the asset                                                               
nor the  contingent liability  exist. The  final footnote  in the                                                               
FERC Form No.  2 refers to the key contingency  on the liability.                                                               
That is  that ANNGTC is not  required to make the  filing because                                                               
today  it isn't  a  natural  gas pipeline.  Perhaps  some of  the                                                               
confusion  stems  from  ANNGTC   having  made  those  voluntarily                                                               
filings, he said.                                                                                                               
                                                                                                                                
2:21:16 PM                                                                                                                    
WILLIAM MOGEL, Attorney, Saul Ewing  Attorneys at Law, Washington                                                               
D.C., explained  that he  was retained by  the LB&A  Committee to                                                               
assist on legal matters arising from the AGIA process.                                                                          
                                                                                                                                
CHAIR  FRENCH  asked  him  to summarize  his  reasoning  and  the                                                               
conclusions he came  to in the 1/15/2008  memorandum with respect                                                               
to payment allegations of the ANNGTC withdrawn partners.                                                                        
                                                                                                                                
MR. MOGEL explained that he was  asked to look at the question as                                                               
a  FERC  expert  to  answer  whether or  not  FERC  would  permit                                                               
TransCanada LLC and Foothills Pipelines  Ltd. to recover, through                                                               
the rates of  their proposed AGIA pipeline,  the approximately $9                                                               
billion in  obligations to withdrawn partners.  He concluded that                                                               
FERC would  not permit that  for two primary reasons.  First, the                                                               
AGIA  applicants  for the  Alaskan  portion  are different  legal                                                               
entities from the [ANNGTC] partnership.  Second, the $250 million                                                               
plus  interest that  was expended  were not  costs that  would be                                                               
used  and useful  to a  new pipeline  company. It's  long been  a                                                               
hallmark of public utility regulation  that to allow a company to                                                               
recover a  return on an asset,  it must be both  used and useful.                                                               
This wouldn't be construed that way, he said.                                                                                   
                                                                                                                                
2:24:12 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if he's  familiar with partnership law                                                               
and if  he's aware  of the  facts of  the ANNGTC  partnership. In                                                               
particular he's  referring to Section  4.4.4(i) and if he  has an                                                               
opinion  on whether  withdrawn  partners would  have  a right  to                                                               
repayment if the pipeline proceeds.                                                                                             
                                                                                                                                
MR. MOGEL  replied he's generally  familiar with  partnership law                                                               
and  he  has  reviewed  the  partnership  agreement  that's  been                                                               
referred to  today. He  believes that under  the language  in the                                                               
aforementioned section, the withdrawn  partners would only have a                                                               
right  to repayment  under the  conditions Mr.  Palmer described.                                                               
That is  if the  partnership line became  operational and  if the                                                               
repayment could  be made without causing  undue hardship. "That's                                                               
the clear meaning of that language as far as I'm concerned."                                                                    
                                                                                                                                
2:25:35 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if the withdrawn  partners would have                                                               
a right to  repayment if TransCanada did build a  line and it was                                                               
operational.                                                                                                                    
                                                                                                                                
MR. MOGEL replied, "If the  partnership built the Alaskan portion                                                               
of the pipeline it'd  be my view that they would  have a right to                                                               
recover their  investment plus  interest. But  not 'TransCanada,'                                                               
it'd be the partnership as the legal entity."                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  responded, "Even though TransCanada  was an                                                               
important partner  to this  partnership program  and the  plan is                                                               
very similar if not identical to  what had been discussed in this                                                               
agreement, it's  your opinion that the…withdrawn  partners - this                                                               
partnership -  would not have  any right to  receive compensation                                                               
under 4.4.4 or any other provision of this contract."                                                                           
                                                                                                                                
MR. MOGEL explained  that if the partnership was one  of the AGIA                                                               
applicants of TransCanada and it  built the Alaska segment of the                                                               
line, Section 4.4.4 gives withdrawn  partners certain rights upon                                                               
the happening of two conditions                                                                                                 
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if he's  saying that  if one  of the                                                               
partners of the original partnership goes  on its own to create a                                                               
pipeline  that  is  similar  to   the  one  contemplated  in  the                                                               
partnership, they would not be  entitled to any benefit under the                                                               
contract in that scenario.                                                                                                      
                                                                                                                                
MR. MOGEL told  him that he's raising a different  issue. What he                                                               
reviewed  and  spoke  to  in  the  memorandum  was  the  specific                                                               
language of  the partnership agreement.  "There may be  other law                                                               
that may be involved  here as to what right if  any a partner has                                                               
to former  partners. But that  is not  something I covered  in my                                                               
memorandum and it's not something I've looked at."                                                                              
                                                                                                                                
2:28:00 PM                                                                                                                    
SENATOR WIELECHOWSKI  said he realizes  it wasn't covered  in the                                                               
memorandum; he was just curious if he had an opinion.                                                                           
                                                                                                                                
MR. MOGEL replied  his opinion is that it's a  good question on a                                                               
different issue.                                                                                                                
                                                                                                                                
SENATOR  McGUIRE suggested  the committee  look at  the issue  of                                                               
partnership  law  and  specifically  Sections  15.2-15.9  of  the                                                               
partnership   agreement.  Section   15.8  makes   it  clear   the                                                               
partnership  continues  to  exist   until  there's  an  event  of                                                               
dissolution. It  specifies that  when new  partners are  added or                                                               
when  partners  withdraw  the   partnership  will  continue.  She                                                               
suggested  the  committee ask  what  rights  and obligations  any                                                               
partnership might have to  a succeeding partnership. Intellectual                                                               
property could be involved, for example.                                                                                        
                                                                                                                                
SENATOR  WIELECHOWSKI suggested  that  the  committee might  want                                                               
answers  to these  questions. He  understands that  FERC may  not                                                               
allow  the contingent  liability to  be added  to the  tariff and                                                               
that's  good,  but if  TransCanada  has  a potential  $9  billion                                                               
contingent liability that's a concern for everyone.                                                                             
                                                                                                                                
2:30:23 PM                                                                                                                    
CHAIR  FRENCH summarized  that Mr.  Mogel  gave two  conclusions.                                                               
First  that there  wouldn't be  a  liability and  second that  if                                                               
there was  a liability  it wouldn't  be added  to the  tariff. He                                                               
asked him expand on the second conclusion.                                                                                      
                                                                                                                                
MR. MOGEL  explained that  the information  that was  prepared in                                                               
connection  with the  filing in  the  late 1970s  with regard  to                                                               
route,   capacity,  pipeline,   etcetera  probably   wouldn't  be                                                               
applicable  in today's  environment.  If that  same legal  entity                                                               
were to  go before FERC  to recover the original  investment plus                                                               
interest, he  believes that FERC would  say that the work  is out                                                               
of date  and it's not used  and useful in the  proposed pipeline.                                                               
Thus there  is no  opportunity for  recovery or  a return  on the                                                               
investment.                                                                                                                     
                                                                                                                                
2:31:48 PM                                                                                                                    
CHAIR FRENCH asked what the basis is for that rule.                                                                             
                                                                                                                                
MR. MOGEL replied it's an old  rule in utility law that a utility                                                               
is only  able to recover a  return on an investment  that is used                                                               
and  useful  for  the  ratepayer. For  example,  if  an  Illinois                                                               
natural gas  utility purchased  a golf  course in  California and                                                               
then tried to recover the cost  of the acquisition, it would have                                                               
difficulty proving  that the  golf course is  used and  useful to                                                               
the Illinois ratepayers.                                                                                                        
                                                                                                                                
CHAIR  FRENCH summarized  the reasoning,  which is  that even  if                                                               
several  unlikely events  happened and  TransCanada and  the AGIA                                                               
partners found  themselves saddled  with the  enormous liability,                                                               
none  of  the  expenditures  would  be  used  or  useful  in  the                                                               
construction of the current AGIA pipeline.                                                                                      
                                                                                                                                
MR.   MOGEL  clarified   that  his   conclusion  would   be  that                                                               
significantly all,  rather than  none, of the  expenditures would                                                               
not be used or useful.                                                                                                          
                                                                                                                                
CHAIR FRENCH asked Mr. Palmer if  he'd like to address any of the                                                               
issues Mr. Mogel raised.                                                                                                        
                                                                                                                                
2:34:01 PM                                                                                                                    
MR. PALMER restated that the  TransCanada AGIA applicants are not                                                               
and never  have been partners  in ANNGTC. "They are  separate and                                                               
distinct  entities." TransCanada  Alaska Co.,  LLC and  Foothills                                                               
Pipelines Ltd. never have been  partners in ANNGTC and the ANNGTC                                                               
partners  do  not plan  to  build  the pipeline  they  originally                                                               
contemplated.  Since  ANNGTC  is not  constructing  the  original                                                               
project it does  not have a liability to  the withdrawn partners.                                                               
It  follows  that  separate  and  distinct  entities  pursuing  a                                                               
separate and distinct project also would not have any liability.                                                                
                                                                                                                                
SENATOR WIELECHOWSKI, referring to the  list of partners on pages                                                               
1-2 of  the partnership agreement, asked  with which organization                                                               
he was affiliated.                                                                                                              
                                                                                                                                
MR. PALMER explained that in  1978 TransCanada was not affiliated                                                               
with  any of  the listed  entities. However,  in the  early 1990s                                                               
Foothills  Pipelines Alaska  Inc. purchased  United Alaska  Fuels                                                               
Corporation, which is  listed as a party on page  2, Section 1.6,                                                               
of the  1978 ANNGTC partnership agreement.  TransCanada Pipelines                                                               
USA  Ltd. joined  the partnership  in 1980.  That is  outlined in                                                               
Amendment No. 3, page 3, Section 1.11.                                                                                          
                                                                                                                                
At ease from 2:38:39 PM to 2:42:03 PM.                                                                                      
                                                                                                                                
CHAIR  FRENCH thanked  Mr. Palmer  and adjourned  the meeting  at                                                               
2:42:21 PM.                                                                                                                   

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