Legislature(2007 - 2008)BUTROVICH 205

02/06/2008 03:30 PM Senate RESOURCES


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03:42:00 PM Start
03:43:32 PM Presentation: Transcanada Agia Application - Tony Palmer
05:37:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: TransCanada TELECONFERENCED
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled, if TELECONFERENCED
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                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                        February 6, 2008                                                                                        
                           3:42 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Charlie Huggins, Chair                                                                                                  
Senator Bert Stedman, Vice Chair                                                                                                
Senator Lyda Green                                                                                                              
Senator Lesil McGuire                                                                                                           
Senator Gary Stevens                                                                                                            
Senator Bill Wielechowski                                                                                                       
Senator Thomas Wagoner                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Joe Thomas                                                                                                              
Senator Gene Therriault                                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Presentation:  TransCanada AGIA Application - Tony Palmer                                                                       
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
TONY PALMER, Vice President                                                                                                     
Alaska Business Development                                                                                                     
TransCanada                                                                                                                     
Calgary, Alberta, Canada                                                                                                        
POSITION STATEMENT:  Gave presentation on TransCanada's                                                                       
application under the Alaska Gasline Inducement Act (AGIA).                                                                     
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  CHARLIE  HUGGINS  called  the  Senate  Resources  Standing                                                             
Committee meeting  to order at 3:42:00  PM.  Present at  the call                                                             
to order  were Senators McGuire, Stedman,  Wielechowski, Wagoner,                                                               
and  Chair  Huggins.    Senators Green  and  Stevens  joined  the                                                               
meeting  shortly thereafter.   Also  in attendance  were Senators                                                               
Joe Thomas and Gene Therriault.                                                                                                 
                                                                                                                                
   ^Presentation:  TransCanada AGIA Application - Tony Palmer                                                               
                                                                                                                                
CHAIR HUGGINS  announced the committee would  hear a presentation                                                               
from  TransCanada,   which  has   the  only   application  deemed                                                               
conforming  to  date  under the  Alaska  Gasline  Inducement  Act                                                               
(AGIA) guidelines.   Tony Palmer would  speak via teleconference,                                                               
and Patty  Bielawski of Jade  North LLC would run  the PowerPoint                                                               
slide  show; a  hardcopy  version was  provided.   Chair  Huggins                                                               
welcomed  Alaskans listening  via Gavel  to Gavel  and noted  the                                                               
AGIA applications could be seen on the state's website.                                                                         
                                                                                                                                
SENATOR GREEN joined the meeting.                                                                                               
                                                                                                                                
3:43:32 PM                                                                                                                    
TONY  PALMER,   Vice  President,  Alaska   Business  Development,                                                               
TransCanada, introduced himself.                                                                                                
                                                                                                                                
SENATOR STEVENS joined the meeting.                                                                                             
                                                                                                                                
MR.   PALMER   began   with  slide   2,   showing   TransCanada's                                                               
credentials, with  a table  and a  map illustrating  its existing                                                               
system  across  Canada  and  the  U.S.    He  said  TransCanada's                                                               
business  primarily is  natural gas  transmission pipelines.   It                                                               
owns 36,500 miles of pipe.   The proposed project is 1,700 miles,                                                               
about 5 percent of its existing  mileage.  TransCanada is a large                                                               
Canadian pipeline  company, but  it also has  one of  the largest                                                               
U.S. interstate pipelines,  some 12,000 miles of  pipe; 750 miles                                                               
is proposed for this project.   Compression held currently totals                                                               
some 3.2 million horsepower; initial  compression on the proposed                                                               
pipeline would be about 100,000 horsepower, a small component.                                                                  
                                                                                                                                
MR.  PALMER  drew attention  to  throughput  volumes moved  daily                                                               
across  North America  to market,  15  billion cubic  feet a  day                                                               
(Bcfd).    Occasionally, the  same  gas  is  moved twice,  so  it                                                               
actually is about  30 Bcfd, but Mr. Palmer said  he'd removed any                                                               
double counting.   The proposed project is hoped  to be 4.5 Bcfd,                                                               
one-third  the   existing  volume;  the  final   volume  will  be                                                               
determined in an open season.                                                                                                   
                                                                                                                                
3:47:14 PM                                                                                                                    
MR. PALMER  highlighted projects TransCanada has  completed.  The                                                               
company  was initiated  50 years  ago  to build  a pipeline  from                                                               
Alberta to  Ontario and Quebec  across challenging  terrain, some                                                               
2,300 miles.  In the 1990s  it completed 7,000 miles of pipeline,                                                               
expanding its existing system in  Canada and the U.S., completing                                                               
it  on schedule  and within  0.6 percent  of budget.   It  is now                                                               
proceeding  with  the  Keystone  oil pipeline,  going  east  from                                                               
Alberta  to  about  Winnipeg  and  then  south  to  Illinois  and                                                               
Oklahoma;  about 2,150  miles, it  will have  1,380 miles  of new                                                               
pipe in  the U.S. and a  Canadian component that is  a conversion                                                               
of one of TransCanada's original gas pipelines.                                                                                 
                                                                                                                                
MR. PALMER  emphasized that  TransCanada doesn't  own any  of the                                                               
gas it  moves across North  America.   It doesn't propose  to own                                                               
any of  the Alaskan gas.   It is an independent  pipeline company                                                               
in the business  of providing service to its  customers that want                                                               
to  transport   their  gas.     This  arrangement  is   used  for                                                               
transporting  natural gas  across Canada  and the  U.S. by  other                                                               
pipeline companies as well.                                                                                                     
                                                                                                                                
3:50:20 PM                                                                                                                    
MR. PALMER turned to slide  3, an example of TransCanada's record                                                               
of developing a  basin, a series of maps of  Alberta from 1958 to                                                               
2005.   Whereas  there  were 3  customers in  1958  and a  couple                                                               
hundred miles of pipe, now there  are more than 300 customers and                                                               
15,000 miles  of pipe.   Gas  can be transported  into or  out of                                                               
TransCanada's system  from most of Alberta,  the exceptions being                                                               
the far  northeast corner, which  isn't a  particularly gas-prone                                                               
area, and  the national parks.   He expressed hope  that Alaskans                                                               
wants   similar  growth,   to   transport   the  potential   135-                                                               
235 trillion cubic feet (Tcf) of gas.                                                                                           
                                                                                                                                
MR. PALMER  told members TransCanada's  growth occurred  under an                                                               
independent pipeline  model, with  rolled-in tolls.   The initial                                                               
customers  in  1958  have  grown, and  TransCanada  now  has  the                                                               
original  customers   plus  new  ones,  both   large  and  small,                                                               
including customers that reside in  Alberta as well as marketers,                                                               
local distribution  companies, and  other corporations  that want                                                               
to transport gas across North America.                                                                                          
                                                                                                                                
3:53:14 PM                                                                                                                    
MR.   PALMER   addressed  TransCanada's   financial   capability,                                                               
slide 4.   He  said  estimated capital  expenditures (CAPEX)  for                                                               
this  project in  2007  dollars  total $26  billion.   Adding  an                                                               
allowance for funds used during  construction (AFUDC), along with                                                               
cost escalation  for when  the money needs  to actually  be spent                                                               
over the next decade, the final cost is $33 billion.                                                                            
                                                                                                                                
MR. PALMER  noted that  during construction  TransCanada proposes                                                               
using the 30 percent  equity ratio that the state  has allowed as                                                               
a  maximum; that  is about  $10 billion.   To be  competitive, it                                                               
will reduce  the equity  ratio to 25 percent  once the  line goes                                                               
into  service, which  he would  discuss later.   But  the overall                                                               
equity  requirement is  about  $10 billion,  including AFUDC  and                                                               
cost escalation.                                                                                                                
                                                                                                                                
MR.  PALMER turned  to TransCanada's  current net  cash flow;  he                                                               
indicate this is  shown in 2007 dollars, based  on the assumption                                                               
that  its business  won't continue  to  grow over  the next  7-10                                                               
years, though that  isn't hoped to be the case.   He compared the                                                               
current  annual  cash  flow  of   $2.3 billion  with  the  actual                                                               
expenditures of equity expected  over the construction period for                                                               
the project and logistics.  He  pointed out that only in 2017, as                                                               
this project  goes into  service, does it  approach the  net cash                                                               
flow of TransCanada.                                                                                                            
                                                                                                                                
MR. PALMER noted this assumes  TransCanada owns the gas treatment                                                               
plant (GTP).  But it prefers  not to.  TransCanada believes other                                                               
parties  in  Alaska  -  either the  three  existing  North  Slope                                                               
producers or others - may wish  to own that facility.  The graphs                                                               
on slide 4 show how the  equity requirement is reduced if a third                                                               
party  owns  the GTP.    TransCanada  has also  offered  shippers                                                               
participation  in the  project equity  if  they commit  threshold                                                               
volumes   in  the   initial  open   season;  that   would  reduce                                                               
TransCanada's equity commitment as well.                                                                                        
                                                                                                                                
MR.  PALMER suggested  third parties  may wish  to become  equity                                                               
partners  with  TransCanada  at  some point.    Also,  the  slide                                                               
doesn't identify that the company  could always go to the capital                                                               
market to raise  equity, which it did last year  when it bought a                                                               
10,000-mile  U.S. pipeline;  TransCanada financed  that initially                                                               
using its  internal cash flow  and two  months later went  to the                                                               
market for capital funding, a normal process in any business.                                                                   
                                                                                                                                
MR. PALMER  summarized that TransCanada  is capable  of financing                                                               
the  equity  for this  project;  the  debt would  be  third-party                                                               
funding.  The loan guarantee  offered by the U.S. government will                                                               
help in obtaining debt financing and improve the interest rate.                                                                 
                                                                                                                                
3:57:12 PM                                                                                                                    
MR.  PALMER  discussed slide  5,  noting  it came  straight  from                                                               
TransCanada's  AGIA  application.   It  highlights  the  proposed                                                               
pipeline route  from Prudhoe Bay  to the British  Columbia border                                                               
and then continuing on to  interconnect with the prebuilt portion                                                               
in the  center of Alberta.   About 11  Bcfd of gas  moves through                                                               
TransCanada's Alberta system.                                                                                                   
                                                                                                                                
MR. PALMER explained that when  parties speak of the Alberta Hub,                                                               
that is TransCanada's 15,000-mile  pipeline system shown a couple                                                               
of slides  ago.  "Once you're  on that system, you  can trade gas                                                               
for free," he noted.  The  system's 11 Bcfd is traded five or six                                                               
times a day,  so 60-70 Bcfd is traded financially  at the Alberta                                                               
Hub each day, making it the most liquid hub in North America.                                                                   
                                                                                                                                
MR. PALMER pointed out that from  the Alberta Hub there is access                                                               
to  North  American  markets  coast  to  coast  on  TransCanada's                                                               
existing pipelines.   Gas can be moved as far  east as Boston and                                                               
New York, through  the Midwest, and to the  Pacific Northwest and                                                               
California.   That will  be available  to Alaskan  gas, as  it is                                                               
available to Western Canadian gas today.                                                                                        
                                                                                                                                
3:59:30 PM                                                                                                                    
MR. PALMER  continued with slide 5,  saying TransCanada forecasts                                                               
that by 2017, when Alaskan  gas flows, there'll be spare takeaway                                                               
capacity  on  those  systems  sufficient  for  the  full  Alaskan                                                               
volumes.   The current capacity  of pipelines leaving  Alberta is                                                               
about 15 Bcfd.   In ten years, as a result  of relatively flat to                                                               
declining  Western  Canadian  production,  and  also  because  of                                                               
rising demand  in Western Canada,  there'll be spare  capacity on                                                               
that system, about a third of the existing capacity.                                                                            
                                                                                                                                
MR.  PALMER  told  members  Canadian  exports  today  are  around                                                               
9 Bcfd;  TransCanada  expects that  to  be  reduced by  the  time                                                               
Alaskan  gas  flows, but  Canadian  exports  into the  U.S.  will                                                               
continue.   Clearly, Alaskan gas  is targeted  to go to  the U.S.                                                               
Once it enters the Alberta Hub  it will be commingled, as happens                                                               
with all  gas in existing  Alberta pipelines.   There won't  be a                                                               
new market for 4.5 Bcfd of Alaskan  gas in Alberta; the growth in                                                               
Alberta demand will be served by Alberta production.                                                                            
                                                                                                                                
MR. PALMER said Alaskan gas instead  will flow on through to U.S.                                                               
Lower 48  markets, as always contemplated.   TransCanada believes                                                               
it  will   move  on  existing  infrastructure,   the  lowest-cost                                                               
alternative.    A  third-party   study  by  the  Canadian  Energy                                                               
Research  Institute (CERI),  recently  published, concludes  that                                                               
Alaskan gas will benefit from  higher netbacks and lower costs by                                                               
integrating  into  the  Western Canadian  infrastructure,  rather                                                               
than   building   a  new   pipeline   directly   to  Chicago   or                                                               
"incrementing"  the Alliance  Pipeline.   He  opined that  CERI's                                                               
analysis is publicly  available for a fee,  saying its conclusion                                                               
is similar to TransCanada's analysis over the last few years.                                                                   
                                                                                                                                
MR.  PALMER  informed  members that  one-third  of  the  proposed                                                               
pipeline is in service as  prebuild.  Constructed to move Western                                                               
Canadian gas  in advance of  the northern section of  the project                                                               
and completed in 1981-1982 under  Canada's Northern Pipeline Act,                                                               
it currently moves about 3 Bcfd.                                                                                                
                                                                                                                                
4:02:46 PM                                                                                                                    
SENATOR WAGONER asked about the  compressor stations required for                                                               
4.3 Bcfd and 5.9 Bcfd.                                                                                                          
                                                                                                                                
MR. PALMER  replied he  didn't have those  numbers with  him, but                                                               
they're in TransCanada's  application.  He recalled  there'd be 6                                                               
in Canada  and said he'd  look for  the number within  Alaska and                                                               
relay it.   There would be  a very modest amount  of compression,                                                               
100,000  horsepower, to  move the  initial  4.5 Bcfd.   The  fuel                                                               
ratio at  that level is  somewhere in the 2.1-2.3  percent range,                                                               
very  modest.     As  TransCanada  continues  to   build  up  the                                                               
facilities with  expansions through 5.9 Bcfd, it  would merely be                                                               
adding compression.  There would  be no pipeline looping until it                                                               
got beyond 5.9  Bcfd.  He offered to provide  the exact number of                                                               
compressors if requested to do so.                                                                                              
                                                                                                                                
SENATOR  WAGONER said  the numbers  were 6  and 7.   He  recalled                                                               
prior testimony suggesting it would take 71 compressor stations.                                                                
                                                                                                                                
MR. PALMER assured Senator Wagoner  it would take nowhere near 71                                                               
compressors  to   move  this  much   gas  through   the  pipeline                                                               
TransCanada has  designed.  He recalled  it would be 6  in Canada                                                               
and perhaps 9-10  in Alaska, maybe 15-20  initially for 4.5 Bcfd.                                                               
TransCanada  has had  this design  several years,  and he'd  seen                                                               
press reports  about testimony  projecting fuel  ratios somewhere                                                               
in the 8 percent  range on the pipeline itself.   Mr. Palmer said                                                               
that clearly  is wrong.   There is  significant fuel at  the GTP.                                                               
For  just the  pipeline from  Prudhoe  Bay to  Alberta that  he'd                                                               
described,  however, it  is approximately  2.3  percent fuel  for                                                               
4.5 Bcfd, a very modest fuel ratio.                                                                                             
                                                                                                                                
CHAIR HUGGINS  welcomed Senators Joe Thomas  and Gene Therriault,                                                               
noting they'd been present for some time.                                                                                       
                                                                                                                                
4:06:31 PM                                                                                                                    
MR.  PALMER turned  to  the current  project  schedule, slide  6,                                                               
which had the following dates:   April 2008, AGIA license issued;                                                               
September 2009,  open season complete; June  2010, Federal Energy                                                               
Regulatory Commission  (FERC) pre-filing request;  December 2011,                                                               
FERC  filing;  August  2013, FERC  CPCN;  January  2014,  project                                                               
sanction;  June 2015,  on-site construction;  and November  2017,                                                               
project in service.  Mr.  Palmer explained that although the date                                                               
for obtaining  the AGIA license  wasn't known, an April  date was                                                               
used; all other dates are triggered by that.                                                                                    
                                                                                                                                
MR. PALMER  said there is some  flexibility to move it  back, day                                                               
by  day, from  April.   However,  this summer's  field season  is                                                               
needed to hold to this aggressive  schedule.  If the AGIA license                                                               
isn't  granted until  well  into the  summer,  this field  season                                                               
might be lost.   That is significant.  Certain  things need to be                                                               
done  in  summertime  in  northern  climates,  and  he'd  advised                                                               
parties of  this privately as well.   It is in  the state's hands                                                               
as to when  an application may be recommended and  approved for a                                                               
license; that timing will drive the remainder of the schedule.                                                                  
                                                                                                                                
MR.  PALMER  noted if  the  AGIA  license  is granted  in  April,                                                               
TransCanada  has indicated  an open  season can  be completed  by                                                               
September 2009,  18 months later.   This is  significantly better                                                               
than  AGIA's  required 36  months  to  conclude an  open  season.                                                               
Discounting speculation  he'd seen in the  press that TransCanada                                                               
is shortcutting that process, he said that isn't the case.                                                                      
                                                                                                                                
MR. PALMER  explained that TransCanada  has what is  described in                                                               
engineering terms  as a class 5  cost estimate, the norm  at this                                                               
stage.   By the time it  goes to an  open season, it will  have a                                                               
standard class 4  engineering estimate.  He  emphasized that this                                                               
is TransCanada's business  and that the company  has been looking                                                               
at  the  Canadian  side  of   this  project  for  30  years,  has                                                               
significant and valuable information  to use, and understands how                                                               
to  do  this.    Once  it gets  through  the  FERC  certification                                                               
process, TransCanada will  have a class 3 cost  estimate and will                                                               
be proceeding with the project, assuming it has customers.                                                                      
                                                                                                                                
4:09:50 PM                                                                                                                    
MR. PALMER pointed  out that AGIA requires committing  to an open                                                               
season  timeframe, which  TransCanada has  done on  an aggressive                                                               
basis.   It also requires  committing to a FERC  pre-filing date,                                                               
which  TransCanada has  set  for June  2010,  triggered from  the                                                               
aforementioned  April  date, with  the  FERC  filing by  December                                                               
2011.  From preliminary discussions  with FERC staff, he gave the                                                               
understanding  that  FERC may  wish  the  June  2010 date  to  be                                                               
advanced for  pre-filing or that  there'd be  initial discussions                                                               
before then, which TransCanada is prepared to consider.                                                                         
                                                                                                                                
MR. PALMER said beyond that timeframe  it is in FERC's hands.  If                                                               
FERC  decides TransCanada  has  met the  conditions  on a  timely                                                               
basis,  it will  grant  the license.    Assuming TransCanada  has                                                               
customers  and has  achieved the  regulatory approvals  required,                                                               
the  project would  be  in  service in  less  than  10 years,  by                                                               
November 2017.                                                                                                                  
                                                                                                                                
4:11:22 PM                                                                                                                    
MR.  PALMER  turned  to  AGIA   "must  haves"  and  TransCanada's                                                               
response in  its application,  slides 7-8.   He  said TransCanada                                                               
tried to  file on a  basis that would  be deemed complete  by the                                                               
State of Alaska.  He  reminded members that last year TransCanada                                                               
had opposed  a provision  requiring a company  that had  a failed                                                               
open season  to continue through the  FERC certification process,                                                               
but the legislature had passed that  as a requirement.  To apply,                                                               
therefore, TransCanada had to compromise  on that issue and agree                                                               
to move forward in the event of a failed open season.                                                                           
                                                                                                                                
MR.  PALMER provided  highlights.   He  said the  design is  best                                                               
suited for 4.5  Bcfd of initial capacity, but  final volumes will                                                               
be determined in  the open season.  If  TransCanada is successful                                                               
in attracting that  much gas, it will be  an inexpensive pipeline                                                               
to expand by one-third of  the volume, using compression only; he                                                               
alluded to  wording on slide  7 that  says the initial  design is                                                               
expandable to 5.9 Bcfd with compression only.                                                                                   
                                                                                                                                
MR. PALMER said  the Canadian norm is  rolled-in tolls, averaging                                                               
the original cost  plus expansion.  TransCanada  is familiar with                                                               
that  system and  as the  pipeline sponsor  would put  forward to                                                               
FERC  the  AGIA requirement,  115 percent  of  the initial  tolls                                                               
within  the  Alaskan  section  of  the  project.    And  although                                                               
TransCanada  prefers  to  have  a  third  party  build  the  GTP,                                                               
TransCanada is prepared to build it if necessary.                                                                               
                                                                                                                                
4:14:59 PM                                                                                                                    
SENATOR  WIELECHOWSKI observed  that TransCanada  proposes a  48-                                                               
inch pipeline through  Alaska and Canada.  He asked:   If Alaskan                                                               
consumers want to take out 0.5  Bcfd at Delta Junction, how would                                                               
that be addressed?                                                                                                              
                                                                                                                                
MR. PALMER replied  if TransCanada knows in advance  - around the                                                               
time of  the initial  open season  - that  Alaskans want  to take                                                               
0.5 Bcfd at Delta Junction and  knows the volumes to Canada, then                                                               
it would be taken  into account in the initial design.   If it is                                                               
4.5 Bcfd  to Alberta plus  0.5 Bcfd taken out at  Delta Junction,                                                               
TransCanada  would still  build the  same system,  but would  add                                                               
compressors north of Delta Junction.                                                                                            
                                                                                                                                
SENATOR  WIELECHOWSKI  surmised  that  0.5  Bcfd  wouldn't  count                                                               
towards the 115 percent with respect to rolled-in rates.                                                                        
                                                                                                                                
MR.  PALMER responded  that TransCanada  has proposed  a separate                                                               
Alaskan  rate -  a weighted  average, if  acceptable to  FERC and                                                               
Alaskans - of only the Alaskan  component of the pipeline for the                                                               
average distance  moved within Alaska.   For example,  if Alaskan                                                               
gas on average  moved 70 percent of the  distance through Alaska,                                                               
then Alaskan  customers would  pay for  the gas  treatment plant,                                                               
which they'd  be using,  plus 70 percent of  the initial  cost of                                                               
the Alaskan component of the  pipeline; a party taking service at                                                               
the Yukon-Alaska border would pay 100 percent of the toll.                                                                      
                                                                                                                                
MR. PALMER  said if  the weighted  average isn't  acceptable, the                                                               
actual distance for  each individual customer will be  used.  The                                                               
aforementioned  are the  two methodologies  used in  the pipeline                                                               
business to move gas within a  certain zone or region.  While the                                                               
weighted average is  simpler and many believe it  is fairer, some                                                               
prefer using the actual distance for each customer.                                                                             
                                                                                                                                
4:19:01 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  what would  happen if  Alaskans want                                                               
1 Bcfd or  1.5 Bcfd for  in-state use, including natural  gas for                                                               
an Agrium  type of industry, heating,  and so on.   He noted that                                                               
would be one-quarter of the throughput.                                                                                         
                                                                                                                                
MR. PALMER replied  TransCanada would look to  provide service to                                                               
customers where  they request it.   But TransCanada  believes the                                                               
project  works best  economically  at about  4.5  Bcfd moving  to                                                               
Canada, with  the tolls he'd provided;  if additional incremental                                                               
volumes  go to  Alaskans, which  TransCanada expects,  that won't                                                               
change the tolls much for any party.                                                                                            
                                                                                                                                
MR. PALMER said  if 1.5 Bcfd is moved to  an Alaskan location and                                                               
only  3  Bcfd goes  to  Alberta,  however,  then the  tolls  he'd                                                               
provided to Alberta clearly are too  low.  The project would have                                                               
lost significant economies  of scale.  TransCanada  would have to                                                               
look at whether a 48-inch pipe  is the correct size downstream of                                                               
the Alaskan  delivery point, and  whether customers  are prepared                                                               
to  pay  that much.    TransCanada  doesn't propose  to  restrict                                                               
customers as to  where they go, in any way.   Rather, the company                                                               
proposes  to design  a system  that  moves the  gas to  locations                                                               
customers have requested.                                                                                                       
                                                                                                                                
SENATOR  STEDMAN  referred  to  rolled-in  rates  and  asked  how                                                               
Canadian and  U.S. regulators look  at the return on  equity that                                                               
is allocated.   He also asked Mr. Palmer's opinion  as to why the                                                               
U.S. doesn't do fully rolled-in rates like Canada does.                                                                         
                                                                                                                                
4:22:04 PM                                                                                                                    
MR. PALMER addressed the second  question.  He explained that for                                                               
decades,  Canadian regulators  have used  rolled-in rates  as the                                                               
norm  for any  expansion.   The  costs before  the expansion  are                                                               
rolled in  or averaged with  the costs  of an expansion;  that is                                                               
true whether the  tolls go up or down, which  depends on the type                                                               
of  facilities put  in place  and the  vintage of  the facilities                                                               
they're  being incremented  to.   That  has  been successful  for                                                               
Canada,  which  has a  basin  that  is  farthest from  the  North                                                               
American market.                                                                                                                
                                                                                                                                
MR.  PALMER said  in the  U.S., by  contrast, the  norm for  many                                                               
years has been to roll in the  tolls and average the costs if the                                                               
costs have gone down because of  an expansion.  If the tolls have                                                               
gone up, sometimes there has been  a test of 105 percent, but not                                                               
always.  If tolls rise, they  usually aren't rolled in.  Instead,                                                               
incremental tolls are applied for  the new customer.  He declined                                                               
to go  through the rationales,  saying there'd be  differences of                                                               
opinion as to why FERC has chosen to do that.                                                                                   
                                                                                                                                
MR.  PALMER pointed  out that  when the  open season  regulations                                                               
were established for this particular  Alaskan project about three                                                               
years ago, however, FERC decided  to use a rebuttable presumption                                                               
of rolled-in tolls.   It will consider what  the pipeline sponsor                                                               
and customers put forward.                                                                                                      
                                                                                                                                
4:24:22 PM                                                                                                                    
MR.  PALMER turned  to Senator  Stedman's first  question, saying                                                               
the return on equity in the  U.S. versus Canada on most pipelines                                                               
has been  different for the last  several years.  In  many cases,                                                               
Canadian pipelines  haven't been  at risk  if they  lose volumes;                                                               
dollars to be collected generally,  but not always, are recovered                                                               
from the remaining  customers on the system.  That  is partly why                                                               
Canada has had a lower rate of return on its pipeline system.                                                                   
                                                                                                                                
MR. PALMER  said, in addition,  for many years  Canada's National                                                               
Energy Board (NEB)  required pipelines to come  back annually for                                                               
a  review of  their  rates of  return.   As  interest rates  have                                                               
generically  fallen  during  periods  of  high  inflation,  those                                                               
annual reviews have generally resulted in lower rates of return.                                                                
                                                                                                                                
MR. PALMER reported in  the U.S. the general case is  this:  If a                                                               
pipeline loses  a customer, in  the short  term - until  there is                                                               
another  rate  case  -  it   cannot  pass  that  on  to  existing                                                               
customers.   If  many  customers withdraw,  usually the  pipeline                                                               
applies  to FERC  for different  tolls.   The U.S.-based  rate of                                                               
return  on  equity has  usually  been  higher than  for  Canadian                                                               
pipelines  for several  years.   In  many  cases, U.S.  pipelines                                                               
aren't  required to  come  back for  a review  of  their rate  of                                                               
return on the same regular basis as for Canadian pipelines.                                                                     
                                                                                                                                
4:26:30 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  what  the  company's experience  has                                                               
been regarding cost overruns.                                                                                                   
                                                                                                                                
MR. PALMER  replied in the  1990s, TransCanada built  7,000 miles                                                               
of pipeline  involving some $14  billion of capital, doing  it on                                                               
schedule and  within 0.6 percent of  budget.  He opined  that the                                                               
company  has  a formidable  record  in  constructing natural  gas                                                               
transmission lines in North America.   TransCanada also has built                                                               
a number of pipelines elsewhere in  the world.  It doesn't have a                                                               
perfect  record,  but Mr.  Palmer  said  no  company does.    For                                                               
example, there have  been cost increases in the  estimates as the                                                               
oil and gas business has heated up in the last few years.                                                                       
                                                                                                                                
MR. PALMER said  TransCanada is proud of  its construction record                                                               
and  results.   In terms  of controlling  costs on  pipelines, he                                                               
believes its record  has been superior in North America.   But he                                                               
recognizes concern that TransCanada  needs to be highly motivated                                                               
to  manage costs.    Thus during  today's  presentation he  would                                                               
highlight incentives or disincentives  that provide motivation to                                                               
hit the cost target.                                                                                                            
                                                                                                                                
4:28:39 PM                                                                                                                    
SENATOR  WIELECHOWSKI alluded  to  recent  testimony from  Little                                                               
Susitna  Construction Company  and Sinopec,  noting it  indicated                                                               
China is  in a  better position  to get 800  miles' worth  of the                                                               
required steel and that it might take 10 years to get heavier-                                                                  
grade steel  for 1,700  miles of  line.   He asked:   Do  you see                                                               
problems in getting the steel to build this pipeline?                                                                           
                                                                                                                                
MR. PALMER  said he hadn't heard  that testimony, but had  read a                                                               
press report; to his understanding, it  related to X70 steel.  He                                                               
explained that TransCanada proposes  using X80 steel, meaning its                                                               
ultimate strength is  up to 80,000 pounds per square  inch.  This                                                               
is the standard pipe used  in TransCanada's system since the mid-                                                               
1990s.   With  1,700  or 1,800  miles of  X80  pipe in  operation                                                               
today, TransCanada  is familiar  with it and  with large-diameter                                                               
pipe, having 1,500 to 2,000 miles of 48-inch pipe in the ground.                                                                
                                                                                                                                
MR.  PALMER  expressed confidence  that  there  will be  a  steel                                                               
supply for  X80 pipe  in the timeframe  projected.   In preparing                                                               
the bid,  TransCanada specifically  talked to  a number  of steel                                                               
suppliers.  Because the pipe  won't be ordered for several years,                                                               
there is  no specific pricing  or commitments.  But  the interest                                                               
is there to supply it.                                                                                                          
                                                                                                                                
CHAIR HUGGINS asked  if TransCanada has the steel  source yet for                                                               
the Keystone pipeline.                                                                                                          
                                                                                                                                
MR.  PALMER answered  affirmatively, noting  because it's  an oil                                                               
pipeline  it  runs  at  a  much  lower  pressure.    Parties  are                                                               
experiencing challenges in obtaining  pipe because of the massive                                                               
expansion of  natural gas pipelines  in the Lower 48 and  the oil                                                               
pipelines coming  out Canada.   It is  difficult today  to source                                                               
steel for large projects, but  TransCanada has a steel supply for                                                               
Keystone.   Returning to AGIA  "must haves," he  said TransCanada                                                               
has agreed to local-hire provisions and all those components.                                                                   
                                                                                                                                
4:33:21 PM                                                                                                                    
MR. PALMER addressed TransCanada's  competitive response to AGIA,                                                               
slide 9, which showed the following points:                                                                                     
                                                                                                                                
     TransCanada bid to win - competitive enhancements                                                                          
     - Initial system design with inexpensive expandability                                                                     
        - Gas treatment plant ownership, if no 3rd party                                                                        
        willing to build                                                                                                        
      - Equity opportunity for shippers committing gas in                                                                       
        initial open season                                                                                                     
     - 75% debt vs. 70% minimum limit in AGIA                                                                                   
        - Toll reduction of $0.09/mmbtu                                                                                         
      - TransCanada's return reduction in event of capital                                                                      
        cost overruns                                                                                                           
     - Fort Nelson Option upside                                                                                                
        - Toll reduction of $0.13-$0.18/mmbtu                                                                                   
       - LNG alternative if insufficient gas commitments                                                                        
        through Canada                                                                                                          
      - Creative roles for US Govt. - "bridge shipper" and                                                                      
        allocation of portion of $18 billion loan guarantee                                                                     
        to any capital cost overruns                                                                                            
                                                                                                                                
MR. PALMER told members  he'd expected comprehensive competition,                                                               
and  TransCanada  had  bid to  win,  putting  forward  incentives                                                               
intended to attract Alaskan customers  and improve the likelihood                                                               
of success  as well  as the  proposal's net  present value.   The                                                               
company stretched in several areas to do this.                                                                                  
                                                                                                                                
MR.  PALMER addressed  the  above  points.   He  said this  high-                                                               
pressure design  uses X80 pipe, providing  significant efficiency                                                               
with respect to fuel and steel; the  fuel ratio is very low for a                                                               
1,700 mile pipeline.  TransCanada's  willingness to build the GTP                                                               
if  no third  party is  willing is  a step  out for  the company.                                                               
Also, TransCanada has  heard from a number of  shippers that want                                                               
the  opportunity to  own  part of  this pipeline.    Thus in  the                                                               
initial open season  parties that commit a  threshold volume will                                                               
have  that  opportunity,  another  stretch  that  he  hopes  will                                                               
encourage shippers to commit their gas to the project.                                                                          
                                                                                                                                
MR.  PALMER  noted another  incentive  is  that TransCanada  will                                                               
apply  the 70 percent  debt ratio  during construction,  but upon                                                               
completion of the  project will refinance 5 percent.   This means                                                               
a toll  reduction of 9 cents  per mmbtu, just under  3 percent, a                                                               
significant reduction  for a customer.   Although TransCanada and                                                               
its shareholders  will have less  equity in this project  - which                                                               
pipelines generally  are reluctant to  do - TransCanada  is doing                                                               
this to be competitive.                                                                                                         
                                                                                                                                
4:37:48 PM                                                                                                                    
MR. PALMER  returned attention  to cost  control.   He reiterated                                                               
that  TransCanada is  proud  of its  record.   Since  TransCanada                                                               
wants to not  only move the initial 35 Tcf of  proven North Slope                                                               
gas, but also  expand the system, there is a  strong incentive to                                                               
have  low costs.    High costs  make it  much  more difficult  to                                                               
attract new  customers.  However, potential  customers and others                                                               
have  said  they'd  like TransCanada  to  have  direct  financial                                                               
incentives  or disincentives  if there  is a  cost overrun;  they                                                               
want interests to be aligned in this regard.                                                                                    
                                                                                                                                
MR.   PALMER  said   TransCanada   therefore   proposed  in   its                                                               
application the following:   If there is a cost  overrun, it will                                                               
take up to  a 2 percent reduction  in its rate of  return for the                                                               
first   five   years  of   operation,   a   significant  hit   on                                                               
TransCanada's  bottom  line.    The   rate  of  return  would  be                                                               
triggered off  a 10-year treasury  note, which in  November would                                                               
have   yielded  about   14  percent,   though   now  it's   about                                                               
13.25 percent.   TransCanada will be highly  motivated to control                                                               
costs.   The  final item  TransCanada  has proposed  in order  to                                                               
provide alignment on costs involves the U.S. loan guarantee.                                                                    
                                                                                                                                
4:39:40 PM                                                                                                                    
MR. PALMER  opined that gas entering  the existing infrastructure                                                               
at the Alberta  Hub is the most beneficial  for Alaskans, Alaskan                                                               
shippers,  and   Western  Canadians.     But   TransCanada  wants                                                               
additional motivation  to have this  project proceed and  also go                                                               
through  Canada and  into the  Alberta system.   If  4.5 Bcfd  of                                                               
Alaskan gas goes  into the Alberta system, that  lowers tolls for                                                               
all Western  Canadian producers.   Canada's toll  structure would                                                               
pass that  benefit through  to customers.   While  Alaskans would                                                               
benefit by having a significantly  cheaper system compared with a                                                               
line  to  Chicago,  he indicated  Alberta  and  Western  Canadian                                                               
producers would benefit by $10 billion in the first 15 years.                                                                   
                                                                                                                                
MR.  PALMER said  TransCanada hasn't  known  whether the  project                                                               
would  proceed, go  through  Canada, or  integrate  the gas  into                                                               
Alberta's  system.   To achieve  those, perhaps  Western Canadian                                                               
producers should  be prepared to  share some of  that $10 billion                                                               
of value  with Alaskans, which  the so-called Fort  Nelson upside                                                               
would do.  If that is  a successful structure, some $3 billion in                                                               
the  first 15  years, of  the $10 billion  he'd described,  would                                                               
shift  to  Alaskan  producers and  shippers,  away  from  Alberta                                                               
shippers.     He  said  this  is   another  competitive  response                                                               
TransCanada is prepared to sponsor  with Canadian regulators.  If                                                               
it's successful, the tolls mentioned  earlier would be reduced by                                                               
an additional 13-18 cents.                                                                                                      
                                                                                                                                
4:43:56 PM                                                                                                                    
MR.  PALMER continued  with  slide 9,  turning  to the  liquefied                                                               
natural gas  (LNG) alternative.   He emphasized  that TransCanada                                                               
has been  a proponent of  the Alaskan project through  Canada and                                                               
on to  the Lower  48 for  many years;  it is  believed to  be the                                                               
superior  project  for  Alaskans,  Canadians,  and  the  company.                                                               
TransCanada wants the investment  opportunity, wants the gas into                                                               
its system, and believes this  aligns with Alaskans who want this                                                               
project soon,  want it  to go  through this  system, and  want it                                                               
ultimately to expand.                                                                                                           
                                                                                                                                
MR. PALMER  noted, however, that TransCanada  additionally wanted                                                               
to  be competitive  with  any AGIA  applicants  proposing an  LNG                                                               
alternative.    TransCanada also  had  heard  concern that  there                                                               
might  not be  sufficient  gas  committed to  Canada.   Thus  the                                                               
company's  LNG  alternative is  this:    If insufficient  gas  is                                                               
committed to Canada  to make the project  economic but sufficient                                                               
gas is  committed to Valdez -  which TransCanada used as  a proxy                                                               
for an LNG project - then  TransCanada would be prepared to build                                                               
a pipeline  to that point  and build  the gas treatment  plant as                                                               
well, if  necessary.   TransCanada hadn't  done the  economics on                                                               
liquefaction, ships,  regasification facilities, or markets.   If                                                               
customers want that service, they'd be in a position to do that.                                                                
                                                                                                                                
MR.  PALMER  addressed  the  final   point  on  slide  9,  saying                                                               
TransCanada was asked  under AGIA to look at ways  to improve the                                                               
probability  of   success.    These  aren't   conditions  to  the                                                               
application, but are creative concepts  to assist the project and                                                               
improve the likelihood of success.   If TransCanada is granted an                                                               
AGIA license, it is possible  that parties won't commit their gas                                                               
in an open season, despite  the aforementioned initiatives.  Thus                                                               
the company has tried to determine how to meet customers' needs.                                                                
                                                                                                                                
4:46:29 PM                                                                                                                    
MR. PALMER  spoke to the  notion that  a cost overrun  results in                                                               
more money for the company.   He said TransCanada looks to make a                                                               
rate  of return,  not  just  more dollars,  and  it  would see  a                                                               
penalty  in  that  instance.   The  U.S.  government  approved  a                                                               
significant  support   proposal  for   the  project   through  an                                                               
$18 billion loan  guarantee 3.5 years ago.   TransCanada suggests                                                               
if part  of that could be  allocated to cover any  potential cost                                                               
overrun, that would mean a number of things.                                                                                    
                                                                                                                                
MR.  PALMER  said, first,  debt  financing  for overruns  is  the                                                               
cheapest form  of financing,  cheaper than  debt and  equity, and                                                               
certainly  cheaper than  equity  alone.   Second,  it would  mean                                                               
TransCanada isn't  investing or receiving another  dollar for any                                                               
cost overrun; in  fact, there'd be a penalty from  the hit on the                                                               
rate of  return just  described.  Third,  if the  U.S. government                                                               
were prepared  to recover its  moneys from any cost  overrun only                                                               
in the  event of a  surcharge in the toll,  when gas prices  at a                                                               
hub -  say, the Alberta  Hub, but it  could be downstream  in the                                                               
Lower 48  - are above  a certain threshold level,  then potential                                                               
customers could see what the toll would be.                                                                                     
                                                                                                                                
MR.  PALMER   surmised  this  would  be   highly  attractive  for                                                               
customers looking at  committing gas and credit  to this project.                                                               
He said  TransCanada hopes this  will be looked at  creatively by                                                               
the  U.S. government  and supported  by  the State  of Alaska  in                                                               
terms of going  with TransCanada to Washington,  D.C., to propose                                                               
this if an AGIA license is granted.  But it wasn't a condition.                                                                 
                                                                                                                                
4:49:14 PM                                                                                                                    
MR. PALMER turned to the concept  of a "bridge shipper."  He said                                                               
the question is this:  If  the parties that currently control the                                                               
gas and  other potential  shippers don't commit  their gas  in an                                                               
open season, despite the best  efforts of TransCanada and others,                                                               
is there another way to advance  the project?  He referred to his                                                               
previous  testimony  that  this project  needs  customers  and/or                                                               
credit in order to actually construct a pipeline.                                                                               
                                                                                                                                
MR.  PALMER said  TransCanada believes  this project  would break                                                               
open the largest stranded domestic  storehouse of gas in the U.S.                                                               
The  thought is  this:    Perhaps the  U.S.  government would  be                                                               
prepared  to step  up  in  the event  of  a  failed open  season,                                                               
committing  to  sign an  agreement  to  ensure the  project  goes                                                               
forward and meets the 2017 in-service date.                                                                                     
                                                                                                                                
MR. PALMER explained that this  would mean a significantly longer                                                               
timeframe  for  existing  leaseholders  to  consider  whether  to                                                               
commit  gas;  it  also  would  incentivize  parties  that  aren't                                                               
actively  looking  for  natural  gas  today.   He  said  if  it's                                                               
believed that this project will be  in the money, the gas doesn't                                                               
need to  be found on  the North Slope today.   There is  8.5 Bcfd                                                               
produced every day,  which is very different from  having a basin                                                               
with no gas production.                                                                                                         
                                                                                                                                
MR.  PALMER  said the  U.S.  government  has been  supportive  of                                                               
public infrastructure  such as highways, railways,  and airports,                                                               
and  is supportive  of domestic  gas production,  having provided                                                               
Section 29 tax credits for coalbed  methane and shale gas, $1 per                                                               
mmbtu for 15 years; it is expected  that those two sources of gas                                                               
- generally termed unconventional gas  - will be about 50 percent                                                               
of domestic production by 2010.   Although those tax credits were                                                               
controversial  in   the  past,   they  seem  to   have  supported                                                               
development of those domestic sources.                                                                                          
                                                                                                                                
MR. PALMER suggested  that what is missing for  Alaskan gas isn't                                                               
a tax  credit for the actual  gas, but support for  the pipeline.                                                               
If the initiatives already put  forward aren't sufficient to make                                                               
the  project  proceed, TransCanada  wants  to  put this  proposal                                                               
before  the U.S.  government for  consideration.   Although there                                                               
have   been   very   preliminary   discussions   with   staffers,                                                               
TransCanada doesn't  believe it  is in a  position to  inquire in                                                               
Washington,  D.C.,  until  it  has  the  AGIA  license;  it  also                                                               
acknowledges  this would  be under  consideration for  some time.                                                               
He emphasized this wasn't a condition of its AGIA application.                                                                  
                                                                                                                                
4:54:17 PM                                                                                                                    
MR. PALMER pointed out that  the project economics, slide 10, are                                                               
based on  economic assumptions  provided by  the state  and other                                                               
assumptions   TransCanada  made;   if  those   change,  different                                                               
conclusions will be  reached.  The state  had advised TransCanada                                                               
to  use  the U.S.  Energy  Information  Administration (EIA)  gas                                                               
price  forecasts for  the project;  the slide  references dollars                                                               
per mmbtu.                                                                                                                      
                                                                                                                                
MR. PALMER explained  that TransCanada had to bring  that back to                                                               
an Alberta price;  in 2018, in nominal dollars, that  is shown on                                                               
the  slide  as $6.53,  which  coincidentally  is about  what  gas                                                               
prices are  this winter  in Alberta.   The  assumption is  for no                                                               
inflation  in  gas prices  over  the  next  decade.   The  annual                                                               
average  for 25  years,  $9.92  on the  slide,  shows gas  prices                                                               
escalating from there.                                                                                                          
                                                                                                                                
MR. PALMER  noted slide 10 also  shows the pipeline plus  the GTP                                                               
tolls;  in  dollars per  mmbtu,  this  is seen  in  TransCanada's                                                               
application.  The first year,  including fuel, it would be $2.76,                                                               
and the  annual average  would be $3.03  because fuel  prices are                                                               
driven off  the U.S. EIA gas  price forecast.  The  pipeline toll                                                               
is  flat in  nominal dollars,  at $2.41,  but the  fuel component                                                               
rises as gas prices rise.                                                                                                       
                                                                                                                                
MR.  PALMER pointed  out that  the first  year of  service, 2018,                                                               
taking $6.53 and  deducting $2.76 - if the gas  price forecast is                                                               
correct and  the costs are accurate  - the producers would  get a                                                               
$3.75 netback for gas they're  currently producing at Prudhoe Bay                                                               
and  other gas  that might  come into  the pipeline.   From  that                                                               
$3.75,  they'd  pay  their  own   production  costs,  take  their                                                               
profits,  and  share  with the  state  and  other  tax-collecting                                                               
bodies in order to come up with a net amount.                                                                                   
                                                                                                                                
4:57:11 PM                                                                                                                    
MR.  PALMER  turned  to stakeholders'  value,  noting  this  uses                                                               
formulas and  methodologies the state described  for TransCanada;                                                               
in certain  cases, the  company made  assumptions.   After taxes,                                                               
the producers would get $183 billion  over 25 years, $4.7 billion                                                               
in 2018,  and an annual  average of $7.3  billion.  The  State of                                                               
Alaska  would get  $115 billion  over 25  years, $2.5 billion  in                                                               
2018, and an annual average of $4.6 billion.                                                                                    
                                                                                                                                
MR.  PALMER  indicated these  are  direct  dollars from  the  gas                                                               
production and  the pipeline such  as royalties,  production tax,                                                               
income  tax, property  tax, and  any  other revenues.   It  would                                                               
amount to  $4,000 the first  year for  each Alaskan, and  for the                                                               
annual average it would be $7,000.                                                                                              
                                                                                                                                
MR. PALMER  drew attention to  benefits for the  U.S. government:                                                               
$46 billion  over 25 years, $1.2  billion in 2018, and  an annual                                                               
average  of $1.8  billion.   Numbers  shown  for TransCanada  are                                                               
$16 billion over  25 years, $1.3  billion in 2018, and  an annual                                                               
average  of  $0.6 billion.   He  pointed  out that  the  pipeline                                                               
depreciates over  time, and thus  TransCanada would  receive more                                                               
money in  the first year than  on average; by the  last year, the                                                               
pipeline would be fully depreciated.                                                                                            
                                                                                                                                
MR. PALMER told members these  numbers assume an initial 4.5 Bcfd                                                               
and  no   expansion  of  the  pipeline,   although  TransCanada's                                                               
application provides  some numbers for expansions.   These aren't                                                               
indirect numbers  for the value  of employment,  exploration, and                                                               
so  on,  but  are  strictly  for  moving  the  existing  volumes,                                                               
4.5 Bcfd if that is committed to the pipe, and also for taxes.                                                                  
                                                                                                                                
4:59:48 PM                                                                                                                    
MR. PALMER  offered clarifications  on recent  questions, reading                                                               
the following from slide 11:                                                                                                    
                                                                                                                                
     - Relative Timing of Alaska/Mackenzie Projects?                                                                            
     -  Is TransCanada's AGIA application  conditional on US                                                                    
        Govt. support for "bridge shipper" and loan                                                                             
        guarantee concepts?                                                                                                     
     -  Is the AGIA  project subject to  ANNGTC's historical                                                                    
        liabilities?                                                                                                            
     -  What is  TransCanada's  position regarding  upstream                                                                    
        fiscal terms?                                                                                                           
                                                                                                                                
MR. PALMER noted  there were separate slides for each  topic.  He                                                               
said  ANNGTC   was  the  original  partnership.     He  addressed                                                               
Alaska/Mackenzie timing, slide 12, which showed the following:                                                                  
                                                                                                                                
     -  Mackenzie Valley pipeline scheduled to be in-service                                                                    
        by 2014                                                                                                                 
        - TransCanada currently plays  a modest role in that                                                                    
          project                                                                                                               
     -  TransCanada's  proposed  schedule  for   the  Alaska                                                                    
        pipeline has project in-service by 2017                                                                                 
     -  If both  target  dates  can  be achieved,  there  is                                                                    
        significant    opportunity    for    equipment/labor                                                                    
        synergies and cost-savings on the Mackenzie, and the                                                                    
        Canadian section of the Alaska Pipeline                                                                                 
                                                                                                                                
MR. PALMER  elaborated, saying the  Mackenzie Valley  pipeline is                                                               
to move Northern  Canadian gas; TransCanada has the  right to own                                                               
about 5 percent.  There are  three years between the target dates                                                               
for that and  the Alaskan project.  If they  stay on schedule, at                                                               
least on  the Canadian side,  there is a  significant opportunity                                                               
to use  the same equipment and  much of the same  labor, lowering                                                               
the cost.   Labor  on the  Alaskan project  will be  much higher,                                                               
since  Alaskan labor  will  be required  for  that component,  as                                                               
always contemplated.                                                                                                            
                                                                                                                                
5:02:09 PM                                                                                                                    
MR. PALMER highlighted how the  U.S. government could support the                                                               
project,  slide  13, which  specified  that  these are  ideas  to                                                               
improve   the  probability   of   success,   not  conditions   to                                                               
TransCanada's AGIA application.  The points on slide 13 were:                                                                   
                                                                                                                                
     - $18 billion Loan Guarantee Approved in 2004                                                                              
        - Allocate  a  portion  to  fund  any  capital  cost                                                                    
          overruns                                                                                                              
        - Least cost option for customers                                                                                       
        - Ensure TransCanada  will not earn extra  return if                                                                    
          costs increase                                                                                                        
        - Debt servicing through toll  surcharge, to be paid                                                                    
          only  when  gas  prices  exceed  a  pre-determined                                                                    
          threshold price                                                                                                       
                                                                                                                                
     -  "Bridge Shipper"                                                                                                        
        - US Govt.  could ensure  a successful  initial Open                                                                    
          Season  for  the project  by  acting  as a  bridge                                                                    
          shipper (i.e,  by executing a  firm transportation                                                                    
          agreement)                                                                                                            
        - Once the full initial  capacity of the pipeline is                                                                    
          contracted by  3rd party shippers, the  US Govt.'s                                                                    
          obligations would be terminated                                                                                       
        - US Govt. role would  significantly reduce the risk                                                                    
          and lead time of  the project by permitting access                                                                    
          to private  capital markets and a  firm in-service                                                                    
          date                                                                                                                  
                                                                                                                                
MR. PALMER emphasized  that the U.S. government  could decide not                                                               
to pursue these ideas or may  want to pursue others.  TransCanada                                                               
believes these ideas  should be considered.   If not, TransCanada                                                               
will continue  to move forward  and meet the requirements  of its                                                               
AGIA application.  He noted details were provided earlier.                                                                      
                                                                                                                                
5:03:25 PM                                                                                                                    
MR.  PALMER turned  to TransCanada's  AGIA applicants,  slide 14,                                                               
which had the following points:                                                                                                 
                                                                                                                                
     - Foothills Pipe Lines Ltd. in Canada                                                                                      
     - TransCanada Alaska Company, LLC in Alaska                                                                                
        - Separate legal entity from ANNGTC                                                                                     
        - No liability to ANNGTC or Withdrawn Partners                                                                          
        - New  start  in  Alaska  - no  utilization  of  any                                                                    
          ANNGTC    assets    (certificate,    Right-of-Way,                                                                    
          permits, engineering, geotechnical, etc.)                                                                             
        - TransCanada's  AGIA application  commits to  never                                                                    
          including any  potential ANNGTC liability  in AGIA                                                                    
          project tolls                                                                                                         
                                                                                                                                
MR.  PALMER  explained that  Foothills  Pipe  Lines Ltd.  is  the                                                               
traditional  applicant for  the  project that  owns the  Canadian                                                               
assets.  Saying there are  no significant issues there, he added,                                                               
"In  fact, there  are benefits  to the  project proceeding  under                                                               
that Act because we have  a single-window regulatory agency."  He                                                               
said  the entity  put  forward in  Alaska  is TransCanada  Alaska                                                               
Company, LLC, separate from the original partnership.                                                                           
                                                                                                                                
MR. PALMER  highlighted the  other points,  adding that  the cost                                                               
estimates and  schedule start  from scratch,  in effect  taking a                                                               
very  conservative view.    He expressed  hope  that these  would                                                               
allay any concerns.                                                                                                             
                                                                                                                                
5:04:47 PM                                                                                                                    
MR. PALMER  turned to ANNGTC,  slide 15, which had  the following                                                               
points that he paraphrased:                                                                                                     
                                                                                                                                
     - Formed in 1970s to construct Alaska Section                                                                              
        - 11 original partners                                                                                                  
    - All    have   withdrawn   except    two   TransCanada                                                                     
        subsidiaries                                                                                                            
        - Those subsidiaries are not AGIA applicants                                                                            
        - No duties to Withdrawn Partners - Current or                                                                          
          Future                                                                                                                
          - Neither the two remaining TransCanada partners,                                                                     
             nor any other TransCanada entity, owes any duty                                                                    
             to the Withdrawn Partners                                                                                          
          - Withdrawn partners forfeited rights to be                                                                           
             treated as a partner                                                                                               
             - Entitled only to contractual right to                                                                            
               payment                                                                                                          
               - If and when ANNGTC builds the pipeline,                                                                        
                  and                                                                                                         
               - If payment would not pose undue hardship                                                                       
                  on ANNGTC                                                                                                     
        - No duty to pursue the project on behalf of                                                                            
          Withdrawn Partners                                                                                                    
     - No TransCanada entity is prohibited from pursuing a                                                                      
        different project                                                                                                       
                                                                                                                                
MR. PALMER explained  that TransCanada and ANNGTC  had decided in                                                               
the fall of  2007 that the latter wasn't a  viable entity for the                                                               
project;  ANNGTC  is  not  going  to  build  the  pipeline.    He                                                               
indicated with  the enabling U.S. federal  legislation passed 3.5                                                               
years ago  - the Alaska  Natural Gas Pipeline Act  (ANGPA), under                                                               
which TransCanada's application is going  forward - any party can                                                               
do that.                                                                                                                        
                                                                                                                                
5:06:08 PM                                                                                                                    
MR. PALMER addressed  upstream fiscal terms, slide  16, which had                                                               
the following points:                                                                                                           
                                                                                                                                
      - TransCanada's AGIA obligations are not conditional                                                                      
        on a review of Alaska's upstream fiscal terms.                                                                          
     - TransCanada acknowledges that this issue is between                                                                      
        the State and natural gas producers.                                                                                    
        - TransCanada requests that the State resolve                                                                           
          upstream fiscal terms for natural gas prior to                                                                        
          the initial open season.                                                                                              
                                                                                                                                
MR. PALMER added that TransCanada  hopes to hold that open season                                                               
in the  summer-fall of 2009.   If the State of  Alaska decides it                                                               
needs to change the natural  gas production tax or other upstream                                                               
regimes, those  could be  reviewed next  year during  the regular                                                               
session or some other time.                                                                                                     
                                                                                                                                
5:07:01 PM                                                                                                                    
SENATOR  WIELECHOWSKI noted  TransCanada's calculations  show the                                                               
producers earning $7.3 billion a  year before upstream costs.  He                                                               
asked  whether, in  Mr.  Palmer's  experience, Alaska's  upstream                                                               
terms need to be fixed.                                                                                                         
                                                                                                                                
MR. PALMER  replied he wasn't in  a position to comment  on that.                                                               
TransCanada only  asks that  the State  of Alaska  has considered                                                               
what  is in  place and  is either  confident it's  an appropriate                                                               
system or  has undertaken  to review it  before the  initial open                                                               
season.                                                                                                                         
                                                                                                                                
MR.  PALMER  explained  that, for  simplification,  TransCanada's                                                               
analysis assumed  a flat 25 percent upstream  gas production tax;                                                               
this  appears  in the  application.    However, Alaska's  current                                                               
structure  includes   some  progressivity.    For   upstream  gas                                                               
production costs,  about which TransCanada has  no knowledge, the                                                               
assumption used  was $1.50  plus inflation.   Mr.  Palmer pointed                                                               
out that  Alaska's legislature and  administration have  a better                                                               
view of those than TransCanada has.                                                                                             
                                                                                                                                
5:08:57 PM                                                                                                                    
SENATOR STEDMAN  surmised Mr. Palmer believes  the aforementioned                                                               
is an obstacle.                                                                                                                 
                                                                                                                                
MR.  PALMER replied  they've heard  debate and  press discussion,                                                               
and those parties  most affected - the state and  the producers -                                                               
have expressed  themselves.   TransCanada isn't  providing advice                                                               
on this matter.   Rather, TransCanada is asking that  by the time                                                               
there is an  open season the state will at  least have considered                                                               
whether it has an attractive system.                                                                                            
                                                                                                                                
CHAIR HUGGINS  suggested there will  be a 15- to  16-month window                                                               
to address that issue.                                                                                                          
                                                                                                                                
MR. PALMER affirmed  that, predicting if a license  is granted in                                                               
April, an open season will be held in the summer-fall of 2009.                                                                  
                                                                                                                                
5:10:43 PM                                                                                                                    
MR. PALMER touched  on the next steps, slide 17.   He said public                                                               
comment continues to  March 6; then the  administration will make                                                               
a recommendation, although the timeframe  isn't certain; if there                                                               
is a positive recommendation, the  legislature will review it and                                                               
decide whether  to approve  it; and  if it  is approved,  an AGIA                                                               
license may  be granted  this year.   He then  wrapped up  with a                                                               
summary, slide 18, paraphrasing the following points:                                                                           
                                                                                                                                
         - Last year the Administration and Legislature                                                                         
        established AGIA as Alaska's transparent process to                                                                     
        advance a gas pipeline project                                                                                          
    - TransCanada    submitted    a   through,    creative,                                                                     
        competitive and complete AGIA application                                                                               
       - TransCanada has the credentials and capacity to                                                                        
        build, own, operate and expand the project                                                                              
       - If selected as the AGIA Licensee, TransCanada's                                                                        
        obligations are  not  conditional  on the  US  Govt.                                                                    
        approving TransCanada's  "bridge  shipper"  or  loan                                                                    
        guarantee concepts, nor  on the  State renegotiating                                                                    
        upstream fiscal terms                                                                                                   
     - The proposed TransCanada project will not be saddled                                                                     
        with a "$9 billion liability"                                                                                           
        - TransCanada's AGIA applicants have committed that                                                                     
          in the unlikely event there ever is any                                                                               
          liability, it will not be included in project                                                                         
          tolls.                                                                                                                
                                                                                                                                
5:12:56 PM                                                                                                                    
SENATOR WAGONER  recalled testimony a  week ago from  someone who                                                               
prefers  a  later  open  season,  rather  than  18  months  after                                                               
licensing by  the state.  Surmising  a time crunch was  partly to                                                               
blame because that party is  currently exploring for gas, he said                                                               
the testimony  was that the  later the  open season is,  the more                                                               
accurate the tariff will be.  He asked whether that is correct.                                                                 
                                                                                                                                
MR. PALMER  answered that TransCanada believes  Alaska also wants                                                               
this  project to  move forward  expeditiously.   Thus TransCanada                                                               
believes moving  quickly to an  open season is appropriate.   The                                                               
company has committed to hold  open seasons every two years after                                                               
the initial  one.   So if  a party  was unable  to commit  in the                                                               
initial   open  season   but  could   commit  two   years  later,                                                               
TransCanada would look  to accommodate that party  in the initial                                                               
pipeline capacity; this  would depend on the  initial volumes and                                                               
incremental volumes, however, and it couldn't be guaranteed.                                                                    
                                                                                                                                
MR.  PALMER suggested  that  waiting  a year  or  two won't  give                                                               
better  costs.   The same  amount  of work  has to  be done,  and                                                               
spreading it over  a longer time doesn't  accelerate the project.                                                               
The  concern  on  this  project  has always  been  that  after  a                                                               
successful  open season  it will  be eight  years before  it goes                                                               
into service.   Deferring the  open season  and thus the  rest of                                                               
the schedule just moves the project  back a year or two, which he                                                               
surmised isn't to anyone's benefit.                                                                                             
                                                                                                                                
5:15:11 PM                                                                                                                    
SENATOR WAGONER asked  why oil and gas  producers generally don't                                                               
like to own or operate pipelines.                                                                                               
                                                                                                                                
MR.  PALMER   replied  that  traditionally  North   American  gas                                                               
pipelines  have been  built, owned,  and operated  by independent                                                               
pipelines;  in relatively  rare  instances,  producers decide  to                                                               
commit their equity to own and  build a pipeline.  Most producers                                                               
have  a higher  cost of  capital, and  their equity  shareholders                                                               
look for  a higher  rate of  return than can  be obtained  with a                                                               
pipeline;  hence   they  usually  invest  in   riskier  projects,                                                               
generally exploration and development of gas and/or oil.                                                                        
                                                                                                                                
MR.  PALMER  said  pipeline companies  such  as  TransCanada,  by                                                               
contrast,  are pleased  to get  a  regulated rate  of return  and                                                               
relatively low  variability.  Their shareholders  reward them for                                                               
finding investment opportunities that often  take a lower rate of                                                               
return but have lower variability  or volatility than exploration                                                               
and production provide.                                                                                                         
                                                                                                                                
MR. PALMER  highlighted a second  reason:  In most  basins, there                                                               
isn't  a  controlling producer  or  group  of producers.    There                                                               
usually  are tens  or hundreds  of  producers.   Bringing such  a                                                               
group together to own  a pipeline can be complex.   And if two or                                                               
three producers control  the leases or production  for a majority                                                               
of the gas,  governments often are motivated to  ensure there are                                                               
rules  so other  parties  can become  shippers  on the  pipeline,                                                               
beyond those initial shippers, on a fair and open basis.                                                                        
                                                                                                                                
5:18:12 PM                                                                                                                    
SENATOR WIELECHOWSKI  said TransCanada obviously is  a successful                                                               
company and  didn't get that  way by building pipelines  to areas                                                               
where  gas  couldn't  be  obtained.     He  asked  how  confident                                                               
TransCanada is  that it can  fill the proposed pipeline  with gas                                                               
and have a successful open season.                                                                                              
                                                                                                                                
MR. PALMER replied  TransCanada wrestled with that  mightily.  It                                                               
likely will cost  over $600 million to go through  an open season                                                               
and the FERC certification process.   The company understands and                                                               
appreciates  that  the government  is  prepared  to contribute  a                                                               
significant share of that, but  there are significant differences                                                               
between the upsides for the State of Alaska and TransCanada.                                                                    
                                                                                                                                
MR. PALMER said  macro economic issues were looked at  first.  In                                                               
order to  advance any project,  one must  at least believe  it is                                                               
economic.   TransCanada  looked at  gas price  forecasts; demand;                                                               
how much the  project likely would cost; and  whether Alaskan gas                                                               
could   compete   with   other  supplies,   both   domestic   and                                                               
international, in moving gas to the Lower 48 and Canada.                                                                        
                                                                                                                                
MR.  PALMER  reported  that  the  commitment  of  governments  to                                                               
advance this project  was looked at next.  He  said no commercial                                                               
company can advance  this project on its own.   It's no different                                                               
from any  other long-line, new  basin pipeline, which  no company                                                               
can do alone.   No company owns the land  between Prudhoe Bay and                                                               
the Lower 48.  Cooperation will be needed from governments.                                                                     
                                                                                                                                
MR.  PALMER  told members  TransCanada  also  had looked  at  the                                                               
commitment of  the administration  and the legislature  last year                                                               
in passing  AGIA, as well  as public  expressions by a  number of                                                               
parties over  the last few  years.  TransCanada's  assessment was                                                               
that Alaskans  want this  project to  proceed expeditiously.   He                                                               
opined that  there is support  from the U.S. government  and that                                                               
Canada will  be committed  to advance  the project,  since Canada                                                               
has  obligations  to the  United  States  in  a treaty  for  this                                                               
specific project.  Those were considerations.                                                                                   
                                                                                                                                
MR. PALMER  said micro economic  components were then  looked at,                                                               
such as  whether TransCanada has  the credentials  and capability                                                               
to advance  this project and  to put forward proposals  likely to                                                               
be  acceptable  and  attractive  to  producers,  other  potential                                                               
shippers,  and  governments.   When  his  company considered  all                                                               
those,  it  decided to  risk  its  time,  money, and  talents  to                                                               
advance the project.                                                                                                            
                                                                                                                                
5:21:46 PM                                                                                                                    
MR. PALMER, in response to  Senator Stedman, said TransCanada has                                                               
been  a  pipeline company  for  some  50 years,  and  electricity                                                               
generation is a  much younger but growing  component, about 33-40                                                               
percent of its business.                                                                                                        
                                                                                                                                
SENATOR STEDMAN asked how TransCanada  would handle the potential                                                               
risk of getting  an AGIA license, going through an  open season -                                                               
even if  it fails - and  then going to FERC,  when another entity                                                               
may go outside of AGIA to FERC for such a certificate.                                                                          
                                                                                                                                
MR.  PALMER  answered  that  TransCanada's  obligation,  if  it's                                                               
granted  the  AGIA  license,  is  to hold  an  open  season;  the                                                               
application   describes  what   that  involves.     If   that  is                                                               
unsuccessful  despite the  best efforts  of the  company and  the                                                               
governments,  it   still  would  move  to   FERC  pre-filing  and                                                               
certification.                                                                                                                  
                                                                                                                                
MR. PALMER  said TransCanada  isn't aware  of another  party that                                                               
has put forward  a FERC application or intends  to, although some                                                               
parties have  indicated they may  wish to do  so if they  have an                                                               
upstream fiscal arrangement  with the State of Alaska.   There is                                                               
always risk.   If another party did go forward,  he surmised FERC                                                               
would have  to consider a  competitive process or whether  it was                                                               
prepared to grant more than one certificate.                                                                                    
                                                                                                                                
5:25:21 PM                                                                                                                    
SENATOR  STEDMAN returned  to the  timeline, slide  6.   He asked                                                               
Mr. Palmer to address  potential litigation to get  access to the                                                               
gas if  there aren't sufficient  quantities to make  the proposal                                                               
viable.  He also gave  his understanding that megaprojects around                                                               
the world go  through decision "gates" before  recommitting to go                                                               
to  the next  step,  to  ensure the  project  won't  derail.   He                                                               
inquired about such gates for this proposal.                                                                                    
                                                                                                                                
MR. PALMER replied  TransCanada is obliged, pursuant  to AGIA, to                                                               
move forward through the FERC  application and filing.  There are                                                               
no gates  up to that point.   However, AGIA doesn't  require that                                                               
the pipeline be built.  If  TransCanada has customers and has met                                                               
those  tests,  then  there  are  such gates,  set  forth  in  its                                                               
application, for after the AGIA obligations have been met.                                                                      
                                                                                                                                
MR.  PALMER  addressed  whether  the  state  would  pursue  other                                                               
actions  to obtain  gas if  the gas  wasn't committed.   He  said                                                               
TransCanada   will  continue   through  FERC   certification,  as                                                               
required.  It  is up to the  state to decide what to  do if there                                                               
is a failed open season; TransCanada  wouldn't be a party to that                                                               
decision, but would  continue to seek customers,  as described in                                                               
its application.  TransCanada won't  complete the project in 2017                                                               
if there are no customers or  credit; AGIA doesn't require it and                                                               
TransCanada's application doesn't contemplate it.                                                                               
                                                                                                                                
5:28:33 PM                                                                                                                    
SENATOR STEDMAN  said it appears only  TransCanada's proposal met                                                               
the AGIA criteria  and thus there aren't competing  projects.  He                                                               
asked how the  state would do a fiscal comparison  to see if that                                                               
proposal is in the state's best interest.                                                                                       
                                                                                                                                
MR. PALMER replied he'd tried  to describe the competitive forces                                                               
TransCanada felt  last fall.   This is  the norm for  any request                                                               
for  proposals (RFP)  process;  TransCanada  has participated  in                                                               
those across  the world, and  he has  competed 20-30 times.   The                                                               
competition usually  occurs in advance  of the submission  by any                                                               
party, because  one company isn't  aware of what others  will put                                                               
forward.   A company that  wants to win  must put forward  a best                                                               
and final offer or else risk losing what may be a good project.                                                                 
                                                                                                                                
MR. PALMER  said TransCanada has  competed for this project.   It                                                               
put forward its best proposal, a  strong one.  The state may wish                                                               
to consider  what others submitted; those  are publicly available                                                               
on the  state's web site  and would at least  provide benchmarks.                                                               
Noting  TransCanada's application  describes its  credentials and                                                               
record,  he added  that the  state can  test the  assumptions put                                                               
forward by either the administration or TransCanada.                                                                            
                                                                                                                                
SENATOR STEDMAN recalled  testimony in prior years  about who was                                                               
able  to   construct  a  particular  project,   with  conflicting                                                               
opinions.  He said clearly  TransCanada has the ability to handle                                                               
this  project  once  there  is  gas committed  so  there  can  be                                                               
financing.   He  asked:   Isn't  TransCanada's biggest  advantage                                                               
that the  AGIA license puts  it in  the mix when  agreements come                                                               
together to access gas from the three major producers?                                                                          
                                                                                                                                
MR.  PALMER  expressed hope  that  TransCanada  will continue  to                                                               
convince  Alaskans about  its abilities  regarding this  project.                                                               
The company believes  it continues to have a  strong position for                                                               
the  Canadian  portion  because of  its  traditional  rights  and                                                               
position.  However, Alaskans have  chosen the AGIA process as the                                                               
mechanism.   As  he'd  testified for  several years,  TransCanada                                                               
believes there  should be  a coming together  of the  three North                                                               
Slope producers, the state, and TransCanada.                                                                                    
                                                                                                                                
MR.  PALMER   reiterated  that  TransCanada's   AGIA  application                                                               
proposes that parties  that commit their gas in  the initial open                                                               
season will have  the opportunity to have equity  in the project.                                                               
TransCanada believes a mechanism can  be used in the initial open                                                               
season   so   initial   shippers  may   become   equity   owners.                                                               
TransCanada  seeks  to have  the  project  go forward  with  base                                                               
shippers committed to the project.                                                                                              
                                                                                                                                
SENATOR STEDMAN  clarified that he  was glad  TransCanada applied                                                               
and  was trying  to look  at how  holding that  AGIA license  may                                                               
protect its interests.                                                                                                          
                                                                                                                                
MR.  PALMER replied  that clearly  TransCanada  has decided  this                                                               
would  be   a  good  investment,   even  though  it   would  risk                                                               
significant  time,  money,  and  talent.    Thus  TransCanada  is                                                               
participating in the  AGIA process, hoping to  win and optimistic                                                               
that this project will be a success.                                                                                            
                                                                                                                                
CHAIR HUGGINS  thanked Mr. Palmer.   He recognized  Jerry Burnett                                                               
from the administration and thanked him as well.                                                                                
                                                                                                                                
There being  no further  business to  come before  the committee,                                                               
Chair Huggins  adjourned the Senate Resources  Standing Committee                                                               
meeting at 5:37:18 PM.                                                                                                        

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