Legislature(2007 - 2008)FBX Carlson Center
06/14/2008 10:00 AM Senate SENATE SPECIAL COMMITTEE ON ENERGY
| Audio | Topic |
|---|---|
| Start | |
| SB3001|| HB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB3001 | TELECONFERENCED | |
SB3001-APPROVING AGIA LICENSE
HB3001-APPROVING AGIA LICENSE
10:11:05 AM
CHAIR CHARLIE HUGGINS called the Senate Special Committee on
Energy meeting to order in Fairbanks, Alaska. Under
consideration was SB3001/HB3001.
10:12:43 AM
TONY PALMER, TransCanada (TC) Vice-President of Alaska Business
Development, Calgary, Alberta, said he wanted to talk about why
TC was pursuing this project, who they were, and how they would
proceed if granted the AGIA license. He spent 30 years in
infrastructure development, and 23 years in the gas pipeline
business in North America and internationally. He said TC
developed the first three gas pipelines across the Andes in
South America, and at the same time constructed 7,000 miles of
pipe in North America. He was very proud of that record and
pleased TC had the opportunity to gain that experience. He began
working on this project in 1985, worked on international
projects in the interim, and had been back on this project for
the last seven years. He said he hoped to be able to answer any
questions posed.
10:15:19 AM
MR. PALMER said TC pursued the project because of its strong
economics. The company looked at factors such as the
supply/demand balance in North America, expectations of gas
prices, and the cost of the project. He said they also
considered the state's commitment to advance the project. TC saw
support from Alaskans, the legislature, and the administration
which was very important to their decision to participate.
MR. PALMER said TC bid according to the responsibilities set out
in the AGIA statute and the RFP and expected a vote by the
legislature based on those items.
MR. PALMER said this project was a strategic fit for TC and if
successful should advance the company's overall goals. He said
there was spare capacity in the existing system from Western
Canada to the Lower-48 market as a result of increasing demand
for natural gas in Alberta. He said they expected sufficient
spare capacity in ten years to move the Alaska volume away from
Western Canada to the Lower-48.
MR. PALMER said he heard speculation that Alaskan gas would end
up in Alberta's tanks. He clarified that today Western Canada
exports about 9 bcf/day to the Lower-48 in addition to its own
use. That volume was expected to decline to 6 to 7 bcf/day he
said, so when Alaskan gas comes to market that would add to the
volume available for export into the United States. He said
Canada did not need Alaskan gas as their needs would be supplied
by Western Canadian gas.
10:20:22 AM
MR. PALMER said TC had sole rights in Canada and an expedited
regulatory process. He said it was highly unusual to move gas
from one country, across another producing country, and back
into the originating country, but Canada and the United States
established a treaty to do so about 30 years ago and there was
specific Canadian legislation for this project. When AGIA was
enacted TC had a decision to make. They determined this was an
appropriate investment and believed the corporation was
fundamentally aligned with the state's objectives to promote
basin development in the long and short term, to enhance
employment for Alaskans, and to provide in-state gas for
Alaskans.
MR. PALMER said TC had been involved in a great number of gas
pipeline competitions. He said it was also important to foster
competition between producers at the upstream end of the pipe.
He said in TC's experience, competition in the producing area
led to greater development on a long term basis.
MR. PALMER stated he believed TC's application was strong and
competitive. He said the company estimated it would cost upwards
of $600 million dollars to get through FERC certification as
required under AGIA. TransCanada shareholders made a decision to
invest more than $100 million dollars to take the risk that this
project would move forward and be successful and was not made
lightly. He said pipeline companies had a regulated rate of
return and the potential return to the State of Alaska was much
higher than TC's. He said the State would benefit directly from
royalties and as a sovereign collector of taxes, but also from
the development that will come from this project.
10:26:24 AM
MR. PALMER said TC had a very large U.S. presence and owned
12,000 miles of interstate natural gas pipeline, and had
employees, assets, and offices in the United States. He said TC
believed circumstances in Alaska were similar to the development
in the Western Canadian states. TC started with three customers
in Western Canada and currently had 300. Other similarities
included working farthest from the major markets and potential
for high reserves in the basin.
MR. PALMER said TC had the engineering, financial, regulatory
capacity, and experience to do the project. He said TC was not a
producer but a transporter moving twenty percent of North
American gas. He also said independent benchmarking studies
indicated TC operating costs were 25-35 percent lower than
competitors in Canada and the United States. Mr. Palmer said
Senator Lyman asked if similar third-party statistics existed on
capital costs. He said there were not, but he did ask TC's
engineering and operations departments for information. For the
period 1993-2003, large diameter (42-48 inch) pipe construction
capital costs in Canada were 19 percent lower than competitors
and 38 percent lower than FERC competitors.
10:33:05 AM
REPRESENTATIVE GARDNER asked how close to estimate TC was when
costs came in.
MR. PALMER said through the 1990's TC built 7,000 miles of pipe,
came in on schedule, and were within 0.6 percent of budget in
totality. He said every project was not on budget and on
schedule but over the course of that decade TC had a remarkable
record.
CHAIR HUGGINS asked if Keystone was a part of that data.
MR. PALMER said TC just started a new construction project two
weeks ago to build a $5 billion dollar oil pipeline from Alberta
to the St. Louis area and Cushing, Oklahoma. He said it would be
another year or two before he could describe what the completion
record would be for that project.
10:35:33 AM
MR. PALMER said other skills required to construct a project
besides engineering and operations included understanding the
regulatory situation in Canada and the United States,
environmental issues, community needs, First Nation rights, and
available customers.
MR. PALMER said TC had the financial capacity to complete the
project. TC had access to the capital markets and a very large
internal cash flow, and the capacity to raise money he said.
Other positive factors included the U.S. government loan
guarantee and Goldman Sachs independent review indicating TC
could do the project from a financial standpoint.
10:37:24 AM
SENATOR MCGUIRE asked if Mr. Palmer had conversations with
members of Congress about accessing the loan guarantee and for
an update on the resolution regarding First Nation issues.
MR. PALMER replied he had not discussed the loan guarantee with
congressional members. TC did have initial discussions with
staff members and Department of Energy (DOE) staff to let them
know TC would pursue the loan guarantee if granted the license.
SENATOR MCGUIRE restated the second question [indiscernible].
CHAIR HUGGINS said the question had to do with First Nation
right-of-way issues.
MR. PALMER said the proposed route through Canada was about one
thousand miles from the Alaska/Yukon border to Alberta and
traveled through a number of First Nation territories. He said
TC had some significant advantages concerning right-of-way. In
1983, TC received a right-of-way through the Yukon which was an
asset critical to advancing the project. Ten years later, an
umbrella agreement was finalized between the Canadian
government, the Yukon government, and the council of Yukon
Indians that recognized TC's right-of-way and excluded TC from
any future land claim settlements. He said since the agreement
was made, six of the eight First Nations along the right-of-way
had settled land claims and in each case TC's right-of-way was
protected. He added there was no final right-of-way through BC
into Alberta, but there was a formal process to establish a
right-of-way which TC would follow if granted the license.
CHAIR HUGGINS asked the amount of TC's annual right-of-way
payment.
MR. PALMER answered the payment was about $200,000.
10:45:19 AM
REPRESENTATIVE GARA asked if TC qualified for the federal loan
guarantee.
MR. PALMER answered he believed they qualified and the loan was
applicable to both the Alaskan and Canadian portions of the
line. He did not believe the nationality of the proponent was a
contingency of the legislation.
REPRESENTATIVE GARA asked if TC's ability to go ahead with the
project was impaired if the loan guarantee was not available to
use for cost overruns.
MR. PALMER answered no it was not. He said TC intended to
allocate a portion of the loan guarantee to cover capital cost
overruns which was an innovative and creative way to manage
completion risks. He said if the U.S. government did not accept
that idea the loan guarantee would be applied to the base loan.
10:47:31 AM
REPRESENTATIVE GARDNER asked Mr. Palmer to describe TC's
relationship with Embridge, a company proposing work on the
Denali project.
MR. PALMER said he could not speak for one of his competitors
and they had not approached TC as a potential shipper. He was
not aware of any involvement on their part in the Denali
project.
REPRESENTATIVE GARDNER asked if Embridge had any potential claim
to TC's right-of-way.
MR. PALMER answered no.
10:49:03 AM
REPRESENTATIVE FAIRCLOUGH said she was concerned the Canadian
government was prioritizing the McKenzie project to go before
the Alaska project and wondered how that might affect the
timeline.
MR. PALMER said he did not believe the Canadian government would
hold back this project to advance the McKenzie project. He said
the government agreed to a treaty to expedite the Alaska
project. He did expect the government to do all they could to
advance their own gas project, but did not think that conflicted
with the Alaska project. He said the McKenzie project appeared
to have a two to four year head start and complications could
occur if that lead was maintained. He had not heard anything
from the Canadian government about holding back the Alaska
project and they would not be in a position to do so if they
were going to honor the treaty.
REPRESENTATIVE FAIRCLOUGH said she hoped the administration was
following the Canadian situation closely. She believed it would
be natural for Canada to push their project forward first.
COMMISSIONER PAT GALVIN, Department of Revenue, Juneau, said the
administration had consulted with two different sets of Canadian
council on the issue. He said there was a report within the
findings about the Canadian regulatory issues and the
relationship between the McKenzie and Alaska projects.
10:51:59 AM
REPRESENTATIVE FAIRCLOUGH asked if Canada would try to get
Alaska to pay maintenance dollars for the Alaska Highway through
Canada and if there was a possibility to fold those costs into
the TC tariff.
10:53:04 AM
MR. PALMER said he could not speak for the Yukon or Canadian
governments on that issue. He said if TC would be required to
include costs of a transportation upgrade in the tariff, it
would impact every customer on the pipeline and decrease
royalties and revenues to the State of Alaska and producers. He
said highway upgrades on a massive scale were not something a
pipeline company traditionally bore.
REPRESENTATIVE FAIRCLOUGH said she concurred. She said she
wanted everyone to recognize the potential harm to exploration
in the basin if tariffs were raised and to make sure the
administration was following the issue.
CHAIR HUGGINS said Representative Fairclough brought up a very
important issue and it was important to examine the resolutions
under consideration.
10:56:06 AM
COMMISSIONER GALVIN acknowledged this was the tip of the iceberg
concerning infrastructure and cross-border issues and
recommended that members review the report. He said the
administration concluded these issues were manageable.
10:57:01 AM
REPRESENTATIVE NEUMAN asked Mr. Palmer to provide more
information on the Canadian statute regarding the McKenzie and
Alaska pipelines and which one goes first. He also said he would
like to see as many Alaskans and Alaskan companies working on
the line as possible. He asked how TC planned to keep overhead
costs down and what they would do to insure Alaskans had an
opportunity for jobs.
MR. PALMER said the treaty between Canada and the United States
was available on the internet, but he would try to provide a
copy next week during the Anchorage meeting.
MR. PALMER added TC's commitment to maximize business and
employment opportunities for Alaskans under AGIA would be
reflected in the contract. He said in any geographic location it
made sense for large engineering procurement construction
management firms to sub-contract work out locally to the maximum
extent possible. As for any party, local businesses would have
to meet TC standards for safety, quality control, and be
competitive in terms of prices. He said a pre-registration
process for contractors would be available later on the TC
website if the license was granted, and anyone who would like to
understand how that process worked was welcome to go to the
website and click on the Keystone project. He added there was
generally a cost savings by using local contractors for sub
work. He said TC had a quality record of balancing the issues of
local opportunity and employment and balancing costs.
REPRESENTATIVE NEUMAN asked if a standard construction contract
was available for Alaskan companies to review.
MR. PALMER said he did not know, but would find an answer.
11:03:38 AM
REPRESENTATIVE NEUMAN asked for a side by side comparison of the
AGIA and Stranded Gas proposals submitted by TC.
MR. PALMER said the Stranded Gas Development Act application was
submitted confidentially under the rules established by the
previous administration. He said TC had provided current members
of the body full access to that information but did not intend
to publish it publicly.
CHAIR HUGGINS reminded the body a confidentiality process was in
place for members to get access to the document.
11:04:40 AM
SENATOR WAGONER asked if a schedule was in place for the two
First Nations groups with unsettled lands claims.
MR. PALMER said he was not aware of a schedule or if they were
in active negotiations.
11:05:58 AM
REPRESENTATIVE ROSES said he had some concerns with the McKenzie
versus Alaska pipeline and which one got completed first. A news
article he read quoted a former TC employee stating how
important it was for the McKenzie line to be completed first
because of TC's ability to handle the volume of gas coming out
of the McKenzie and Alaska lines. He said the fear was if the
Alaska line were finished first it would totally shut down the
opportunity for the McKenzie line to be developed. The article
also said if both pipelines were being built at the same time it
would drain the supply as well as the work force and therefore
drive up the costs of both projects. He was also concerned
tariffs would be higher if the McKenzie line went first because
growth of the line would be necessary raising expansion rates.
11:08:22 AM
MR. PALMER said the former employee quoted in the article was
now president of the Aboriginal Pipeline Group, one of the
sponsors of the McKenzie project, so he could see why he would
want it to go forward as quickly as possible. He also said TC
had more than $130 million dollars supporting the project so
they were highly motivated to see it completed. He did not
believe the McKenzie project moving forward would preclude
advancement of the Alaska project. He added he did not think one
project would force the other out of the market. He then said
construction capacity to build both of the projects
simultaneously was likely, but uncertain, and could increase the
costs of both projects. He thought the Canadian government and
the McKenzie project proponents were aware they needed to move
things along or face potential procurement and construction
conflicts. He added the data he provided assumed McKenzie gas
would be flowing prior to Alaskan gas and sufficient capacity
existed to move Alaskan gas. He said if the McKenzie project
happened after the Alaska project there would be even more spare
capacity.
REPRESENTATIVE ROSES asked if that capacity included the need to
expand the pipeline.
MR. PALMER said no, based on their best estimates of supply and
demand in western Canada.
11:12:29 AM
SENATOR THERRIAULT asked about the possible benefits to the
citizens in the Yukon from Alaskan gas getting to market.
MR. PALMER said he had not heard any opposition from the
government, citizens, communities, or First Nations groups in
the Yukon. He thought there was very strong support for the
project. He said benefits could include construction
opportunities, employment, property tax collections, and income
tax collection. Also, remote communities along the right-of-way
would have access to the gas and possible producer opportunities
with easy access to the line.
11:15:40 AM
SENATOR McGUIRE thought it would be helpful to meet with
representatives from the Yukon and Canadian governments to
discuss some of the issues that repeatedly surface, particularly
around the McKenzie project.
MR. PALMER said TC would be willing to participate in that
discussion but could not speak for the government.
SENATOR McGUIRE asked if someone who deals with work force
development issues could be made available to answer questions.
MR. PALMER said yes, he would be happy to bring someone in if
there was going to be an extensive line of questioning.
CHAIR HUGGINS said scheduling would be coordinated with the
administration. He then reminded members that "regulatory day"
was scheduled for Anchorage and the NEB would not be present as
requested.
11:18:49 AM
REPRESENTATIVE GARDNER said she was interested in learning how
TC would promote and support the effort to use Alaskan sub-
contractors. She thought Alaskans were interested in insuring
policies would be in place to promote the use of Alaskan
contracting firms.
MR. PALMER said TC would be bound by some AGIA requirements and
it was TC policy to use local sub-contractors when possible. He
said that was their practice in any geographic location and they
intended to follow that procedure in Alaska.
11:20:16 AM
REPRESENTATIVE KELLY asked if the Denali project participants
were facing the same issues as TC.
MR. PALMER answered yes, any project that proposed to follow the
same route through Canada would face the same issues. He added
that all information about how TC intended to deal with those
issues was before the body and available to the public. He also
said he believed TC had some advantages over other parties as he
had stated previously.
11:23:45 AM
REPRESENTATIVE RAMRAS asked what kind of corporate citizen and
what their donation practices to charitable organizations would
be.
MR. PALMER said TC had a corporate policy on donations which
would be applied to Alaska, the same as it was across North
America. He added TC would be an active and straightforward
participant in the community if granted the license.
11:25:39 AM
SENATOR THOMAS said he believed this project was smaller and
more manageable than the oil pipeline construction. He said
people should not assume this was the same type of project
because construction needs were vastly different.
11:27:37 AM
REPRESENTATIVE COGHILL said Mr. Palmer's presentation would
probably take longer than the time left before the scheduled
break. He asked Mr. Palmer to review highlights of his report
titled, "TransCanada's AGIA Application, Statewide Legislative
Hearings (June/July 2008)" and advised members of the public
copies were available.
MR. PALMER said he would be happy to forego lunch to answer
questions if the committee wished.
CHAIR COGHILL reiterated public testimony would begin at 1:00pm.
MR. PALMER continued with his report. He said TC evaluations
indicated a bigger project had more value and investment returns
would be better initially to the state and TC for a project
through Canada. He realized however, that some believed
otherwise so during the initial open season potential customers
would have the opportunity to nominate gas along the route in
Alaska. He said if customers believed LNG was the best option
and they nominated Valdez for example, if sufficient volume
existed and all the terms and conditions were met, then TC would
build a pipeline to Valdez. He reiterated customers that wished
to nominate Valdez, Alberta, Fairbanks, or Tok would have the
opportunity to do so in the initial open season.
MR. PALMER said TC had a 50-year successful track record in
Western Canada. He said they started with three customers there
and now have over three hundred.
11:31:02 AM
MR. PALMER explained the FERC rules for expansion of an Alaska
pipeline. He said if a pipeline company does not propose an
expansion voluntarily, it could be required through the FERC. He
said AGIA required pipeline sponsors to voluntarily propose an
expansion in engineering increments and also required rolled in
tolls up to 115 percent of the initial toll. If other parties
wished to build an alternative pipeline, the specific language
said:
"…if an expansion is mandated pursuant to section 105
of ANGPA (federal Alaska Natural Gas Pipeline Act), it
authorizes FERC to order an expansion of an Alaskan
pipe under certain criteria. If they do so, FERC can
establish rates on an incremental or rolled in basis,
but FERC must ensure that the rates do not require
existing shippers to subsidize, underline the word
'subsidize,' expansion."
MR. PALMER said some parties had taken positions that
"subsidize" meant any increase. He thought it was important to
understand the distinction between incremental and rolled in
tolls in the basin, because once the supply is higher than 5.9
bcf/day it will mean significantly lower tolls for expansion
customers than under incremental. He said AGIA specifically
required TC to voluntarily propose expansion and did not know
whether a competitor without a license would do so.
11:35:21 AM
MR. PALMER continued, explaining pages 4 and 5 from the
document. He said the pipeline from Alberta to Winnipeg, which
was longer than the Alaska pipeline project, was put in service
50 years ago and was now being converted to oil service. He said
page 6 showed pipeline development in Alberta over the last 50
years and added it was the type of development TC hoped to
achieve in Alaska. He said there were 1,100 points to get on and
off the system and employment opportunities on a long term basis
would come from drilling and expansion.
MR. PALMER said there were two pieces to the Alaska project, the
in-state portion of the line and the line away from Alaska to
the market. As a comparison he referred to page 6 of the report
which showed six parallel pipes leaving Alberta.
MR. PALMER said pages 7 and 8 of the document listed the "must
haves" required by AGIA. He said TC had met them all and was
gratified that the administration had recommended them. He said
TC bid to win and had expected competition.
11:39:04 AM
MR. PALMER pointed out some valuable points TC offered to the
state (page 10) and added TC proposed a higher debt ratio than
AGIA required after service begins; they will provide an
opportunity for producers to become equity partners in the
initial open season; and they will take a reduction in their
rate of return if capital costs overrun. He said an opportunity
also existed to reduce the cost for all western Canadian
producers by Alaskan gas going into the Alberta system and TC
proposed to share that "up-side" with Alaskans in the first ten
years. He also noted one-third of the existing system was in
place.
11:40:54 AM
MR. PALMER said the norm in Canada was to have rolled in tolls
and the expansion he had shown would not have occurred if rolled
in tolls would have priced them out of the market. He said
rolled in tolls had benefited both initial shippers and
expansion shippers.
MR. PALMER said he heard comments that TC would benefit by cost
overruns. In response, he said if the project had a 40 percent
capital cost overrun TC would only have a 7 percent return and
shareholders were not attracted to that kind of return.
MR. PALMER displayed an updated schedule from page 14 of the
document. He said when TC prepared its application in November
they did not know when a license would be granted. He said it
appeared it may be by the first of August so 10 months had been
lost on the original schedule. He said if a license was granted
by August 1 an open season would be held 24 months later. He
added TC looked to be in service about 10 years from now
assuming all the necessary approvals were obtained.
11:43:40 AM
CHAIR HUGGINS asked if the 60/40 debt equity for expansion was
what TC was requesting or if they saw it as binding (page 13).
MR. PALMER said TC believed that complied with the RFA as
stipulated and what TC would be granted for expansion. He added
that TC made a proposal that exceeded the AGIA requirements for
the initial project to have more debt than required. He said the
loan guarantee facilitated having that level of debt and without
it the project was not financeable, in his opinion. He thought a
more traditional debt/equity structure was very fair for
expansion.
CHAIR HUGGINS said he wanted to understand what was binding and
what was not and asked Commissioner Galvin to respond.
11:45:24 AM
COMMISSIONER GALVIN said the state was bound to provide a $500-
million dollar matching contribution and a coordinator position.
CHAIR HUGGINS asked only for clarification of the 60/40 debt
ratio question.
COMMISSIONER GALVIN said the state was not bound to defend the
TC proposal before FERC. However, he did recognize the
partnership inherit in the arrangement.
11:46:36 AM
REPRESENTATIVE SAMUELS clarified the FERC would decide what the
split would be. He pointed out Alaskan royalty gas would be
worth less with a higher equity position and higher tariff, and
would be the same no matter who built the pipeline. He said the
state would be on the opposite side of TC on a 60/40 split
because a lower tariff would be more desirable.
COMMISSIONER GALVIN said he could not say what the state's
position would be in the future. He said this administration
believed the offer presented in the application was a reasonable
commercial opening offer.
11:49:23 AM
MR. PALMER said in the future the state would take a position as
it saw fit.
REPRESENTATIVE SAMUELS said all parties would argue in their
best economic interest, but ultimately the FERC would decide.
COMMISSIONER GALVIN agreed and said it was to the state's
advantage to have the pipeline company go to FERC with an
obligation to the state.
MR. PALMER said AGIA had limited his bargaining power somewhat.
He said TC voluntarily agreed for expansion and a 60/40 split.
REPRESENTATIVE SAMUELS said he understood, but the assumption
had been that the state would get an enhanced expansion pipeline
in return for $500 million dollars. He said the fact was FERC
would decide and that depended on who those five commissioners
would be, appointed by a president 20 years in the future.
11:52:13 AM
MR. PALMER added it would make a difference what TC proposed,
what their history was, and their economic interests. He said
TC's interests were highly aligned with the state's. He conceded
that FERC would decide, but under rules that were in the
legislation.
MR. PALMER continued with his presentation reiterating optional
partnership opportunities during the initial open season.
MR. PALMER said the state would decide upstream fiscal taxes for
future or current leaseholders and would not be involved in that
issue.
MR. PALMER addressed the issue of LNG development. He said it
was the business of customers of the pipeline if they wished to
extract liquids in Alaska. He said TC would move the gas
downstream assuming it met a certain minimum heat content. He
added the system in Alberta was straddled by three very large
LNG complexes owned by third parties and he thought they would
compete vigorously for the business.
MR. PALMER said AGIA promoted basin development, which was
important for Alaska's long term interests. He said other
interests included open season every two years, a requirement to
expand an engineering increment, and in-state deliveries with a
distant sensitive toll. He added that TC was committed to five
delivery points and if there were fiscal incentives granted by
the state for volume higher than 500 Mmcf/day, it would be
targeted to the pipeline.
MR. PALMER moved to page 21 of his report, which explored the
value of potential expansions and revenues producers and the
government might share.
11:57:37 AM
MR. PALMER explained page 22 of his report referring to basin
development. He noted additional employment came from expansion
and development not from operating the pipeline. He said there
were 180 gas wells in Western Canada before their pipeline was
completed. Over the last five years, between 13,000 and 16,000
gas wells had been completed per year. He reiterated that long
term value to the state will come from expansion and
development. He added that 50 years ago proven reserves in
Western Canada were 15 bcf, and 10 years after service they had
almost quadrupled to 55 bcf. He believed the basin was very
prolific and had the opportunity to develop in the long term.
MR. PALMER then explained the graphs representing tolling on
pages 23 and 24 of the report.
12:00:28 PM
REPRESENTATIVE RAMRAS said there were five take-off points but
the only gasified area of the state was in Southcentral. He
asked Mr. Palmer to explain TC's philosophy regarding the other
four take-off points to those communities that will nominate gas
incrementally as the gasification of those regions take place.
MR. PALMER said he asked his engineers about Fairbanks, for
example, as a take-off point. He asked them if TC would be in a
position to serve that market without expanding the pipe if
Fairbanks use gradually grew to 100 Mmcf/day. He said the answer
he received was yes, it would just be a matter of how the pipe
was operated. He said that was in response to the specific
geography from Prudhoe Bay to Fairbanks and he was not
suggesting it could be done down to Valdez.
MR. PALMER concluded his report by saying AGIA was established
as an open and competitive process to advance the gas pipeline
project and TC had participated in the process in good faith. He
said AGIA was structured to encourage construction of the base
project, long term basin development, and open access terms for
initial and future shippers both in-state and in the Lower-48,
and to LNG markets. He thought TC had proven their credentials
and capacity to build, own, operate, and expand the project and
their objectives were fundamentally aligned with AGIA and the
state. Finally, he expressed his thanks for the opportunity to
participate.
12:04:37 PM
CHAIR HUGGINS, on behalf of the Legislature, thanked all the
legislative staff for their support. He reminded the public that
testimony would begin at 1:00p.m. and be limited to three
minutes.
12:05:53 PM
CHAIR HUGGINS called an at ease until 1:00p.m.
1:08:18 PM
CHAIR HUGGINS called the meeting back to order.
1:08:55 PM
FRANK SHELTON, Fairbanks, said he was not in favor of running a
gas line through Canada. He said the Canadians would take care
of their own interests and Alaskans should do the same. He was
not convinced that Alaska would still have control of the gas
once it crossed into the Yukon. He added that the state should
control its own resources and use them to the benefit of all
Alaskans as the constitution required. He said everyone should
be thinking beyond the next 40 years so future generations
benefit from the project.
MR. SHELTON thought a "medium size" gas line should be built
with spur lines to different points in the state. He also said
there could be four LNG shipping points out of the state. He
urged the legislature to "look out for what's right for all
Alaskans first and what's going to bring the best returns to the
state over the long haul."
1:14:32 PM
BERT SHARP, Fairbanks, said the primary goal should be to make
LNG available to all Alaskans. He said off-take concerns could
be eliminated with the big line by building a small diameter
line from the North Slope and distributing gas all the way down
to the Kenai Peninsula. Manipulation of the tariff could be done
fairly easily by owners of the pipeline and he urged the
legislature to think about benefiting the people first and then
benefiting the treasury.
1:18:10 PM
MR. SHARP said the big gas line would not get built until
economics were right and the producers were on board. He urged
the legislature to keep control of the state's royalty gas.
MR. SHARP added that the Healy Clean Coal Project, which is
"sitting there in a stalemate" could be completed and brought on
line to supply power needs for pipeline construction. He urged
resolution for that project.
1:21:07 PM
DICK HANCOCK, Fairbanks, said he thought a license should be
granted because there had been enough delays. He did not think
producers should build the line because it would result in
higher tariffs. He thought TC had responded to the AGIA
requirements and if they were turned down it would look like
Alaska was a very strange place to do business.
1:23:34 PM
TAMMIE WILSON, North Pole, said she was looking to the
legislature to protect state interests and to make sure jobs and
training were available for Alaskans. She thought the state was
being given a "second chance to do it right" with this project.
She did not want to see Alaskan gas shipped out of state and
then coming back at four times the price. She said the energy
crisis needed to be addressed now, as well as providing for ten
years from now.
1:26:31 PM
MERRICK PEIRCE, Fairbanks, served on the Port Authority Board,
but was speaking for himself. He said he opposed approval of the
license because once the deal was signed the legislature would
be completely out of the loop and all decisions would be made by
the administration and TC. He added the state should know
exactly where the five off-take points were going to be. Another
problem with the project was it would not provide gas to the
Interior until 2020.
MR. PEIRCE said a probable $9 billion state surplus created a
different set of circumstances and suggested using the surplus
to build a 48-inch gas pipeline to Delta Junction. With some
debt equity and the surplus a pipeline could be built to Valdez,
he added. He said the state could build a pipeline quicker and
wanted the state to control the route, take-off points, and
timing of the project.
1:30:52 PM
MR. PEIRCE speculated gas could bring $5 trillion dollars to the
state if it went to Japan instead of the Lower-48. He also cited
the Alaska Permanent Fund and the Bradley Lake Hydro Project as
examples of successful state owned projects that could be models
for an Alaskan owned and operated pipeline.
1:33:49 PM
WILLIAM SACKINGER, Fairbanks, said he was a retired electrical
engineering and geophysics instructor at University of Alaska,
Fairbanks, and also a researcher about problems related to the
Alaskan oil industry. He said the world needed energy, which was
more strongly than ever tied to the advancement of civilization.
Alaska, he said, needed to fulfill its responsibilities to the
human race by providing the energy it had to the world.
MR. SACKINGER said he knew of three proposals that "all seemed
pretty good" and thought all three together might be the way to
proceed. He was strongly in favor of any proposal that provided
for Alaskan use.
1:41:13 PM
MR. SACKINGER said all three proposals could be served by a 48-
inch line from Prudhoe Bay to Delta Junction. He was also
concerned about the depletion rate at Prudhoe and whether TC
could have a gas line operating in time. He wanted the TC line
to be completed faster. He also suggested a limit on equity that
TC would offer to the producers.
1:45:20 PM
MR. SACKINGER ended by recommending that a state-owned
corporation make an equity investment in the ENSTAR project in
order to provide an opportunity for future expansion and in-
state use. Additionally, he wanted to see the Susitna hydro
project proceed as soon as possible.
1:46:22 PM
REPRESENTATIVE KELLY said TC had expressed a strong interest in
the benefit of a large line to Delta. He said the state had the
resources now to partner in that effort.
1:48:03 PM
REPRESENTATIVE RAMRAS asked Mr. Sackinger if he thought the
state was allocating enough resources towards the in-state gas
issue.
MR. SACKINGER replied he didn't know how to answer that but a
lot of things were possible now that were previously thought
unworkable.
1:51:26 PM
JERRY WALKER, Fairbanks, said he was against granting a license
to TC. He believed AGIA hindered the free enterprise system and
he supported an environment where the market could work
efficiently.
1:55:15 PM
JAY QUACKENBUSH, Fairbanks, said he was in favor of granting the
license and viewed it as an investment in Alaska's
infrastructure and future. He thought AGIA was strong and set
standards and guidelines that protected Alaska's needs. He felt
TC's proposal met the requirements and should move forward.
1:59:22 PM
REPRESENTATIVE RAMRAS asked Mr. Quackenbush for his thoughts
about the Denali proposal which offered similar opportunities,
training, and jobs but without the government subsidy.
MR. QUACKENBUSH replied he had not studied the Denali proposal.
He believed the $500 million dollars was an investment for
Alaskans.
2:00:52 PM
PAM BRADLEY, from Fairbanks, urged approval of the TC proposal.
She would like to have seen an owner equity proposal, but did
not trust any business entities to serve the citizen's best
interest any more than TC.
2:02:56 PM
RICHARD "OD" ODSATHER, Fairbanks, whose specialty was Arctic
engineering, said he supported the AGIA concept with some
conditions. He requested gas capacity be made available in the
pipeline for in-state use and urged the administration and
legislature to take a more active role supporting gas
distribution and sufficient off-takes in Alaska. Further, he
suggested the state must champion gas exploration and the
injection of speculative gas into the future pipeline. He also
believed .5 bcf/day was too low for Alaskan use ten years from
now.
2:05:39 PM
MR. ODSATHER said pipeline construction and operation was
extremely complex. He was in favor of petrochemical plants in
Alaska and exporting products such as methane. He would like to
see a "win/win solution" for the life of the project with
employment and training opportunities and maximum amounts of
money staying in the Alaskan economy.
2:09:55 PM
MR. ODSATHER said he hoped the legislature's efforts would bring
focused growth and prosperity across Alaska in general, but more
to the rural communities where it was so desperately needed. He
also urged finding a way to accelerate transfer of remaining
federal lands selected under the Statehood Act.
2:12:26 PM
REPRESENTATIVE RAMRAS said the decision the legislature faced
was an "up or down vote without modifications or amendments."
He asked if Mr. Odsather supported AGIA given all the changes he
wanted to see made.
MR. ODSATHER clarified that AGIA said there would be off-takes
and he wanted those off-takes to make gas available to Alaskans.
He reiterated that he did not think the .5 bcf/day was adequate.
2:14:23 PM
REPRESENTATIVE KERTTULA thanked Mr. Odsather for his years of
service and asked if there were any lessons from TAPS he wanted
them to remember.
MR. ODSATHER suggested creating a synopsis which would be
helpful financially, and from a construction, quality control,
and assurance standpoint. He said contracts should be drawn
concisely showing a clear benefit to Alaskans. He further
suggested developing an office at the cabinet level, staffed
with people with institutional and inside political knowledge of
oil companies.
2:18:01 PM
CHAIR HUGGINS said Mr. Odsather's observation that the .5
bcf/day for Alaskan use pointed up AGIA potentially limits the
state's prerogative concerning volume.
2:18:44 PM
JANET CURL, North Pole, said TC was an extremely well managed,
ethical company and supported granting them the license. She
also thought Alaskans should have first access to any gas that
comes off the line.
2:20:56 PM
CHAIR HUGGINS called a brief recess at 2:20-2:35p.m.
2:35:39 PM
CHAIR HUGGINS called the meeting back to order.
2:36:19 PM
GLORIA DESROCHERS, from Fairbanks, said she agreed with comments
made by Tammie Wilson and Lisa Peger.
2:37:23 PM
RANDY GRIFFIN, Fairbanks, said he worked on TAPS as a laborer.
He said he was opposed to granting TC a license because the
Denali project was already on its way and was "in perfect
alignment" with the aims of the leaseholders. He believed the
oil companies were highly motivated to build the line, and
anxious to monetize the tremendous gas resources available. He
thought the producers were most motivated to keep costs down.
2:43:03 PM
MR. GRIFFIN said his number-one priority was to get the gas line
built. He did want the best deal for the state, but was also in
favor of bargaining.
2:47:07 PM
LISA PEGER, Fairbanks, said she supported the proposal, and said
that it should not be compared to anything except the line
through Canada. She also rejected the notion that gas should not
be sold to Canada because Canada supplies the U.S. She urged
passage of AGIA so Alaska got a competitive playing field. She
also said options for low cost energy should be at the top of
the list of projects to be done. She opposed keeping "the gas
buried in the dirt" when Alaskans were spending billions of
dollars on high power costs. She was also in favor of building a
LNG facility, dredging good shipping lanes at tidewater, and
establishing an oil and gas reserve tax.
2:51:54 PM
MS. PEGER said the next priority should be new low cost energy
bills and a relief program.
2:53:08 PM
PAMELA SAMASH, Nenana, recommended listening to the elders and
to the concerns of local communities about energy costs. She
said they were in need of help.
2:57:41 PM
BERT COTTLE, Mayor of Valdez and Chairman of the Alaska Gasline
Port Authority, Valdez, said Alaskans need Alaska's gas and
affordable energy. He supported any gas line route that would
get gas to Alaskans first.
3:02:06 PM
MAYOR COTTLE said Alaska could not wait ten more years for
another company to come in. He said the studies should end and a
bullet line should be built to Glennallen.
3:06:55 PM
REPRESENTATIVE RAMRAS asked Mayor Cottle if he thought the
administration was addressing the urgent need of in-state gas
and energy along the rail belt, in Valdez, or Fairbanks.
3:08:14 PM
MAYOR COTTLE said he could not speak on behalf of the governor,
but he believed she had gotten closer than any other. He
reiterated that Alaskans needed gas now whether it was achieved
through AGIA or another process. He preferred the state take
ownership of the pipeline.
3:10:30 PM
Ms. Desrochers added that Frank DeLong had a lot of wisdom to
offer.
3:11:32 PM
HUGH FATE, from Fairbanks, thought the legislature's job was
difficult because all three lines were economic. The question
was which one offered the maximum benefit to the people of the
state.
3:14:25 PM
MR. FATE said in the past Pt. Thompson was thought to be an
integral part of determining the success, economics, and risks
of a pipeline. He was concerned that circumventing Pt. Thompson
and proceeding based on future development and discovery of gas
increased the risk. He hoped the administration and legislature
could solve the Pt. Thompson problem. He added that any delay
escalated the cost of the pipeline costing Alaskans billions of
dollars.
3:16:48 PM
SUE HULL, from Fairbanks, was in favor of granting a license.
She thought deciding against it called into question the state's
integrity to negotiate. She had confidence in TC and thought
they had the expertise and skill to build the line, but she was
glad there were other proposals to help get the gas to market.
She also felt it was incumbent on the administration to specify
how local hire was defined.
3:20:18 PM
CHAIR HUGGINS said there were no more requests for testimony. He
thanked the community for participating in the process and urged
further input. [SB 3001 and HB 3001 were held in committee.]
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