Legislature(2013 - 2014)SENATE FINANCE 532

04/07/2013 02:00 PM Senate FINANCE


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02:05:32 PM Start
02:07:34 PM HB4
04:46:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 4 ALASKA GASLINE DEVELOPMENT CORP; RCA TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 4(FIN)                                                                           
                                                                                                                                
     "An  Act relating  to  the  Alaska Gasline  Development                                                                    
     Corporation;    establishing    the   Alaska    Gasline                                                                    
     Development  Corporation   as  an   independent  public                                                                    
     corporation of the state;  establishing and relating to                                                                    
     the in-state natural gas  pipeline fund; making certain                                                                    
     information  provided  to  or  by  the  Alaska  Gasline                                                                    
     Development  Corporation  and its  subsidiaries  exempt                                                                    
     from  inspection as  a public  record; relating  to the                                                                    
     Joint  In-State Gasline  Development Team;  relating to                                                                    
     the  Alaska Housing  Finance  Corporation; relating  to                                                                    
     judicial review  of a right-of-way  lease or  an action                                                                    
     or decision related to  the development or construction                                                                    
     of an  oil or gas  pipeline on state land;  relating to                                                                    
     the  lease  of  a   right-of-way  for  a  gas  pipeline                                                                    
     transportation  corridor, including  a  corridor for  a                                                                    
     natural  gas  pipeline  that  is  a  contract  carrier;                                                                    
     relating  to the  cost of  natural resources,  permits,                                                                    
     and leases  provided to the Alaska  Gasline Development                                                                    
     Corporation;  relating  to  procurement by  the  Alaska                                                                    
     Gasline  Development   Corporation;  relating   to  the                                                                    
     review  by  the  Regulatory  Commission  of  Alaska  of                                                                    
     natural gas  transportation contracts; relating  to the                                                                    
     regulation by  the Regulatory  Commission of  Alaska of                                                                    
     an in-state  natural gas pipeline project  developed by                                                                    
     the  Alaska Gasline  Development Corporation;  relating                                                                    
     to  the  regulation  by the  Regulatory  Commission  of                                                                    
     Alaska  of  an  in-state   natural  gas  pipeline  that                                                                    
     provides    transportation   by    contract   carriage;                                                                    
     repealing the  statutes relating to the  Alaska Natural                                                                    
     Gas   Development  Authority   and  making   conforming                                                                    
     changes; exempting  property of a project  developed by                                                                    
     the   Alaska  Gasline   Development  Corporation   from                                                                    
     property  taxes before  the commencement  of commercial                                                                    
     operations; and providing for an effective date."                                                                          
                                                                                                                                
2:07:34 PM                                                                                                                    
                                                                                                                                
DANIEL  R. FAUSKE,  CHIEF  EXECUTIVE  OFFICER AND  EXECUTIVE                                                                    
DIRECTOR, ALASKA HOUSING  FINANCE CORPORATION, DEPARTMENT OF                                                                    
REVENUE   AND   PRESIDENT,    ALASKA   GASLINE   DEVELOPMENT                                                                    
CORPORATION, introduced himself.                                                                                                
                                                                                                                                
Co-Chair  Meyer noted  that Senator  Bishop  had joined  the                                                                    
committee.                                                                                                                      
                                                                                                                                
FRANK  RICHARDS,   MANAGER,  PIPELINE   ENGINEERING,  ALASKA                                                                    
GASLINE DEVELOPMENT  CORPORATION, observed that  in addition                                                                    
to the  upcoming PowerPoint presentation,  committee members                                                                    
had been provided with a  project plan update that specified                                                                    
how the  Alaska Gasline  Development Corporation  (AGDC) had                                                                    
moved  forward  with  and made  optimizing  changes  to  the                                                                    
project.  He discussed  the  PowerPoint presentation,  "ASAP                                                                    
Scope, Schedule and Budget" (copy on file).                                                                                     
                                                                                                                                
Mr. Richards looked at slide 2, "ASAP Project Scope."                                                                           
                                                                                                                                
        · Mainline                                                                                                              
          -36" diameter pipe                                                                                                    
          -737 miles long                                                                                                       
          -1,480 psi max operating pressure                                                                                     
                                                                                                                                
        · Fairbanks Lateral                                                                                                     
          -12" diameter pipe                                                                                                    
          -35 miles long                                                                                                        
          -Tie-in w/mainline at MP 458                                                                                          
                                                                                                                                
        · North Slope Gas Conditioning Facility (GCF) at                                                                        
          Prudhoe Bay                                                                                                           
                                                                                                                                
        · More off-takes possible                                                                                               
                                                                                                                                
Mr.  Richards stated  that the  Alaska Stand  Alone Pipeline                                                                    
(ASAP)  project  had originally  been  given  to the  Alaska                                                                    
Housing Finance Corporation (AHFC)  under HB 369 and offered                                                                    
that  the  project's purpose  had  been  to deliver  gas  to                                                                    
Alaskans at  the lowest  possible cost  and at  the earliest                                                                    
possible date.  He explained that  as a result of  a project                                                                    
plan amendment  at the  end of 2012,  ASAP had  shifted from                                                                    
the  original   plan  to  what   was  referred  to   as  the                                                                    
"optimized"  plan.  He  discussed slide  2's  second  bullet                                                                    
point and  stated that  it would  deliver utility  grade gas                                                                    
into a  "college gate";  from this point,  the gas  could be                                                                    
put  into a  distribution system  that would  "hopefully" be                                                                    
built  out in  order to  provide  gas to  the Fairbanks  and                                                                    
North  Pole areas.  He  spoke to  the  slide's third  bullet                                                                    
point and  stated that the  gas conditioning  facility (GCF)                                                                    
was  a major  component  of the  project  through which  gas                                                                    
would be provided  by the producers and  impurities would be                                                                    
removed.  He  relayed  that  the GCF  would  deliver  a  gas                                                                    
composition of  methane with a  small amount of  propane. He                                                                    
explained that  a major compression  station would  be added                                                                    
to the  GCF. He  shared that  as a  result of  the optimized                                                                    
plan, the intermediate compressor  stations had been removed                                                                    
and  elaborated  that there  would  only  be one  compressor                                                                    
station on the North Slope;  the major compressor would push                                                                    
the  gas at  1480  pressure  per square  inch  (psi) with  a                                                                    
pressure drop  of approximately 500  psi. He  expounded that                                                                    
the  utility contract  amount  would be  about  950 psi.  He                                                                    
spoke to  the slide's  fourth bullet  point and  shared that                                                                    
the optimized  plan also enabled  take-off points  along the                                                                    
line.   The  take-off   points   would  allow   communities,                                                                    
industrial users,  etc. to tap  into utility grade gas  at a                                                                    
fairly low  cost; the  original plan  would have  required a                                                                    
more expensive facility that would  have caused the price of                                                                    
the gas  to be  higher coming into  Fairbanks than  it would                                                                    
have been in Anchorage and South Central Alaska.                                                                                
                                                                                                                                
2:12:20 PM                                                                                                                    
                                                                                                                                
Mr.  Richards  discussed  slide 3,  "Scale  of  Construction                                                                    
Activities."                                                                                                                    
                                                                                                                                
        · Considerable construction workforce                                                                                   
          -Over 8,000 direct jobs                                                                                               
          -Over 15,000 indirect jobs                                                                                            
                                                                                                                                
        · 335,000 tons of steel for the pipeline                                                                                
                                                                                                                                
        · 9,000 truckloads of pipe travelling 4 million                                                                         
          miles                                                                                                                 
                                                                                                                                
        · 10 million cubic yards of earthwork                                                                                   
                                                                                                                                
        · 15 construction camps                                                                                                 
                                                                                                                                
Mr. Richards spoke slide 3 and  related that ASAP would be a                                                                    
multi-year  project  that would  employ  a  large number  of                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
Mr. Richards  highlighted slide 4, "ASAP  Project Schedule &                                                                    
Highlights." He related that the  top portion of the slide's                                                                    
chart represented  the schedule  that was  given to  AHFC as                                                                    
mandated by  HB 369 and  pointed out  that it had  the first                                                                    
gas flowing in  2015. He offered that HB  369's schedule was                                                                    
extremely aggressive. He  stated that AHFC had  done its due                                                                    
diligence work,  provided a project plan,  and developed the                                                                    
optimized schedule  that was represented on  the bottom part                                                                    
of the  chart and showed  a gated or front-end  loaded (FEL)                                                                    
approach. He discussed the chart  on the bottom of the slide                                                                    
and  pointed  out  that  the  FEL  Phase  1  work  had  been                                                                    
conducted prior  to the  July 2011  project plan.  He stated                                                                    
that  the  current   work  was  in  FEL  Phase   2  and  was                                                                    
progressing towards an open season.  He shared that AHFC had                                                                    
completed a  final environmental impact statement  (EIS) and                                                                    
had received  an unconditional 604 miles  of state right-of-                                                                    
way. He  added that AHFC  was currently awaiting  a decision                                                                    
by the Bureau of Land  Management (BLM), which would lead to                                                                    
the  next 100  miles of  federal right-of-way.  He mentioned                                                                    
that  AHFC  was  working  on the  major  federal  and  state                                                                    
permits  that  were  required  for the  next  phase  of  the                                                                    
project.  He  pointed  out  that   the  FEL  Phase  2  would                                                                    
terminate during  the end of  2014 to the beginning  of 2015                                                                    
when the  open season  began. He  explained that  during the                                                                    
open  season, the  cost  of transporting  the  gas would  be                                                                    
determined and  delivered to potential shippers  and buyers;                                                                    
at this time,  the economics would "come into  play" and the                                                                    
market  would  dictate whether  or  not  ASAP was  a  viable                                                                    
project. He stated that with  a successful open season, ASAP                                                                    
would enter into FEL Phase  3, otherwise known as the bridge                                                                    
engineering  phase;   during  this  phase,   desired  design                                                                    
changes by  the shippers  or buyers  could be  addressed. He                                                                    
explained that the class 3  estimate would be a more defined                                                                    
estimate   that  consisted   of  approximately   30  percent                                                                    
engineering;  at this  point, a  decision would  be made  on                                                                    
whether to move  forward with the project.  He discussed the                                                                    
chart's   timeline   for  procurement,   construction,   and                                                                    
culmination of the project.                                                                                                     
                                                                                                                                
Mr. Richards  discussed slide 5,  "Stage Gate  Approach." He                                                                    
related  that each  of the  slide's individual  gates had  a                                                                    
decision point  at the  end that allowed  the project  to be                                                                    
refined  to the  next stage.  He stated  that the  timelines                                                                    
were depicted on the bottom of the trumpet curve.                                                                               
                                                                                                                                
Mr. Richards displayed slide 6, "Stage Gate Approach."                                                                          
                                                                                                                                
        · Forces logical planning sequence                                                                                      
                                                                                                                                
        · Requires deliverables to be complete before                                                                           
          starting new tasks                                                                                                    
                                                                                                                                
        · More effective, timely process with issue                                                                             
          identification and an evaluation framework early                                                                      
          in the process-avoids cycles back-to-start-of-                                                                        
          project causing delays and added costs                                                                                
                                                                                                                                
        · Provides clear opportunities to stop project at                                                                       
         gates if not meeting business objectives                                                                               
                                                                                                                                
        · Improves communication with stakeholders                                                                              
                                                                                                                                
        · Provides a clear path for project team                                                                                
                                                                                                                                
Mr.  Richards addressed  slide 6's  first  bullet point  and                                                                    
related  that it  represented a  logical  sequence that  had                                                                    
successfully  been  used  by all  kinds  of  mega  projects;                                                                    
furthermore,  it  allowed  the  decision  makers,  financial                                                                    
markets,  and engineering  to have  definitive opportunities                                                                    
to evaluate the economics and  make a decision on whether to                                                                    
proceed at the gates.                                                                                                           
                                                                                                                                
2:17:10 PM                                                                                                                    
                                                                                                                                
Mr. Richards discussed slide 7, "ASAP Budget."                                                                                  
                                                                                                                                
        · Cost to Alaskans: $400M up-front budget (~5                                                                           
          percent of Total)                                                                                                     
                                                                                                                                
        · Cost Benefit: Long term natural gas supply for                                                                        
          Alaskans                                                                                                              
                                                                                                                                
        · Project Cost: $7.7 Billion* in 2012 dollars, +/-                                                                      
          30 percent                                                                                                            
                                                                                                                                
Mr.  Richards addressed  slide 7's  first  bullet point  and                                                                    
reported that the state would  usually pay for 15 percent of                                                                    
the  design  efforts  and 15  percent  of  the  construction                                                                    
management. He concluded that the  state would normally fund                                                                    
30  percent of  the total  project  costs. He  spoke to  the                                                                    
slide's  second  bullet  point  and  pointed  out  that  the                                                                    
project  would  provide  in-state   use  for  consumers  and                                                                    
industry,  but also  would hopefully  provide more  economic                                                                    
opportunities for  Alaskans in the future.  He discussed the                                                                    
shaded blue table  on the bottom of the  slide and indicated                                                                    
that  the components  of  the project  were  the GCF,  which                                                                    
would  cost  approximately  $2.8 billion  and  the  pipeline                                                                    
section from  the GCF  to Dunbar.  He explained  that Dunbar                                                                    
was an Alaska Railroad site  west of Fairbanks and was where                                                                    
the  lateral into  Fairbanks would  be started;  the lateral                                                                    
was  expected to  cost $70  million. He  furthered that  the                                                                    
pipeline would  also proceed south  from Dunbar to  Big Lake                                                                    
and would cost an additional  $1.8 billion. He addressed the                                                                    
red  colored text  on the  bottom of  the slide  and related                                                                    
that  it depicted  that  an inflation  rate  of 2.5  percent                                                                    
equaled  about $210  million of  additional costs  for every                                                                    
year  of   delay.  He  offered  that   the  inflation  would                                                                    
represent a  considerable sum of  money that would  be borne                                                                    
by the consumers of the gas.                                                                                                    
                                                                                                                                
Mr. Richards spoke to slide 8, "ASAP Cost to Consumers."                                                                        
                                                                                                                                
     Cost of Gas To Consumers (burner tip)                                                                                      
                                                                                                                                
          Anchorage                                                                                                           
                                                                                                                                
             · Optimized $9 to $11.25/MMBtu in 2012 dollars                                                                     
                                                                                                                                
             · Base case $9.63/MMBtu in 2011 dollars                                                                            
                                                                                                                                
          Fairbanks                                                                                                           
                                                                                                                                
             · Optimized $8.25 to $10/MMBtu in 2012                                                                             
                                                                                                                                
             · Base Case $10.45/MMBtu in 2011 dollars                                                                           
                                                                                                                                
Mr.  Richards  discussed  slide   8  and  relayed  that  the                                                                    
reduction in  Fairbanks was  due to  the elimination  of the                                                                    
straddle  plant.   He  concluded   that  the   consumers  in                                                                    
Fairbanks  would be  playing less  than  those in  Anchorage                                                                    
because they would be closer to the source.                                                                                     
                                                                                                                                
Mr. Richards  highlighted slide 9,  "AGDC Budget  to Project                                                                    
Sanction." He  related that  the total  state appropriations                                                                    
to   the  project   had  been   $72   million,  which   left                                                                    
approximately  $328 million  needed  to  advance to  project                                                                    
sanction.  He  offered that  the  slide  depicted the  major                                                                    
engineering functions that  would be needed over  the next 2                                                                    
years in  order to advance  the project and refine  the cost                                                                    
levels  to  industry  standards. He  discussed  the  slide's                                                                    
facilities engineering  component and related that  it would                                                                    
have  the highest  cost because  it had  received the  least                                                                    
amount  of  effort. He  explained  that  AGDC had  conducted                                                                    
environmental  and pipeline  work,  but had  only done  very                                                                    
preliminary  engineering   work.  He  pointed  out   that  a                                                                    
facility that had a cost of  over $2 billion would require a                                                                    
significant  amount of  engineering in  order to  advance to                                                                    
the  level  of  detail  that  would  meet  the  open  season                                                                    
requirements. He addressed  the slide's pipeline engineering                                                                    
component and  explained that AHFC  would be looking  at the                                                                    
route,  composition,  and  hazards associated  with  it.  He                                                                    
discussed frost  heaving issues  with a  potential pipeline.                                                                    
He spoke  to the program management  component and explained                                                                    
that  rather than  creating an  organization within  AGDC to                                                                    
operate  the project,  an outside  consulting team  would be                                                                    
brought  in  for  project  management.  He  discussed  other                                                                    
industries and  projects in  which outside  consultants were                                                                    
brought in for project management  and relayed that it was a                                                                    
common and  successful practice. He explained  the merits of                                                                    
project management  and briefly discussed the  slide's other                                                                    
components.                                                                                                                     
                                                                                                                                
Mr.  Richards  displayed  slide  10,  "Funding  Required  to                                                                    
Advance."                                                                                                                       
                                                                                                                                
        · Achieving legislative objectives to advance an                                                                        
          in-state natural gas pipeline for Alaskans is                                                                         
          contingent on legislative funding                                                                                     
                                                                                                                                
       · Full funding will keep project on schedule                                                                             
             o Advance facilities and pipeline engineering                                                                      
             o Regulatory permitting activities and agency                                                                      
               engagement                                                                                                       
            o Engineering field investigations                                                                                  
                                                                                                                                
       · Partial funding will cause schedule delays                                                                             
             o Limited pipeline and facilities engineering                                                                      
             o Limited field investigation                                                                                      
                                                                                                                                
2:23:53 PM                                                                                                                    
                                                                                                                                
Senator  Bishop directed  the presentation  back to  slide 2                                                                    
and  queried  the shortest  distance  from  the pipeline  to                                                                    
Minto, Alaska. Mr. Richards agreed  to provide the requested                                                                    
information.                                                                                                                    
                                                                                                                                
Senator  Bishop  inquired  which technical  experts  in  the                                                                    
areas  pipeline  and  facilities engineering  were  used  to                                                                    
determine the  project's calculations. Mr.  Richards replied                                                                    
that AGDC had  recently consummated a contract  with a joint                                                                    
partnership, Arctic Solutions, which  was a joint venture of                                                                    
Fluor  and  WorleyParsons.  He   explained  that  Fluor  and                                                                    
WorleyParsons  were   two  preeminent   process  engineering                                                                    
companies that  had conducted a  lot of work in  the Arctic;                                                                    
the  two  companies  had  experience  with  large  projects,                                                                    
Arctic conditions, and in particular,  Prudhoe Bay. He added                                                                    
that  Fluor and  WorleyParsons had  been working  in Prudhoe                                                                    
Bay since the beginning of the oil and gas industry there.                                                                      
                                                                                                                                
Co-Chair Meyer inquired  if Mr. Fauske had a  comment to add                                                                    
to the  record. Mr.  Fauske wondered  if Senator  Bishop was                                                                    
interested in the  firms that AGDC currently  used to gather                                                                    
data.                                                                                                                           
                                                                                                                                
Senator  Bishop  thought that  H.C.  Price  might have  been                                                                    
contracted  for the  "cross country"  numbers. Mr.  Richards                                                                    
responded  that Senator  Bishop was  correct. He  elaborated                                                                    
that  Michael  Baker,  which was  AGDC's  primary  pipeline-                                                                    
engineering company,  had used  H.C. Price  for some  of the                                                                    
cost estimating work.                                                                                                           
                                                                                                                                
Senator  Bishop  queried  if  AGDC's  construction  schedule                                                                    
spanned the  winter, summer, or  a combination  thereof. Mr.                                                                    
Richards responded  that the work  would be conducted  via a                                                                    
combination  of summer  and winter  work. He  explained that                                                                    
AGDC  wanted to  keep  the  ground frozen  in  the areas  of                                                                    
permafrost  and  discussed  the challenges  of  winter  work                                                                    
along areas of wet ground.                                                                                                      
                                                                                                                                
Vice-Chair Fairclough  inquired if HB 4  had been formulated                                                                    
in response  to a  recommendation by ASAP's  advisory board.                                                                    
Mr. Richards replied  that ASAP was the project  that was in                                                                    
the inception of HB 369,  which had given the responsibility                                                                    
to  AHFC to  deliver  a project  plan in  July  1, 2011.  He                                                                    
explained  that  the  project plan  provided  the  concepts,                                                                    
suggestions,   recommendations,  and   in  particular,   the                                                                    
legislation  that   was  necessary   to  move   forward.  He                                                                    
discussed HB  9 from  the previous  year, which  had evolved                                                                    
into the current bill before the committee.                                                                                     
                                                                                                                                
Mr. Fauske  interjected that AGDC  was a subsidiary  of AHFC                                                                    
and that  ASAP was the  project name. He apologized  for any                                                                    
confusion  regarding the  acronyms  and  explained that  the                                                                    
project's  current  governing  board  was  AHFC's  board  of                                                                    
directors.                                                                                                                      
                                                                                                                                
2:28:35 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough  inquired if HB 4  was consistent with                                                                    
the recommendations  made to move  ASAP forward.  Mr. Fauske                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Vice-Chair   Fairclough  further   inquired  if   there  was                                                                    
anything in  HB 4 that  was inconsistent with  the direction                                                                    
that  AGDC  had recommended  for  moving  ASAP forward.  Mr.                                                                    
Fauske responded  that although AGDC  was in support  of the                                                                    
changes,  he wanted  to make  people  aware of  the 6  month                                                                    
shift  to the  project's  schedule that  had arisen  through                                                                    
discussions  in the  House. He  explained that  the original                                                                    
tariffs  were based  on a  30-day review  model and  that he                                                                    
wanted people to be aware of  the change to the schedule. He                                                                    
added that  he was not  condemning or opposing  the schedule                                                                    
change, but that he wanted people  to be aware of it because                                                                    
it was the one significant  change from the recommendations.                                                                    
He   expounded  that   the  recommendations   regarding  the                                                                    
Regulatory Commission of Alaska  (RCA) and other fine tuning                                                                    
of  the  bill  represented   a  good,  thorough  review.  He                                                                    
explained  that  normally  the RCA  reviewed  projects  from                                                                    
scratch; however,  in the  case of ASAP,  most of  that work                                                                    
would already  have been completed. He  stated that although                                                                    
the period of review was  extensive, AGDC was confident that                                                                    
supplying good  and accurate  data would  enable the  RCA to                                                                    
conduct a  timely review.  He discussed  the large  scope of                                                                    
the project and the effects of delays.                                                                                          
                                                                                                                                
Vice-Chair Fairclough  surmised that  an amendment  had been                                                                    
added  to  HB  4  that  created a  30-day  RCA  review.  She                                                                    
requested further  explanation of the amendment,  as well as                                                                    
the changes  it enacted. Co-Chair Meyer  interjected that he                                                                    
had heard the review would  be a 90-day period and requested                                                                    
further  explanation. Mr.  Fauske deferred  the question  to                                                                    
Rena Delbridge.                                                                                                                 
                                                                                                                                
2:32:04 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  requested   an  explanation  of  the                                                                    
amendment  to HB  4,  as  well as  why  the  House made  the                                                                    
change.                                                                                                                         
                                                                                                                                
RENA   DELBRIDGE,   STAFF,   REPRESENTATIVE   MIKE   HAWKER,                                                                    
explained  that that  the amendment  would add  a suspension                                                                    
period  timeline of  90 days  to the  review of  the initial                                                                    
recourse tariff. She  expounded that in the version  of HB 4                                                                    
that  had passed  the House  Resources Committee,  there had                                                                    
been a  30-day timeline  for the RCA  to review  the initial                                                                    
recourse tariff.  She explained that the  review would cover                                                                    
whether  or  not  the cost-based  rate  had  an  appropriate                                                                    
capital structure, rate of  return, the depreciation method,                                                                    
as  well as  whether or  not the  terms and  conditions were                                                                    
unduly  discriminatory. She  recalled that  during the  time                                                                    
that HB 4 was between  the House Resources and House Finance                                                                    
Committees, the sponsor had taken the  bill to the RCA for a                                                                    
public hearing in Anchorage; the  hearing was for discussion                                                                    
and  soliciting  input  from the  RCA  regarding  timelines,                                                                    
clarity, and  whether the legislation provided  the tools it                                                                    
needed  fulfill  its charged  tasks.  She  related that  she                                                                    
would be  happy to provide  the committee with  a transcript                                                                    
of the  public hearing, but  stressed that the RCA  had been                                                                    
clear  that  the  30-day review  for  the  initial  recourse                                                                    
tariff  was  too  short  a  period for  it  to  fulfill  its                                                                    
charges; as a result,  the sponsors had recommended changing                                                                    
the  30-day period  to a  90-day  one. She  stated that  the                                                                    
House Finance Committee  had added the 90-day  period to the                                                                    
bill;   by  recommendation   of   the  administration,   the                                                                    
committee   also  added   an  additional   90-day,  optional                                                                    
suspension  period.  She explained  that  if  the RCA  found                                                                    
that,  in the  review  of the  initial  recourse tariff,  it                                                                    
needed to  conduct further investigation,  it would  be able                                                                    
to add the additional 90-day period on.                                                                                         
                                                                                                                                
Ms.   Delbridge   continued   to   respond   to   Vice-Chair                                                                    
Fairclough's   question  and   related   that  the   sponsor                                                                    
understood  the  RCA's desire  to  have  adequate time.  She                                                                    
expressed a  concern that the uncertainty  of the additional                                                                    
time might create some problems.  She stated that ASAP would                                                                    
be waiting for  a decision in order to hold  its open season                                                                    
and  conduct  commercial  activities and  pointed  out  that                                                                    
currently, the pipeline would be  waiting the 90-day initial                                                                    
review period;  furthermore, at the  end of period,  the RCA                                                                    
may decide to  extend the process by an  additional 90 days.                                                                    
She stated  that although potential  delays would  add costs                                                                    
to  the project,  the sponsor  also wanted  the RCA  to have                                                                    
adequate time and tools to conduct its review.                                                                                  
                                                                                                                                
2:35:00 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  recalled  that   at  least  two  RCA                                                                    
decisions  had cost  Anchorage possible  opportunities at  a                                                                    
secured  supply of  natural gas.  She queried  if "the  same                                                                    
change" was made the bill that  had been made to the RCA and                                                                    
if the RCA  would not only be required to  consider costs in                                                                    
its decision, but  also the consequences of  not approving a                                                                    
contract. Ms. Delbridge  surmised that Vice-Chair Fairclough                                                                    
was referencing a provision in  the Cook Inlet Recovery Act,                                                                    
which essentially  gave the RCA  the statutory  authority to                                                                    
add to their decision making  process the concept that there                                                                    
might be consequences of failing  to approve a contract that                                                                    
was  before  them,  beyond the  immediate  prices  or  rates                                                                    
involved  in the  contract.  She related  that  there was  a                                                                    
reference to  the Cook Inlet  Recovery Act within HB  4 that                                                                    
pertained directly  to the RCA's consideration  of contracts                                                                    
between  affiliated parties  that  underwent the  heightened                                                                    
review; this might come into play  in an instance in which a                                                                    
large anchor tenant had negotiated  a better rate because of                                                                    
its large volume  and great exposure to  risk. She explained                                                                    
that  the  RCA  would  now   be  required  to  consider  the                                                                    
consequences  of  failing to  approve  the  contract in  its                                                                    
deeper review of the  aforementioned anchor tenant; however,                                                                    
a  provision for  contracts  pertaining  directly to  public                                                                    
utilities was not specifically included  in HB 4 because the                                                                    
RCA  had  a  different   standard  for  a  contract  carrier                                                                    
pipeline than the rate review  process that was in a typical                                                                    
public utility regulation. She observed  that in "this case"                                                                    
there was  the initial recourse  tariff and an  RCA approved                                                                    
cost-based  rate as  the backstop  and that  if there  was a                                                                    
different  rate  in  the  contract  between  a  carrier  and                                                                    
utility, it would  likely be less than  the cost-based rate;                                                                    
in  this  situation the  utility  would  be presumed  to  be                                                                    
negotiating a better deal for its rate payers.                                                                                  
                                                                                                                                
Co-Chair Meyer inquired if the  request to change the review                                                                    
period  from 30  days  to 90  days came  from  the RCA,  the                                                                    
attorney  general, the  Department  of Law,  or  all of  the                                                                    
above. Ms. Delbridge replied that  the request had been made                                                                    
by  the RCA  in a  public  hearing on  the legislation.  She                                                                    
added that the  bill's sponsor had sent her  to anchorage to                                                                    
appear before  the RCA for the  public hearing; furthermore,                                                                    
the  RCA had  made 3  other recommendations  at the  hearing                                                                    
that had  been addressed  and enacted  in the  House Finance                                                                    
Committee.                                                                                                                      
                                                                                                                                
2:39:16 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer  expressed concern that extending  the review                                                                    
period to  90 days might  encourage people to use  the whole                                                                    
90 days. He recalled a  recent bill in committee regarding a                                                                    
possible  Liquid  Natural  Gas (LNG)  route.  He  referenced                                                                    
slide  8 and  its  cost per  million  British thermal  units                                                                    
(MMBTu) figures and  inquired if HB 4 would  result in lower                                                                    
costs  per BTU  than the  LNG bill  proposed. Ms.  Delbridge                                                                    
replied that  she did not  recall specifically what  the LNG                                                                    
costs  would be,  but believed  that they  were $15-$19  per                                                                    
MMBTu.  She added  that she  did not  recall with  certainty                                                                    
what the  components of  the LNG  trucking were.  She stated                                                                    
that AGDC's estimate had an  assumption of $2 gas per MMBTu,                                                                    
as well as  $2 in local distribution  charges. She explained                                                                    
that slide 8 depicted the tariff  to the burner tip and that                                                                    
if the $2 per MMBTu and  the $2 in distribution charges were                                                                    
subtracted,  the actual  pipeline  tariff to  the city  gate                                                                    
could be determined.                                                                                                            
                                                                                                                                
Co-Chair   Meyer  noted   that   Ms.   Delbridge  was   very                                                                    
knowledgeable on the bill's subject matter.                                                                                     
                                                                                                                                
Senator Bishop recalled that the  last LNG trucking estimate                                                                    
to the burner tip in Fairbanks was $13.90-$15 per MMBTu.                                                                        
                                                                                                                                
Senator Dunleavy  wondered how  the diameter  of the  HB 4's                                                                    
pipeline  had been  decided upon.  Mr.  Fauske deferred  the                                                                    
question Frank Richards.                                                                                                        
                                                                                                                                
Mr. Richards  replied that the  design premise was  based on                                                                    
limitations  placed by  the  Alaska  Gasline Inducement  Act                                                                    
(AGIA) statute, which  specified a maximum flow  rate of 500                                                                    
million cubic  feet (Mcf)  per day; based  on the  limit and                                                                    
expressed interest, the  legislation's pipeline was designed                                                                    
to flow  rate of 500 Mcf  per day. He stated  that there was                                                                    
tradeoff   between   pipeline    diameter,   strength,   and                                                                    
compression and that AGDC had  examined various options from                                                                    
a  24 inch,  a 32  inch,  and a  36  inch pipe  in order  to                                                                    
determine   the   lowest   cost  for   pipe   diameter   and                                                                    
compression.  He  stated  that  a  sole  compressor  station                                                                    
married to  a 36 inch  diameter pipe had been  determined to                                                                    
be the lowest  cost diameter pipe at a flow  rate of 500 Mcf                                                                    
per day.                                                                                                                        
                                                                                                                                
2:42:02 PM                                                                                                                    
                                                                                                                                
Senator  Dunleavy  inquired  if  the AGIA  agreement  was  a                                                                    
driver  behind some  aspect of  ASAP.  Mr. Richards  replied                                                                    
that  AGIA dictated  the maximum  flow rate  of 500  Mcf per                                                                    
day.                                                                                                                            
                                                                                                                                
Mr.  Fauske noted  that  the pipeline  would  be capable  of                                                                    
flowing more  than 500 Mcf  per day, which was  not depicted                                                                    
on the slides because AGDC did  not want to indicate that it                                                                    
was  designing  something to  exceed  the  500 Mcf  per  day                                                                    
limitation.                                                                                                                     
                                                                                                                                
Mr.  Richards  interjected  that  at  1480  psi  and  the  1                                                                    
compressor  station, the  pipeline  would flow  500 Mcf  per                                                                    
day.                                                                                                                            
                                                                                                                                
Senator  Dunleavy queried  if the  assumption  was that  the                                                                    
AGIA agreement would  be in place for some  time, given that                                                                    
a pipeline was  being based "to some  extent" on limitations                                                                    
of the  agreement. Mr. Richards  responded that  because the                                                                    
AGIA licensee  was working with the  state administration on                                                                    
moving forward with  a project and because  the AGIA statute                                                                    
was still  in place,  AGDC was required  to comply  with the                                                                    
AGIA limitations.                                                                                                               
                                                                                                                                
Senator Dunleavy inquired if it  would be possible to have a                                                                    
48 inch pipeline that only  delivered the amount of gas just                                                                    
under   the   AGIA   limit.  Mr.   Richards   replied   that                                                                    
theoretically, AGDC could  use a 48 inch  pipeline, but that                                                                    
it  would  have additional  costs  associated  with it  that                                                                    
would have  to be borne by  the state. He surmised  that the                                                                    
RCA would not  want to put additional costs  on Alaskan rate                                                                    
payers.                                                                                                                         
                                                                                                                                
Senator Dunleavy  inquired why  HB 4's  route was  chosen as                                                                    
opposed to  another route. Mr.  Richards responded  that the                                                                    
route was given to AGDC  by its predecessors on the project.                                                                    
He  explained  that  the  ENSTAR  Natural  Gas  Company  had                                                                    
originated the  concept for ASAP,  which in turn  had handed                                                                    
the project off to the  governor's office and the Department                                                                    
of  Natural Resources  (DNR). He  continued to  explain that                                                                    
when HB  369 had passed  into law, AHFC and  its subsidiary,                                                                    
AGDC, were given ASAP.                                                                                                          
                                                                                                                                
Senator  Dunleavy  queried  if  ASAP was  designed  for  the                                                                    
purpose of  delivering gas in  state and not  for exporting.                                                                    
Mr.  Richards responded  that  the concept  of  ASAP was  to                                                                    
deliver  gas for  Alaskans needs,  which included  consumers                                                                    
and  industries. He  pointed out  that the  in-state use  of                                                                    
natural gas was approximately 240  Mcf per day, which left a                                                                    
capacity of about 260 Mcf per  day that could be consumed by                                                                    
other  large industrial  uses; these  large industrial  uses                                                                    
could  include mining  developments,  export facilities,  or                                                                    
reestablishing a fertilizer facility.                                                                                           
                                                                                                                                
Senator   Dunleavy   inquired    if   the   pipeline   could                                                                    
theoretically  be geared  for export  as the  project neared                                                                    
the build phase.  Mr. Richards responded that  the "proof in                                                                    
the pudding" would be when ASAP went to an open season.                                                                         
                                                                                                                                
Senator Dunleavy  inquired if the  pipeline was  designed so                                                                    
that if things changed with AGIA,  it could also be used for                                                                    
exports  in order  to generate  revenue for  the state.  Mr.                                                                    
Richards replied that  the open season would  reveal who was                                                                    
interested in shipping and buying  gas and would represent a                                                                    
decision  point   to  see  if  there   would  be  additional                                                                    
accommodation required.                                                                                                         
                                                                                                                                
2:47:56 PM                                                                                                                    
                                                                                                                                
Mr. Fauske interjected that AGDC  had held and expression of                                                                    
interest  in   July  of  2011,  which   was  a  non-binding,                                                                    
confidential hearing  in which firms and  other interests in                                                                    
the  project attended;  AGDC had  signed  documents that  it                                                                    
would  not divulge  who was  at the  meeting. He  noted that                                                                    
AGDC knew that there was approximately  a 240 Mcf to 260 Mcf                                                                    
per day  use in Alaska and  that at the end  of the hearing,                                                                    
there  was  more  than  500   Mcf  per  day  in  non-binding                                                                    
agreements; in  other words, there was  an "absolute" stated                                                                    
interest by commercial  or industrial users for  the gas. He                                                                    
observed  that AGDC  viewed the  commercial interest  in the                                                                    
gas  very positively  because it  indicated that  even at  a                                                                    
smaller scale,  there was an  opportunity. He noted  that if                                                                    
ASAP could  fill the 500 Mcf  per day limit, it  would drive                                                                    
the tariffs down for everyone.                                                                                                  
                                                                                                                                
Mr. Fauske recalled  working on AGIA a number  of years back                                                                    
and noted that the original plan  had been to ship 4 billion                                                                    
cubic  feet (Bfc)  or  5 Bfc  of gas  per  day down  through                                                                    
Canada;  the plan  had since  been restructured.  He pointed                                                                    
out that  when the route for  ASAP had been handed  to AGDC,                                                                    
HB 369  specified that gas  would be brought to  Alaskans at                                                                    
the lowest  possible costs; although there  had already been                                                                    
a  route  established,  AGDC  had  conducted  analysis  that                                                                    
revealed that  the current route  satisfied the  language in                                                                    
HB  369.  He  acknowledged  that there  had  been  questions                                                                    
regarding  why  the pipeline  would  not  go to  Valdez.  He                                                                    
explained that  Valdez was another  110 miles and that  at a                                                                    
cost  of  $5  million  per mile  the  lowest  possible  cost                                                                    
calculation would  be quickly  exceeded. Secondly,  the line                                                                    
did  not extend  to Valdez  because  at the  time, AGIA  was                                                                    
already proposing  to export 3.5 Bcf  of gas per day  out of                                                                    
Valdez.  He  concluded  that beyond  the  distance  and  the                                                                    
mandates  of  HB 369,  AGIA's  significant  export plans  in                                                                    
Valdez discouraged the  line being extended to  the city. He                                                                    
observed that ASAP  was looking for what was  referred to as                                                                    
an  "anchor tenant"  that would  take care  of Alaskans  and                                                                    
hopefully  expand  abilities and  capacity  in  some of  the                                                                    
state's  rural  areas;  the project  would  be  selling  the                                                                    
excess gas  that was  not needed on  an immediate  basis. He                                                                    
stated that  ASAP's pipeline  could be  used for  exports if                                                                    
that was  what one of  the customers  wanted to do  with the                                                                    
gas.                                                                                                                            
                                                                                                                                
Mr.  Fauske observed  that there  had  been concerns  raised                                                                    
that  the  ASAP pipeline  would  not  transport liquids  and                                                                    
stated that the  original 24 inch line was design  to run at                                                                    
maximum pressure  to sustain  the liquids  at a  state where                                                                    
they could be  transported down the line.  He explained that                                                                    
the  straddle  plants that  were  mentioned  earlier in  the                                                                    
meeting had a cost $250 million  each and were where all the                                                                    
liquids were pulled out of  the line; after the liquids were                                                                    
removed, utility grade  gas, or methane, was left  over.  He                                                                    
stated that the  advancement of the shale oil  market in the                                                                    
Lower-48 had changed the industry  drastically and that AGDC                                                                    
was not  opposed to a  liquids market; however,  the liquids                                                                    
market  was   extremely  difficult  currently  due   to  the                                                                    
"feedstock" or  abundance of  gas. He  shared that  AGDC had                                                                    
conducted a  study on LNG,  Natural Gas Liquids  (NGL) [NGLs                                                                    
are  the  liquids  that  Mr.  Fauske  is  referring  to  for                                                                    
industrial  use.], and  Gas to  Liquids (GTL)  and that  the                                                                    
analysis  had   revealed  that  LNG  was   the  most  likely                                                                    
candidate  for marketing;  he surmised  that  AGDC had  been                                                                    
proven correct in  its analysis. He concluded  that AGDC had                                                                    
left itself the option  of entertaining activities like NGLs                                                                    
at the  open season if  there was stated interest.  He noted                                                                    
that there  were a lot of  good ideas out there  and that it                                                                    
be ideal  if there was  3.5 Bfc to 4  Bcf of gas  for export                                                                    
sales. He offered that if  the "big line" was successful, it                                                                    
would be a wonderful day  for state; however, oil filled the                                                                    
treasury, while  gas should supply  for the security  of its                                                                    
residents. He stated if Alaska  could sell enough gas to add                                                                    
to treasury,  it would be  a wonderful thing,  but indicated                                                                    
that  it  was  difficult  to   move  forward  in  all  those                                                                    
directions.                                                                                                                     
                                                                                                                                
Mr. Fauske  observed that oil  and gas represented  a world-                                                                    
market  driven enterprise  that involved  large numbers.  He                                                                    
referenced a letter released by  an alignment of North Slope                                                                    
producers and  applauded Governor  Sean Parnell  for setting                                                                    
benchmarks. He  discussed the producers' schedule  to have a                                                                    
42 inch pipeline that would flow up  to 3 Bcf per day by the                                                                    
year 2025 or  2026. He stated the urgency of  getting gas to                                                                    
Alaska's residents.                                                                                                             
                                                                                                                                
2:55:01 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer  wondered if the governor's  proposal for the                                                                    
big line would  follow the same route as  ASAP. Mr. Richards                                                                    
thought that the big line,  which was currently known as the                                                                    
South-Central Liquefied  Natural Gas (SCLNG)  Project, would                                                                    
share a  route with ASAP  from Prudhoe Bay to  Livengood. He                                                                    
indicated  that the  route from  Livengood  would depend  on                                                                    
where the  destination point  was for  the LNG  facility. If                                                                    
the  SCLNG  Project's LNG  facility  was  in Prince  William                                                                    
Sound,  the  route  would veer  off  with  the  Trans-Alaska                                                                    
Pipeline System (TAPS); however, if  the facility was in the                                                                    
Cook Inlet  Basin, the  route might be  parallel to  that of                                                                    
ASAP's across Minto Flats.                                                                                                      
                                                                                                                                
Co-Chair  Meyer wanted  to make  sure that  the money  being                                                                    
spent on ASAP wouldn't be wasted  if the state opted for the                                                                    
bigger  line.  Mr.  Fauske  observed   that  AGDC  had  been                                                                    
concentrating  its  work on  the  route  from Livengood  and                                                                    
south.  He stated  that AGDC  had  promised the  legislature                                                                    
that it would  not duplicate other work being  done with the                                                                    
idea  in mind  that the  two projects  might be  aligned one                                                                    
day.  He  offered  that  if  the  SCLNG  Project  line  went                                                                    
through,  the work  that  AGDC had  conducted  would not  be                                                                    
wasted and could be utilized.                                                                                                   
                                                                                                                                
Co-Chair Meyer inquired  if the military was  part of AGDC's                                                                    
due diligence  work regarding  potential in-state  needs for                                                                    
gas. Mr.  Fauske replied that  AGDC had based  the Fairbanks                                                                    
model on absolute military use.  He added that the Fairbanks                                                                    
model assumed  70 Mcf per  day, which included  the military                                                                    
bases.                                                                                                                          
                                                                                                                                
Mr. Richards furthered that the  70 Mcf per day included the                                                                    
Fairbanks North  Star Borough. He explained  that the number                                                                    
AGDC had  come up with  had been  derived from a  study that                                                                    
was  done for  Alaska  Pipeline Project  (APP) for  in-state                                                                    
needs.                                                                                                                          
                                                                                                                                
Mr. Fauske added  that AGDC had briefed  military leaders on                                                                    
ASAP and indicated  that they had expressed a  great deal of                                                                    
interest.                                                                                                                       
                                                                                                                                
Vice-Chair Fairclough inquired if  Mr. Fauske had previously                                                                    
stated that extending  ASAP's route to Valdez  would add 110                                                                    
miles  to  the current  route.  Mr.  Fauske replied  in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  queried  the   cost  of  adding  the                                                                    
additional  110  miles  of  route   to  Valdez.  Mr.  Fauske                                                                    
responded that  he had  been referencing  the large  cost of                                                                    
adding 110 miles of route at a cost of $5 million per mile.                                                                     
                                                                                                                                
2:59:05 PM                                                                                                                    
                                                                                                                                
Senator Hoffman directed the presentation back to slide 9,                                                                      
"AGDC Budget to Project Sanction"  and indicated that he was                                                                    
trying reconcile  the budget  on the  slide with  the fiscal                                                                    
notes that were  attached to the bill. He  referenced page 6                                                                    
of fiscal note number 2  and pointed out that the facilities                                                                    
engineering costs  of the note were  $182.962 million, while                                                                    
slide 9 listed  the same costs at  $105.984 million. [Fiscal                                                                    
note number 2  has since been renumbered to number  4; it is                                                                    
the note showing an appropriation  to AGDC.] He continued to                                                                    
discuss page  6 of the fiscal  note and pointed out  that it                                                                    
showed pipeline engineering costs  of $93.784 million, while                                                                    
the slide  showed $69.139  million; additionally,  the total                                                                    
costs  for project  sanction/construction on  page 4  of the                                                                    
note was  $330 million, while  the slide showed a  figure of                                                                    
$328.331 million. He inquired if  the $330 million on page 4                                                                    
of  the  fiscal note  represented  the  same figure  as  the                                                                    
$328.331  million on  slide 9  and further  queried how  the                                                                    
differences between  the fiscal note and  AGDC's slide could                                                                    
be reconciled. Mr. Richards replied  that fiscal note number                                                                    
2 was very  comprehensive and that the $400  million on page                                                                    
4  of  the   note  was  the  total  target   that  AGDC  had                                                                    
recommended  for  developing  the engineering  work  through                                                                    
project sanction. He  continued to discussed page  4 and the                                                                    
table of  additions and subtractions that  ultimately led to                                                                    
a total of  $330,000. He stated the numbers shown  on page 6                                                                    
of the note  had been provided in the  original project plan                                                                    
and identified in  gross terms the four  major components of                                                                    
project  plan  completion, commercial  operations,  pipeline                                                                    
engineering,  facilities  engineering,  as well  as  support                                                                    
activities; these totaled $400  million. He shared that what                                                                    
was depicted  on slide 9  were detail cost estimates  on all                                                                    
the  major activities  as the  project  had advanced  toward                                                                    
project sanction. He  added that the $400 million  on page 6                                                                    
of the  note represented  gross numbers  and related  that a                                                                    
portion of it had already been  spent. He pointed to the $72                                                                    
million in prior  year appropriations on page 4  of the note                                                                    
and shared that  it accounted for the reduction  to the $400                                                                    
million on  page 6. He  offered apologies for  any confusion                                                                    
regarding the  fiscal notes. He  concluded that  the "detail                                                                    
going forward" was on slide 9.                                                                                                  
                                                                                                                                
Senator Hoffman  wondered if the fiscal  note's cost figures                                                                    
included  or  excluded the  $25  million  in the  governor's                                                                    
request. Mr.  Richards stated  that the  request represented                                                                    
the  actual  need going  forward,  as  opposed to  what  the                                                                    
appropriation would be.                                                                                                         
                                                                                                                                
Senator Hoffman inquired from what  starting date the actual                                                                    
need of  the project was calculated.  Mr. Richards responded                                                                    
that  the  date  range  was   from  FY14  through  FY16  and                                                                    
represented only the funding needed for AGDC.                                                                                   
                                                                                                                                
3:03:42 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  observed that the  bottom of page 4  of the                                                                    
fiscal  note  showed  that  the   funds  needed  to  project                                                                    
sanction  were  $330  million  and   inquired  if  that  was                                                                    
correct. Mr. Richards replied in the affirmative.                                                                               
                                                                                                                                
Senator Hoffman  queried if the  $330 million on  the fiscal                                                                    
note represented the same number  that was shown on slide 9.                                                                    
Mr. Richards responded in the affirmative.                                                                                      
                                                                                                                                
Senator Bishop  requested a ballpark  cost estimate  for the                                                                    
permitting costs from Fairbanks  to Prince William Sound and                                                                    
then to Valdez. Mr. Richards  inquired if Senator Bishop was                                                                    
requesting the  costs for  AGDC to  go through  the National                                                                    
Environmental Policy  Act (NEPA) process, which  included an                                                                    
EIS, from  Livengood to Valdez. Senator  Bishop responded on                                                                    
the  affirmative. He  observed that  AGIA had  probably done                                                                    
some  of the  permitting  work  to Big  Delta  and that  the                                                                    
information might  be available.  Mr. Richards  replied that                                                                    
AGIA  had  done  some  of  the  work  and  had  published  a                                                                    
considerable  amount of  data through  its resource  reports                                                                    
through the Federal Energy Regulatory Commission (FERC).                                                                        
                                                                                                                                
Senator  Bishop added  that Mr.  Richards might  just supply                                                                    
the permitting costs from Big  Delta to Valdez. Mr. Richards                                                                    
requested a  clarification and inquired  if the  request was                                                                    
for the  permitting for  a lean-gas  pipeline or  a rich-gas                                                                    
pipeline.  Senator   Bishop  replied  that  he   wanted  the                                                                    
permitting costs for a LNG export pipeline.                                                                                     
                                                                                                                                
3:06:00 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:14:36 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
3:14:46 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough remarked on  Senator Hoffman's line of                                                                    
question regarding fiscal note number  2 and felt that there                                                                    
might need  to be  more clarity on  the issue.  She observed                                                                    
that  the  fiscal  note  included  other  agency  needs  and                                                                    
requested  an explanation  of the  note for  the purpose  of                                                                    
clarity.  Mr.  Richards  apologized for  any  confusion  and                                                                    
replied that the fiscal note  was all inclusive of costs for                                                                    
not only  AGDC, but  also for the  Department of  Law (DOL),                                                                    
DNR,  the Department  of  Environmental Conservation  (DEC),                                                                    
the  Department  of  Transportation  and  Public  Facilities                                                                    
(DOT),  and  many  subdivisions within  those  agencies.  He                                                                    
explained  that slide  9 of  the presentation  represented a                                                                    
detailed  look  at  AGDC's  costs  alone  going  forward  to                                                                    
project sanction.                                                                                                               
                                                                                                                                
Senator  Olson mentioned  AGDC's work  on right-of-ways  and                                                                    
wondered  if the  project had  secured the  right-of-ways on                                                                    
federal  and  private  lands. Mr.  Richards  referred  to  a                                                                    
pending right-of-way  decision from the BLM  and stated that                                                                    
there were  approximately a 100  miles of federal  land that                                                                    
AGDC was  currently awaiting a  decision on. He  stated that                                                                    
there were about 70 miles  of remaining lands that consisted                                                                    
of Native  regional and village corporations,  other private                                                                    
holdings,  and  several  Native allotments.  He  added  that                                                                    
other  than Native  lands, private  holdings only  accounted                                                                    
for approximately  2 percent  of the  entire line;  he added                                                                    
that the  non-Native, private holdings  probably represented                                                                    
about 12 miles of actual right-of-way alignment.                                                                                
                                                                                                                                
Senator Olson  inquired if AGDC  was planning  on exercising                                                                    
its right  of imminent domain  on some of the  private lands                                                                    
alone the line. Mr.  Richards responded that currently, AGDC                                                                    
had not even entered into  discussions with the private land                                                                    
holders because  ASAP was not  yet at the stage  of actually                                                                    
defining  the actual  center line.  He added  that it  was a                                                                    
little  premature  in  the  process   to  enter  into  those                                                                    
discussions with the private land holders.                                                                                      
                                                                                                                                
Senator  Olson   inquired  if  it   was  in  the   realm  of                                                                    
consideration  that   AGDC  might  exercise  its   right  of                                                                    
imminent  domain. Mr.  Richards replied  that HB  4 provided                                                                    
the imminent domain authority to AGDC.                                                                                          
                                                                                                                                
Senator Olson directed the presentation  back to slide 3. He                                                                    
remarked  on  the  335,000  tons steel  that  needed  to  be                                                                    
shipped  in  for  the  project.  He  inquired  if  the  road                                                                    
maintenance had  been taken  into consideration  and queried                                                                    
if  the increased  maintenance would  be shouldered  by DOT.                                                                    
Mr. Richards  replied that while  the port of entry  had not                                                                    
been determined, the  335,000 tons of steel  would likely be                                                                    
transported by  the Alaska Railroad. He  reported that other                                                                    
loads, including construction loads,  would be hauled on the                                                                    
state highway.  He related that  AGDC hoped to enter  into a                                                                    
highway-use  agreement  with  DOT;  he noted  that  DOT  was                                                                    
included  in the  fiscal  note. He  stated  that AGDC  would                                                                    
conduct  a condition  survey before  the  initiation of  the                                                                    
work, as  well as a survey  at the end; the  agreement would                                                                    
be worked out with DOT in advance of the project.                                                                               
                                                                                                                                
3:19:24 PM                                                                                                                    
                                                                                                                                
Senator Olson  pointed out  that some  bridges might  not be                                                                    
able to  carry the increased  loads over an  extended period                                                                    
of  time and  inquired if  the  state would  be bearing  the                                                                    
costs  to upgrade  bridges. Mr.  Richards  replied that  the                                                                    
bridges along  the Parks Highway  and Dalton  Highway routes                                                                    
had  been upgraded  over the  last 10  years; these  bridges                                                                    
were  sufficient  to allow  module  hauls  of up  to  almost                                                                    
450,000 lbs.  He stated that AGDC  did not expect a  load as                                                                    
heavy  as  450,000  lbs.  to be  associated  with  ASAP  and                                                                    
furthered that  the major modules  for the GCF  would likely                                                                    
be sea-lifted.                                                                                                                  
                                                                                                                                
Senator  Olson discussed  ASAP's  proposed  terminus in  Big                                                                    
Lake, as  well as issues  surrounding HB 4's  pipeline route                                                                    
versus alternate  routes. He  inquired if  AGDC was  open to                                                                    
using an  alternative route and  not going to Big  Lake. Mr.                                                                    
Richards  replied  that  the  route  that  had  been  worked                                                                    
through  EIS  was given  to  AGDC  by its  predecessors.  He                                                                    
explained  that the  route  would bring  gas  to the  south-                                                                    
central market and  would provide gas to  residents where it                                                                    
was needed;  currently, there  were potential  gas shortages                                                                    
from the Cook Inlet system.  He related that the open season                                                                    
would be  the determining factor  of where the  shippers and                                                                    
buyers wanted  the pipeline  to be and  the product  to flow                                                                    
to.                                                                                                                             
                                                                                                                                
Senator Olson  inquired if  the route down  to Big  Lake was                                                                    
etched  in   stone.  Mr.  Richards  responded   that  as  it                                                                    
currently stood,  the current route  was what AGDC  had been                                                                    
provided with and it was the route that it had the right-                                                                       
of-way alignments and federal EISs on.                                                                                          
                                                                                                                                
Senator Bishop  urged AGDC to  use the University  of Alaska                                                                    
system for  engineering research services  whenever possible                                                                    
and  noted that  he  would appreciate  the  use of  in-state                                                                    
services for that  work. Mr. Richards replied  that AGDC had                                                                    
summer field work  to conduct and that it  was exploring all                                                                    
the  in-state   options  to  do  the   work,  including  the                                                                    
University of Alaska.                                                                                                           
                                                                                                                                
3:23:23 PM                                                                                                                    
                                                                                                                                
JOE  DUBLER, VICE  PRESIDENT  AND  CHIEF FINANCIAL  OFFICER,                                                                    
ALASKA  GASLINE  DEVELOPMENT  CORPORATION  AND  DIRECTOR  OF                                                                    
FINANCE, ALASKA  HOUSING FINANCE CORPORATION,  DEPARTMENT OF                                                                    
REVENUE,  discussed the  PowerPoint,  "ASAP, Financing  Mega                                                                    
Projects" (copy on file).                                                                                                       
                                                                                                                                
Mr. Dubler looked at slide 2, "Financing Overview."                                                                             
                                                                                                                                
     · Objective is to achieve the lowest cost of financing                                                                     
        possible for a given project                                                                                            
                                                                                                                                
     · Look at financing from the other side--that of the                                                                       
        investor                                                                                                                
                                                                                                                                
     · Structure financing package to attract as many                                                                           
        investors as possible                                                                                                   
                                                                                                                                
     · Typically two sources of funding a project - equity                                                                      
        and debt, each of which has its own advantages and                                                                      
        disadvantages                                                                                                           
                                                                                                                                
     · Rates of return for both debt and equity are                                                                             
        determined based upon several factors that basically                                                                    
        reward investors for taking on risk                                                                                     
                                                                                                                                
     · Investment yield = inflation rate + risk factor +                                                                        
        liquidity factor                                                                                                        
                                                                                                                                
Mr. Dubler addressed slide 2  and related that the financing                                                                    
on  mega   projects  was  not  much   different  than  other                                                                    
projects,  except that  the numbers  were a  lot larger.  He                                                                    
discussed  the fifth  bullet point  and  stated that  equity                                                                    
investors tended to take on  more risk and received a higher                                                                    
yield;  the  bond  holders  typically  took  less  risk  and                                                                    
received a lower yield.                                                                                                         
                                                                                                                                
Mr. Dubler discussed slide 3, "Equity Financing."                                                                               
                                                                                                                                
     Equity is riskier (and higher cost) due to:                                                                                
                                                                                                                                
          · Equity investors usually put the first dollars                                                                      
             into a project often with no guarantee the                                                                         
             project will even make it to a sanction                                                                            
             decision                                                                                                           
                                                                                                                                
          · Equity shares are not very liquid. It is much                                                                       
             more difficult to sell equity in a project than                                                                    
            a bond issued for the same project                                                                                  
                                                                                                                                
     For  these reasons  it is  advantageous to  a project's                                                                    
     overall cost  of funds  to keep  the equity  portion as                                                                    
     small  as possible  and the  debt portion  as large  as                                                                    
     possible                                                                                                                   
                                                                                                                                
Mr. Dubler spoke  to slide 3. He discussed  the first bullet                                                                    
point and  related that bond  holders were hesitant  to lend                                                                    
at the beginning  of a project because  they took completion                                                                    
risk in  doing so.  He explained that  bond holders  did not                                                                    
like to  take completion risk;  completion risk is  the risk                                                                    
that  the  project is  never  finished  and never  generates                                                                    
revenues. He  discussed the second bullet  point and related                                                                    
that  a  bond traded  on  a  national market,  while  equity                                                                    
shares typically did not. He  spoke to the last paragraph on                                                                    
the bottom  of the  slide and  offered that  the paragraph's                                                                    
conclusion was why the state  had specified a debt to equity                                                                    
ratio  in the  AGIA  legislation; the  prescribed ratio  was                                                                    
meant to keep producers from setting a higher equity to                                                                         
debt ratio in order to increase investment returns.                                                                             
                                                                                                                                
3:26:45 PM                                                                                                                    
                                                                                                                                
Mr. Dubler highlighted slide 4, "Equity Financing."                                                                             
                                                                                                                                
     · Equity financing options include 100 percent state-                                                                      
        owned,  100   percent   private   owned,   or   some                                                                    
        combination of the two                                                                                                  
                                                                                                                                
     · One of the advantages of a State-owned pipeline is                                                                       
        that the  State  would have  more  control over  the                                                                    
        components of the pipeline                                                                                              
                                                                                                                                
     · Some might say this is also a disadvantage of a                                                                          
        State-owned pipeline as the private sector is better                                                                    
        equipped to own and operate large projects                                                                              
                                                                                                                                
     · The main advantage to a privately owned pipeline is                                                                      
        that the  private  sector may  be  best equipped  to                                                                    
        complete such  a project.  There are  many companies                                                                    
        whose only  business is  to build,  own and  operate                                                                    
       pipelines, and they are very good at doing so                                                                            
                                                                                                                                
     · The disadvantage is that the State loses the control                                                                     
        it would  otherwise have  with  the State  ownership                                                                    
        option                                                                                                                  
                                                                                                                                
Mr. Dubler addressed slide 4 and discussed the first bullet                                                                     
point. He related that the Knick Arm Bridge and Toll                                                                            
Authority (KABATA) was an example of an entirely state-                                                                         
owned project; AGIA and APP were examples of two entirely                                                                       
private owned projects.                                                                                                         
                                                                                                                                
Mr. Dubler discussed slide 5, "Debt Financing."                                                                                 
                                                                                                                                
     · While there are many different vehicles available to                                                                     
        finance a  project, we  will focus  on three  today:                                                                    
        general obligation bonds; project finance bonds; and                                                                    
        state moral obligation bonds                                                                                            
                                                                                                                                
     · General Obligation Bonds                                                                                                 
                                                                                                                                
          o would get the State's rating, which would lower                                                                     
             the cost and make for a more straightforward                                                                       
             credit analysis                                                                                                    
                                                                                                                                
          o However, general obligation bonds require voter                                                                     
             approval and a general fund appropriation in                                                                       
             the future (which will be offset by project                                                                        
             revenues)                                                                                                          
                                                                                                                                
Mr. Dubler  spoke to slide  5 and discussed the  second main                                                                    
bullet point.  He stated that general  obligation bonds were                                                                    
typically used  for state infrastructure projects  and added                                                                    
that Alaska's credit rating was  currently AAA. He discussed                                                                    
the  slide's  final  sub-bullet  point  and  shared  that  a                                                                    
majority vote  of the  people for  bond issuances  have been                                                                    
historically difficult to achieve  in Alaska. He stated that                                                                    
AGDC  was   not  recommending  a  general   obligation  bond                                                                    
issuance  for ASAP  because  it  did not  feel  that it  was                                                                    
necessary.                                                                                                                      
                                                                                                                                
Senator Hoffman  inquired when  the last  time was  that the                                                                    
voters  turned down  a state-wide  general obligation  bond.                                                                    
Mr.  Dubler responded  that he  had been  referring more  to                                                                    
local,   municipal  elections   and  mentioned   Anchorage's                                                                    
difficulties getting bonds passed.                                                                                              
                                                                                                                                
Senator Hoffman surmised that state  voters had never turned                                                                    
down a  general obligation  bond. Mr. Dubler  responded that                                                                    
he was not aware of state voters doing so.                                                                                      
                                                                                                                                
Co-Chair Meyer  agreed with Senator  Hoffman and  added that                                                                    
he  could not  recall a  state-wide general  obligation bond                                                                    
failing.  He noted  that  locally,  the general  obligations                                                                    
bonds failed to pass votes from time to time.                                                                                   
                                                                                                                                
Co-Chair  Meyer inquired  if  the  general obligation  bonds                                                                    
referenced on  the slide  would be  state bonds.  Mr. Dubler                                                                    
responded in the affirmative.                                                                                                   
                                                                                                                                
3:30:26 PM                                                                                                                    
                                                                                                                                
Mr. Dubler highlighted slide 6, "Debt Financing."                                                                               
                                                                                                                                
     · Project Financing                                                                                                        
                                                                                                                                
          · Would have no impact on the State of Alaska as                                                                      
             the project would be rated as a stand-alone                                                                        
             credit; therefore no general fund appropriation                                                                    
             would be required.                                                                                                 
                                                                                                                                
     · State Moral Obligation Bonds                                                                                             
                                                                                                                                
          ·  Would  have   similar   benefits   of   general                                                                    
             obligation bonds in  that they would  result in                                                                    
             lower  interest  rates  and  a  simpler  credit                                                                    
             analysis based upon the State's credit rating.                                                                     
                                                                                                                                
          ·  Likewise,  the   negative   effects  of   moral                                                                    
             obligation  bonds  would  be   similar  to  the                                                                    
             general obligation bonds in that there would be                                                                    
             a potential State downgrade resulting in a real                                                                    
             cost to the State  of Alaska and  its political                                                                    
             subdivisions.                                                                                                      
                                                                                                                                
Mr. Dubler  discussed slide 6.  He addressed the  first main                                                                    
bullet  point  and stated  that  AGDC  was recommending  the                                                                    
project  financing  model  for  ASAP;  in  this  model,  the                                                                    
revenues  of the  project  were  at risk  to  make the  debt                                                                    
service  on   the  bonds.  He   stated  that   with  project                                                                    
financing,  the debt  was structured  to match  the revenues                                                                    
off  of the  project, which  in this  case were  the tariffs                                                                    
from customers that were signed during an open season.                                                                          
                                                                                                                                
Mr. Dubler discussed slide 7, "Ownership Model."                                                                                
                                                                                                                                
        · The goal for project financing is to strike an                                                                        
          appropriate  balance   between  debt   and  equity                                                                    
          components  such  that  the lowest  overall  yield                                                                    
          (cost) can be achieved.                                                                                               
                                                                                                                                
        · A typical ownership model could include a pro                                                                         
          rata equity for  shippers in the share  of the gas                                                                    
          in that they are shipping in the line.                                                                                
                                                                                                                                
        · This allows shippers a percentage control in line                                                                     
          with  the risk  their taking  in committing  their                                                                    
          gas to the project.                                                                                                   
                                                                                                                                
        · A target capital structure of 75 percent-25                                                                           
          percent  is consistent  with  the  APP and  Denali                                                                    
          Pipelines'   assumptions   used  in   their   Open                                                                    
          Seasons.                                                                                                              
                                                                                                                                
Mr.  Dubler  addressed  slide 7  and  discussed  the  fourth                                                                    
bullet point. He  pointed out that the debt  to equity ratio                                                                    
of 75  percent to  25 percent  was a  higher debt  to equity                                                                    
ratio than the  AGIA ratio; AGDC had used a  higher ratio to                                                                    
decrease the  amount of  equity and  increase the  amount of                                                                    
debt in order to keep gas as the lowest possible costs.                                                                         
                                                                                                                                
Senator   Bishop  requested   more  information   about  the                                                                    
ownership  model  of  AGDC. He  specifically  wondered  what                                                                    
revenue could  be returning  to AGDC,  as well  as potential                                                                    
dividends from the revenue that  could benefit Alaskans. Mr.                                                                    
Dubler replied that in the  case of the ownership model, the                                                                    
state would not  get dividends from the  pipeline because it                                                                    
was  not  making an  investment  as  an equity  partner.  He                                                                    
continued  that since  an  eight  of the  gas  would be  the                                                                    
state's royalty share, the state  might be able to invest an                                                                    
eight of the  equity in the pipeline and  receive the return                                                                    
on one-eighth  of the  equity ownership.  He added  that the                                                                    
return was anticipated to be 10 percent to 13 percent.                                                                          
                                                                                                                                
3:35:10 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer  wondered  if   AGDC  was  recommending  one                                                                    
finance  model over  another. Mr.  Dubler replied  that AGDC                                                                    
felt the financing model could  be best determined after the                                                                    
open season; ideally, if the  open season was successful, he                                                                    
felt that the  private sector would be best  suited to build                                                                    
the  pipeline.  He  explained that  optimally,  the  project                                                                    
would be  at a point where  it had enough customers  to fill                                                                    
the pipe, had firm  transportations agreements, was ready to                                                                    
go, and would be taken over by a pipeline company.                                                                              
                                                                                                                                
Co-Chair Meyer  inquired if there  would be options  at some                                                                    
state  ownership  if  the  pipeline were  taken  over  by  a                                                                    
private company. Mr. Dubler responded in the affirmative.                                                                       
                                                                                                                                
Vice-Chair Fairclough  surmised that  Alaska was  taking 100                                                                    
percent  of the  risk in  moving  ASAP through  the first  2                                                                    
gates. She observed that Alaska  was completely risking $400                                                                    
million and queried why the  state was not already an equity                                                                    
owner in  the project.  She pointed  out that  including the                                                                    
AGIA  funding, Alaskans  had made  a significant  investment                                                                    
and  had  covered all  of  the  risk  up front.  Mr.  Dubler                                                                    
replied that Alaska  was taking all the risk  with both AGIA                                                                    
and ASAP.  He explained that  typical gaslines would  have a                                                                    
very large  source, which  Alaska had,  and very  large use,                                                                    
such as Los  Angeles or Chicago; all a  pipeline company did                                                                    
was  look as  uses and  sources  and connected  the two.  He                                                                    
explained that the use that  Alaska had in the south-central                                                                    
and  Fairbanks areas  was only  240 Mcf  per day,  which was                                                                    
substantial, but  not in the context  of a $7 billion  to $8                                                                    
billion  project.  He  expounded  that  companies  were  not                                                                    
willing to  put a  $400 million risk  upfront and  hope that                                                                    
they would get customers. He  offered that for a much larger                                                                    
market, companies might  be willing to risk  $400 million up                                                                    
front; however, to date, companies  had been unwilling to do                                                                    
so in Alaska. He responded  to the second part of Vice-Chair                                                                    
Fairclough's  question  and stated  that  Alaska  was a  100                                                                    
percent owner  of ASAP currently;  the project would  not be                                                                    
handed over to  a third party gratis, but would  be sold. He                                                                    
concluded that  the project was currently  generating assets                                                                    
to the State  of Alaska and pointed out that  if the project                                                                    
went forward  after a successful  open season,  those assets                                                                    
would be sold to the project.                                                                                                   
                                                                                                                                
3:39:06 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough noted  that the  intent of  providing                                                                    
energy  to Alaskans  was to  do  so at  the lowest  possible                                                                    
cost. She inquired  if Alaska was not the full  owner of the                                                                    
project, if it  would be beneficial to have  all of Alaska's                                                                    
investments  in the  project reduce  the overall  burner tip                                                                    
cost in order to try  and recoup the state's investment. Mr.                                                                    
Dubler replied  that it  would have  to be  a policy  at the                                                                    
time on what  amount, if any, the state  wanted to negotiate                                                                    
in a sales price for those assets.                                                                                              
                                                                                                                                
Vice-Chair Fairclough  discussed the fourth bullet  point on                                                                    
slide 7.  She requested an  explanation on how a  75 percent                                                                    
to  25 percent  ratio would  save on  overall project  costs                                                                    
versus  a  70  percent  to  30  percent  split.  Mr.  Dubler                                                                    
responded that the  return on equity on a  project like ASAP                                                                    
was expected  to be in the  10 percent to 13  percent range,                                                                    
while debt  would be roughly in  the 5 percent to  7 percent                                                                    
range. He  explained that  the more debt  that was  sold, as                                                                    
opposed  to equity,  the  lower the  overall  cost of  funds                                                                    
would be.  He stated that  because the project  was financed                                                                    
over  30 years,  a major  component of  the project  was the                                                                    
cost of the capital.                                                                                                            
                                                                                                                                
Vice-Chair Fairclough  inquired if  the state  would receive                                                                    
more  money  in  interest  as an  equity  owner  versus  the                                                                    
interest it would  pay on borrowing the money  or whether it                                                                    
was the opposite. Mr. Dubler  replied that the project would                                                                    
not be  receiving money on  the equity, but would  be paying                                                                    
the equity  investors. He concluded  that the  project would                                                                    
pay more  to the equity  holders than  it would it  would to                                                                    
the bond  holders. He  concluded that  having 30  percent of                                                                    
the total capital  in equity versus 25  percent would result                                                                    
in a higher cost.                                                                                                               
                                                                                                                                
Senator  Olson inquired  if  HB 4  allowed  the issuance  of                                                                    
bonds  by  AGDC  or  whether  AGDC  had  to  return  to  the                                                                    
legislature  for  a "go  or  no  go" situation.  Mr.  Dubler                                                                    
responded  that bond  issuance by  AGDC was  allowed for  on                                                                    
pages 16 through 20 of the bill.                                                                                                
                                                                                                                                
Vice-Chair   Fairclough   recalled  that   the   legislation                                                                    
specified that  AGDC, or  the future  owner of  the project,                                                                    
would only be able to bond  its own assets and not the State                                                                    
of  Alaska's.  Mr. Dubler  responded  that  no entity  could                                                                    
issue  general  obligation bonds  for  the  State of  Alaska                                                                    
without  a vote  of  the  people. He  pointed  out that  the                                                                    
language that  gave AGDC the  option of utilizing  the moral                                                                    
obligation of  the State of  Alaska in issuing its  debt had                                                                    
been in  the bill; however,  the legislation had  since been                                                                    
modified in the other body to  require AGDC to return to the                                                                    
legislature  for approval  to  use that  tool. He  concluded                                                                    
that the  State of  Alaska would not  have liability  on any                                                                    
bonds  issued   by  ASAP  without  further   action  by  the                                                                    
legislature.                                                                                                                    
                                                                                                                                
3:43:31 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough  requested more  information regarding                                                                    
the validity of pledge. Mr.  Dubler deferred the question to                                                                    
Ken Vassar.                                                                                                                     
                                                                                                                                
Vice-Chair Fairclough directed  the committee's attention to                                                                    
page 20, Section  31.25.180 of the bill. She  pointed to the                                                                    
validity of  pledge and read  from lines  12 and 13  on page                                                                    
20. She  pointed out that  while a lien  was not a  bond, it                                                                    
was still  a liability and requested  additional explanation                                                                    
of the validity of pledge.                                                                                                      
                                                                                                                                
KEN  VASSAR,  GENERAL  COUNSEL, ALASKA  GASLINE  DEVELOPMENT                                                                    
CORPORATION, ANCHORAGE (via  teleconference), explained that                                                                    
Section 31.25.180  was a standard  section included  in bond                                                                    
statutes; it served  the purpose of allowing  AGDC to pledge                                                                    
whatever  revenues  may be  available  as  security for  the                                                                    
bonds that it  issued, as well as to give  the purchasers of                                                                    
the  bonds  confidence that  the  pledge  was a  valid  lien                                                                    
against  the  revenues. He  shared  that  the essence  of  a                                                                    
revenue bond  was the  revenue that  was available  to repay                                                                    
the bond  holders/lenders; therefore, there would  be a very                                                                    
clear  description  in  the  bond  documents  of  what  that                                                                    
revenue was,  as well as  a clear  statement of the  lien on                                                                    
that  revenue. He  concluded that  the  section assured  the                                                                    
bond  holders in  writing that  the pledge  of revenues  was                                                                    
valid and could not be removed.                                                                                                 
                                                                                                                                
Senator Hoffman remarked that it  had been previously stated                                                                    
that  the  debt  to  equity  ratio for  AGIA  was  fixed  in                                                                    
statute. He  surmised that ASAP's  ratio was a target  of 75                                                                    
percent  to 25  percent  and  was not  set  in statute.  Mr.                                                                    
Dubler  replied that  Senator Hoffman  was correct  and that                                                                    
the only  thing that HB 369  fixed in statute was  that AGDC                                                                    
bring  gas to  Alaskans  at the  lowest  possible cost;  the                                                                    
split of 75 percent to 25  percent was derived from HB 369's                                                                    
directive to  bring gas to  Alaskans at the  lowest possible                                                                    
cost.                                                                                                                           
                                                                                                                                
Senator Hoffman reiterated his question  and asked if the 75                                                                    
percent  to 25  percent debt  to equity  ratio for  ASAP was                                                                    
fixed in statute. Mr. Dubler replied that it was not.                                                                           
                                                                                                                                
Mr.  Richards  recalled  several questions  from  Vice-Chair                                                                    
Fairclough during  the prior hearing  that Mr.  Dubler would                                                                    
be able  to answer,  specifically regarding the  interest on                                                                    
the project's capital fund.                                                                                                     
                                                                                                                                
3:47:41 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  directed  the  committees  page  13,                                                                    
Section 31.25.100 of the bill,  which dealt with an in-state                                                                    
natural  gas pipeline  fund. She  discussed the  use of  the                                                                    
word "may"  on line 15  and inquired where  an appropriation                                                                    
to the fund would reside.                                                                                                       
                                                                                                                                
Vice-Chair Fairclough  wondered if  an appropriation  to the                                                                    
natural gas  pipeline fund  would stay  in the  General Fund                                                                    
and would be  managed by the Department of  Revenue (DOR) or                                                                    
if  it would  be  managed by  an  outside organization.  She                                                                    
further inquired if  the interest earned off  the fund would                                                                    
return  to the  general  fund  if that  was  where fund  was                                                                    
housed or  if the  interest would go  in a  sub-account. Mr.                                                                    
Dubler replied  that for budgetary and  accounting purposes,                                                                    
the natural  gas pipeline fund  would reside under  AGDC and                                                                    
the money  would be reported on  AGDC's financial statements                                                                    
and  budget reports;  however,  investments  from the  fund,                                                                    
which is  what was  referenced on  page 13,  line 15  of the                                                                    
bill, were treated differently. He  explained that DOR had a                                                                    
fund   called   General   Fund  and   Other   Non-Segregated                                                                    
Investments  (GEFONSI), which  worked  as  an internal  fund                                                                    
that  state  agencies  could   utilize.  He  explained  that                                                                    
currently, all of  the assets of the  Alaska Housing Capital                                                                    
Corporation  were  invested  in  GEFONSI;  even  though  the                                                                    
corporation's financial  statements listed  the investments,                                                                    
they were  actually invested by DOR's  Treasury Division. He                                                                    
expounded that  AGDC recognized and  had decided  to utilize                                                                    
DOR's  expertise.  He  pointed  out that  DOR  charged  very                                                                    
little for  the services  it provided  and related  that DOR                                                                    
had achieved a very good  return on investments in the past.                                                                    
He  concluded  that the  actual  location  of the  cash  for                                                                    
accounting purposes  was within  AGDC; however, it  would be                                                                    
invested in DOR.                                                                                                                
                                                                                                                                
Vice-Chair  Fairclough  inquired  why  the  legislation  was                                                                    
using the  word "may"  on page  13, line  15 instead  of the                                                                    
word "shall."  Mr. Dubler  believed that  the intent  of the                                                                    
wording  was to  give flexibility  to AGDC.  He pointed  out                                                                    
that AHFC had been investing  with DOR with positive results                                                                    
for about  10 years. He  furthered that there was  no reason                                                                    
that AHFC  would not invest  with DOR, but thought  that the                                                                    
language was there to maintain flexibility.                                                                                     
                                                                                                                                
Vice-Chair Fairclough pointed out  that Alaskans trusted the                                                                    
Permanent Fund  Board, the rate  of return on  the permanent                                                                    
fund, as  well as  the ability to  receive a  permanent fund                                                                    
dividend on a regular basis. She  pointed out that DOR had a                                                                    
done a good  job on rates of return for  the Permanent Fund.                                                                    
She inquired  what the other options  for investment besides                                                                    
DOR were and why there  needed to be flexibility, given that                                                                    
DOR  had such  a  good track  record  with investments.  Mr.                                                                    
Dubler explained that DOR  currently provided the investment                                                                    
services;  however,  if  the   DOR  stopped  its  investment                                                                    
services, AGDC  would be unable  to invest the money  if the                                                                    
word "shall" were put in place  of "may" on page 13, line 15                                                                    
of  the legislation.  He offered  that the  language allowed                                                                    
AHFC  to  invest  the in-state  natural  gas  pipeline  fund                                                                    
somewhere else  if DOR ever  stopped providing  the services                                                                    
without having to come back for a statutory revision.                                                                           
                                                                                                                                
3:53:00 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough inquired  if  Alaska  would earn  the                                                                    
interest  returns from  the  in-state  natural gas  pipeline                                                                    
fund if the fund were managed  and invested by a third party                                                                    
or whether  in this  case, the money  would be  managed, for                                                                    
all practical purposes,  by the State of  Alaska. Mr. Dubler                                                                    
responded that  as long as AHFC  had the money, it  would be                                                                    
under  the governance  of  the state.  He  related that  the                                                                    
interest earnings on the fund  were subject to appropriation                                                                    
by the legislature  every year. He explained  that there was                                                                    
a state constitutional clause  regarding dedicated funds and                                                                    
dedicated fund  prohibitions that  prevented the  state from                                                                    
designating  how  the  revenue  from  a  specific  chunk  of                                                                    
funding would be spent.                                                                                                         
                                                                                                                                
3:54:30 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough noted  there was  lapse money  in the                                                                    
Building  Fund for  the state  that was  looped around  even                                                                    
though  it was  appropriated every  year. She  recalled that                                                                    
the committee had recently heard  a bill that would create a                                                                    
building fund for  the University of Alaska and  that it had                                                                    
language  that  showed  the lapse  funds  as  circular;  the                                                                    
legislation  did not  dedicate the  funds because  it stated                                                                    
that  the   money  rolled   through  with   each  successive                                                                    
legislature. She  assumed that the project  wanted the money                                                                    
rolled back over, but was  allowing flexibility by having it                                                                    
go in  the General  Fund, which  would give  the legislature                                                                    
control over the  funds. She inquired if  her assumption was                                                                    
correct. Mr.  Dubler replied that  the bill's  sponsor would                                                                    
be better  suited to answer questions  regarding intent, but                                                                    
added that  the language  came from  AHFC statutes  and very                                                                    
cleanly addressed the constitutional issue at hand.                                                                             
                                                                                                                                
Ms. Delbridge  responded that the  language in the  bill was                                                                    
specifically  recommended by  Legislative Legal  Services in                                                                    
order recognize the  constitutional prohibition on dedicated                                                                    
funds,  while   also  ensuring  that  the   legislation  had                                                                    
language  that indicated  the  current legislature's  intent                                                                    
without legally  binding the  reappropriation of  the funds;                                                                    
the language  was on page 13,  line 19 of the  bill and read                                                                    
"and may be appropriated to  the fund." She related that the                                                                    
language  was a  de facto  indication to  future legislators                                                                    
that  the intent  of the  current legislature  was that  the                                                                    
money  be returned  to the  fund; furthermore,  the language                                                                    
did so  without violating the constitution.  She stated that                                                                    
she was not  aware of the particular  differences between HB
4 and the recently referenced  university bill, but that she                                                                    
would be happy to  look in the matter to see  if it could be                                                                    
beneficial.                                                                                                                     
                                                                                                                                
Vice-Chair  Fairclough noted  that  HB 4  and University  of                                                                    
Alaska   building  fund   legislation  were   for  different                                                                    
purposes,  but that  both made  sure that  the state  was in                                                                    
constitutional compliance.                                                                                                      
                                                                                                                                
Vice-Chair Fairclough  inquired if the $330  million request                                                                    
reflected the total  project cost or whether  the time value                                                                    
of money included the interest  that the project expected to                                                                    
receive.  Mr.   Richards  replied  that  the   amount  shown                                                                    
represented the  total request through project  sanction. He                                                                    
stated that  AGDC had  worked the time  value of  money into                                                                    
its  tariff  calculation  and  that  the  numbers  were  not                                                                    
inflated.                                                                                                                       
                                                                                                                                
Vice-Chair Fairclough  inquired if  the project  would still                                                                    
have  the  funding  to  get   to  project  sanction  if  the                                                                    
legislature  did  not  appropriate  the  interest  from  the                                                                    
General  Fund back  to the  project. Mr.  Richards responded                                                                    
that the amount  shown was the cost to  project sanction and                                                                    
was exclusive of interest.                                                                                                      
                                                                                                                                
Co-Chair Meyer asked about the next section.                                                                                    
                                                                                                                                
3:58:26 PM                                                                                                                    
                                                                                                                                
DARYL   KLEPPIN,   COMMERCIAL    MANAGER,   ALASKA   GASLINE                                                                    
DEVELOPMENT CORPORATION,  related that the tariff  model was                                                                    
where all the  costs on a project came together  and that it                                                                    
determined the  costs for building, owning,  and operating a                                                                    
pipeline  throughout its  useful life.  He pointed  out that                                                                    
AGDC did  have some estimates, but  that uncertainty factors                                                                    
had been calculated into the  tariff model. He stated that a                                                                    
pipeline carrier was  the shipper of the gas,  but would not                                                                    
be the owner of the gas.                                                                                                        
                                                                                                                                
Mr. Kleppin  discussed the PowerPoint, "  ASAP, Tariff Model                                                                    
Presentation" (copy on file).                                                                                                   
                                                                                                                                
Mr. Kleppin discussed slide 2, "Tariff Model Purpose."                                                                          
                                                                                                                                
        · Estimate the cost of building, owning, and                                                                            
          operating a gas pipeline over its useful life                                                                         
                                                                                                                                
        · Estimate tariff rates that need to be charged to                                                                      
          recover the cost of service                                                                                           
                                                                                                                                
        · Assure that financial commitments obtained during                                                                     
          the open season will cover all required costs                                                                         
                                                                                                                                
Mr.  Kleppin spoke  to slide  3, "Primary  Factors Impacting                                                                    
Tariff Rates."                                                                                                                  
                                                                                                                                
        · Capital costs                                                                                                         
                                                                                                                                
        · Operating costs                                                                                                       
                                                                                                                                
        · Volume (throughput)                                                                                                   
                                                                                                                                
        · Currently all are estimates and in the early                                                                          
          phases of engineering                                                                                                 
                                                                                                                                
Mr. Kleppin discussed the first  bullet point on slide 3. He                                                                    
indicated  that  the  uncertainty around  the  capital  cost                                                                    
estimates were  plus or  minus 30  percent, but  shared that                                                                    
the  estimates would  be more  accurate as  more engineering                                                                    
was  conducted.  He  stated that  the  current  estimate  of                                                                    
capital  costs  was about  $7.7  billion.  He discussed  the                                                                    
slide's second  bullet and stated  that the  operating costs                                                                    
were things like staffing,  maintenance, supplies, etc. over                                                                    
the  life  of  the  pipeline;  at  the  current  stage,  the                                                                    
operating costs  estimate was based on  an industry-standard                                                                    
rule-of-thumb based  on the percentage of  total the capital                                                                    
costs.  He  spoke to  the  slide's  third bullet  point  and                                                                    
shared  that  for the  purposes  of  the AGDC's  model,  the                                                                    
tariff was  calculated in  BTUs; 1  MMBTu was  roughly 1,000                                                                    
cubic feet of gas.                                                                                                              
                                                                                                                                
Mr. Kleppin discussed slide 4, "Tariff Model Structure."                                                                        
                                                                                                                                
        · Cost of service model                                                                                                 
                                                                                                                                
        · Capital cost estimates input into FERC code of                                                                        
          accounts and broken down by segment                                                                                   
                                                                                                                                
        · Industry standard                                                                                                     
                                                                                                                                
        · RCA familiar with cost categories & FERC accounts                                                                     
                                                                                                                                
        · Operating cost estimates based on industry                                                                            
          standards                                                                                                             
                                                                                                                                
        · Gas volume/usage and allocated based on in-state                                                                      
          demand study (2010)                                                                                                   
                                                                                                                                
Mr.  Kleppin spoke  to slide  4 and  related that  the first                                                                    
bullet point  included capital costs, the  cost of financing                                                                    
that  capital, and  the operating  costs;  in AGDC's  tariff                                                                    
model, the  costs were  input into a  standard code  of FERC                                                                    
accounts.  He added  that  FERC used  the  standard code  of                                                                    
accounts that  all the  pipelines in  the Lower-48  used. He                                                                    
pointed  out  that FERC  regulated  about  200,000 miles  of                                                                    
liquids pipelines in  the Lower-48 and a  similar mileage of                                                                    
gas  pipelines;  the  tariff   model  calculation  was  very                                                                    
commonly  used  in  the Lower-48.  He  reiterated  that  the                                                                    
operating  costs   were  an  estimate  at   this  stage.  He                                                                    
discussed the  final bullet point  and related that  the in-                                                                    
state demand study was used in  the APP open season, as well                                                                    
as  the Denali  open season;  AGDC had  input similar  usage                                                                    
data into its cost model.                                                                                                       
                                                                                                                                
4:03:27 PM                                                                                                                    
                                                                                                                                
Mr. Kleppin detailed slide 5, "Key Financial Assumptions."                                                                      
                                                                                                                                
        · Depreciation methodology and depreciable life                                                                         
                                                                                                                                
        · Capital structure: percent debt and percent                                                                           
          equity                                                                                                                
                                                                                                                                
        · Cost of capital components                                                                                            
                                                                                                                                
Mr. Kleppin spoke  to the first bullet point on  slide 5 and                                                                    
related  that the  methodology that  was typically  used was                                                                    
straight-line  depreciation;  the  other component  was  the                                                                    
length  of the  depreciable  life. He  discussed the  second                                                                    
bullet point and  stated that AGDC's tariff model  used a 75                                                                    
percent to  25 percent debt  to equity ratio;  AGIA statutes                                                                    
specified that  the equity could  not exceed 30  percent. He                                                                    
explained that  a lower percentage  of equity would  tend to                                                                    
drive the tariff  lower because the cost of  equity was more                                                                    
than the  cost of  debt. He stated  that the  current tariff                                                                    
model  used 5.7  percent  as  the cost  of  debt  and an  11                                                                    
percent  cost of  equity. He  shared  that the  APP and  the                                                                    
Denali projects  assumed a cost  of debt of 5.1  percent and                                                                    
was lower than that of  AGDC's model; the two projects' cost                                                                    
of equity ranged from about 12 percent to 14 percent.                                                                           
                                                                                                                                
Senator Bishop asked if the  differential in the increase in                                                                    
equity was a  direct result of the 70 percent  to 30 percent                                                                    
debt  to  equity  ratio  of the  APP  project.  Mr.  Kleppin                                                                    
replied that AGDC's  tariff model assumed a  75 percent debt                                                                    
to 25 percent equity ratio and  that the AGIA limit was a 70                                                                    
percent to 30 percent  ratio. AGDC's original calculation in                                                                    
the 2011 project plan had used  the 70 percent to 30 percent                                                                    
ratio;  however,  the APP  and  Denali  projects used  a  75                                                                    
percent to 25 percent split,  which was why AGDC's model had                                                                    
opted for that ratio.                                                                                                           
                                                                                                                                
Mr. Kleppin detailed slide 6, "Model Outputs."                                                                                  
                                                                                                                                
        · Revenue requirements calculated for each segment                                                                      
                                                                                                                                
        · Volume (billing units) estimated for each segment                                                                     
                                                                                                                                
        · Recourse tariff calculated                                                                                            
                                                                                                                                
Mr. Kleppin  spoke to slide  6 and discussed where  and what                                                                    
the different  segments were. He explained  that one segment                                                                    
was all the capital and  operating costs associated with the                                                                    
GCF on the North Slope;  another segment was essentially the                                                                    
cost of  the pipeline  from the North  Slope to  Dunbar. One                                                                    
segment was  the cost of  the Fairbanks lateral  and another                                                                    
was the  cost of the  pipeline from Dunbar to  Anchorage. He                                                                    
explained that AGDC did not  currently know how many offtake                                                                    
points  there  would  be  and  that  there  could  be  other                                                                    
segments that depended on where  the offtake points were. He                                                                    
discussed  a hypothetical  scenario of  how another  segment                                                                    
could  be formed.  He stated  that  AGDC had  allowed for  a                                                                    
large number  of offtake  points because  it would  not know                                                                    
how  many there  would  be until  open season;  furthermore,                                                                    
AGDC was not  constrained to 5 offtake points  like AGIA. He                                                                    
addressed the  billing units  component, which  was measured                                                                    
in MMBTu and  was a function of the composition  of the gas.                                                                    
He explained  that there  was a small  amount of  propane in                                                                    
the gas  and that there  could be a separate  calculation on                                                                    
that. He addressed  the final bullet point  and related that                                                                    
the recourse tariff  would represent the list  price for the                                                                    
service if the tariff was not negotiated.                                                                                       
                                                                                                                                
4:07:59 PM                                                                                                                    
                                                                                                                                
Mr. Kleppin discussed slide 7, "Recourse Tariff."                                                                               
                                                                                                                                
        · Initial tariff that is based on Class III                                                                             
          estimates        for       gas        conditioning                                                                    
          facility/compressor and pipeline                                                                                      
                                                                                                                                
        · Sticker price                                                                                                         
                                                                                                                                
        · Ceiling not floor                                                                                                     
                                                                                                                                
        · Shippers can negotiate for better rate                                                                                
                                                                                                                                
        · Who would use recourse tariff                                                                                         
                                                                                                                                
             · Small volume shipper                                                                                             
                                                                                                                                
             · Shipper with short term need                                                                                     
                                                                                                                                
Mr. Kleppin  discussed the  fourth bullet  point on  slide 7                                                                    
and noted that  a shipper that was moving a  large volume of                                                                    
gas might be able to negotiate  a tariff that was lower than                                                                    
the  recourse  tariff. He  explained  that  a long-term  use                                                                    
commitment,  such  as  a  40-year  period,  might  enable  a                                                                    
shipper to  negotiate a lower  tariff. If the  shipper chose                                                                    
not  to negotiate  the tariff,  the  recourse tariff,  which                                                                    
would be reviewed and approved by  the RCA under HB 4, could                                                                    
be utilized.                                                                                                                    
                                                                                                                                
Senator  Hoffman inquired  if  there would  be one  recourse                                                                    
tariff  for  the  line,  or  if  there  would  be  different                                                                    
recourse  tariffs  at the  different  off  take points.  Mr.                                                                    
Kleppin  responded that  the rates  for the  recourse tariff                                                                    
would differ depending on where the offtake point was.                                                                          
                                                                                                                                
Senator  Bishop   inquired  if   there  would   be  distance                                                                    
sensitive  rates  built  into   the  pipeline.  Mr.  Kleppin                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Senator Dunleavy queried if a  negotiated price could become                                                                    
higher than the recourse  tariff. Mr. Kleppin responded that                                                                    
it was possible  that a negotiated rate  would become higher                                                                    
than the  recourse tariff if  an entity wanted  a particular                                                                    
specialized  service, but  that this  was not  typically the                                                                    
case.                                                                                                                           
                                                                                                                                
Mr.  Kleppin   discussed  slide  8,  "Updated   ASAP  Tariff                                                                    
Assumptions."                                                                                                                   
                                                                                                                                
        · Longer term                                                                                                           
                                                                                                                                
             · 30 year levelized vs. original 20 years                                                                          
                                                                                                                                
        · Updated capital cost estimates                                                                                        
                                                                                                                                
             · Now $7.70 Bn                                                                                                     
                                                                                                                                
                · was $7.52 Bn (all estimates +/- 30                                                                            
                   percent)                                                                                                     
                                                                                                                                
        · More appropriate contingency                                                                                          
                                                                                                                                
             · Pipeline now 10 percent vs. 5 percent                                                                            
               (facilities 30 percent)                                                                                          
                                                                                                                                
4:11:27 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough addressed slide  8 and inquired if the                                                                    
pipe  would  be  depreciated  over  30  years  in  order  to                                                                    
levelize   the   tariff.   Mr.  Kleppin   replied   in   the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough queried what  using the 30-year versus                                                                    
the  20-year depreciation  was based  on.  She assumed  that                                                                    
leveraging longer years  would result in a  lower tariff for                                                                    
Alaskans.  She  further inquired  if  there  was a  standard                                                                    
reason  that ASAP  was using  a 30-year  schedule and  noted                                                                    
that TAPS  was already more  than 30-years old.  Mr. Kleppin                                                                    
responded  that the  30-year  schedule  was consistent  with                                                                    
what other  pipelines had done.  He added that  the pipeline                                                                    
could be depreciated  over a longer life  and confirmed that                                                                    
the  longer the  life, the  lower the  tariffs would  be. He                                                                    
explained that  the typical depreciation life  in the Lower-                                                                    
48 was  30 to 45 years  and in some cases  reached 60 years.                                                                    
He  pointed  out  that  the  issue  with  smaller  contracts                                                                    
regarded  the risk  of obtaining  another contract  when the                                                                    
shorter one ran out.                                                                                                            
                                                                                                                                
Vice-Chair  Fairclough  inquired   if  there  was  something                                                                    
unique in the projects that  had a 45-year depreciation life                                                                    
cycle that  made them choose  that length. She noted  that a                                                                    
45-year cycle might not be  reasonable with smaller deposits                                                                    
of gas. She  further requested more information  on why ASAP                                                                    
had  chosen a  30-year depreciation  life cycle  and offered                                                                    
that it  was a conservative estimate.  Mr. Kleppin responded                                                                    
that  a 30-year  depreciation life  seemed to  be consistent                                                                    
with the  original assumption  in TAPS;  the Denali  and APP                                                                    
projects  used a  similar life  of 25  years for  roughly 80                                                                    
percent  of  the  depreciation. He  stated  that  Vice-Chair                                                                    
Fairclough  brought up  a  fair point  and  that AGDC  could                                                                    
fine-tune the issue with the tariffs going forward.                                                                             
                                                                                                                                
Mr.  Dubler   added  that   the  depreciation   methods  and                                                                    
depreciable lives  tended to be  driven by the tax  code and                                                                    
that  companies  did  not want  to  have  large  differences                                                                    
between  their book  depreciation and  tax depreciation.  He                                                                    
explained  that because  the project  would use  a straight-                                                                    
line  depreciation  for  its books,  there  was  already  an                                                                    
accelerated  depreciation under  the  taxes.  He added  that                                                                    
AGDC had  been trying to  keep a lot  of things in  mind and                                                                    
that 30 years  was a number that seemed to  work out well in                                                                    
many instances.                                                                                                                 
                                                                                                                                
Vice-Chair   Fairclough   pointed    out   that   a   longer                                                                    
depreciation  life   cycle  would   mean  lower   rates  for                                                                    
Alaskans.  She  understood  the  concept  of  aligning  with                                                                    
straight-line depreciation, but was  trying to understand if                                                                    
it was reasonable to have a longer depreciable life.                                                                            
                                                                                                                                
4:15:29 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  inquired if the depreciation  life depended                                                                    
on the  ownership and  further queried  if the  state having                                                                    
more  interest  in  the line  would  warrant  extending  the                                                                    
depreciation.  He  queried  if  there  was  any  correlation                                                                    
between  ownership and  the  depreciation  life. Mr.  Dubler                                                                    
replied that if  the state had 100 percent  ownership of the                                                                    
line, it could decide what  life it wanted to depreciate the                                                                    
line  over. He  explained that  the state  did not  have tax                                                                    
implications associated  with any depreciation  and observed                                                                    
that if  Alaska was  the sole  owner of  the line,  it could                                                                    
elect to not depreciate the line  at all and just donate the                                                                    
capital. He offered  that Alaska would have  many options if                                                                    
was a 100  percent owner. He reported that if  the state was                                                                    
a minority or  majority owner in the line, it  would have to                                                                    
take  its partners'  fiscal options  under consideration  in                                                                    
any determination.                                                                                                              
                                                                                                                                
Vice-Chair Fairclough inquired if  the estimated 18 trillion                                                                    
cubic  feet (Tcf)  of natural  gas on  the North  Slope from                                                                    
known  resources would  last more  than 30  years at  ASAP's                                                                    
flow rate. Mr. Kleppin replied that  if 500 Mcf per day were                                                                    
moved  through the  line  over 30  years,  the total  volume                                                                    
would be a little over 5 Tcf of gas.                                                                                            
                                                                                                                                
Vice-Chair Fairclough surmised that  there was a possibility                                                                    
of the gas lasting much longer than 30 years.                                                                                   
                                                                                                                                
Senator  Hoffman inquired  about  the extent  of the  proven                                                                    
reserves on  the North  Slope. Mr.  Kleppin cautioned  to be                                                                    
careful  how  reserves  versus  resources  were  viewed.  He                                                                    
stated that Prudhoe Bay had roughly  25 Tcf to 30 Tcf of gas                                                                    
and that  Point Thomson  had roughly  10 Tcf  to 12  Tcf. He                                                                    
concluded that the Prudhoe Bay  and Pt. Thomson numbers were                                                                    
ones that he had heard. He did  not want to speak to the two                                                                    
fields'  exact volumes,  but offered  that the  numbers were                                                                    
reference points.                                                                                                               
                                                                                                                                
Senator  Bishop wondered  how much  propane would  come down                                                                    
the line  at a  flow rate  of 500  Mcf of  gas per  day. Mr.                                                                    
Kleppin replied that  the percent of propane in  the gas was                                                                    
1.5 percent and that the  line would supply roughly 3,500 to                                                                    
4,000 barrels per day, depending on how it as processed.                                                                        
                                                                                                                                
4:19:19 PM                                                                                                                    
                                                                                                                                
Mr.  Kleppin   discussed  slide  9,  "Updated   ASAP  Tariff                                                                    
Assumptions."                                                                                                                   
                                                                                                                                
       · Equity share and return on equity adjusted                                                                             
                                                                                                                                
             · Debt/equity split now 75/25 vs. 70/30                                                                            
                                                                                                                                
             · ROE 11 percent vs. 12 percent                                                                                    
        · Year delay ($2011 -> $2012)                                                                                           
                                                                                                                                
             · 2.5 percent inflation per year ($200 mm)                                                                         
                                                                                                                                
        · Fewer billing units (MMBTUs)                                                                                          
                                                                                                                                
             · 523 MMBTUs vs. 584 MMBTUs                                                                                        
                                                                                                                                
Mr. Kleppin discussed  the final main bullet  point on slide                                                                    
9. He  stated that with  the lean gas scenario,  which would                                                                    
not  inject NGLs  into the  stream, the  BTU content  of the                                                                    
pipeline was lower and resulted  in fewer billable units. He                                                                    
stated  that  all  of  the   slide's  bullet  points  worked                                                                    
together in a revised  tariff calculation and explained that                                                                    
a BTU  was amount of energy  that was required to  raise the                                                                    
temperature of  1 gallon  of water  1 degree  Fahrenheit; it                                                                    
was the standard unit for heat.                                                                                                 
                                                                                                                                
Mr. Kleppin  discussed slide 10, "Updated  ASAP Tariffs." He                                                                    
related that  the slide showed the  tariff calculations that                                                                    
were completed  at the end  of 2012  that were based  on the                                                                    
new  cost estimate  assumptions.  He stated  that the  slide                                                                    
depicted the tariff in constant  dollars, as well as nominal                                                                    
or  inflated  dollars; it  also  reflected  a range  in  the                                                                    
tariff  because  of   the  uncertainty  in  a   lot  of  the                                                                    
estimates. He  related that the  tariff, which was  the cost                                                                    
of  shipping the  gas  from the  North  Slope to  Fairbanks,                                                                    
would be between  $4.25 and $6 per MMBTu; the  tariff to Big                                                                    
Lake would  be $5 to  $7.25 per  MMBTu. He related  that the                                                                    
tariff  numbers  in  the  last  several  sentences  were  in                                                                    
constant,  2012  dollars;  the  tariffs  were  the  cost  in                                                                    
shipping the  gas and did not  include its cost or  the cost                                                                    
of local  distribution. He stated  that if you added  the $4                                                                    
cost  of the  gas  and  local distribution  [Each  had a  $2                                                                    
dollar cost.], the  Fairbanks cost of gas at  the burner tip                                                                    
would be  between $8.25  and $10 per  MMBTu; the  burner tip                                                                    
cost to anchorage would be  between $9 and $11.25 per MMBTu.                                                                    
He  discussed the  blue section  titled  "Cost Drivers"  and                                                                    
related that the next column  underneath it showed rules-of-                                                                    
thumb that reflected what would  happen to the tariff if the                                                                    
cost  of capital  went up  by  roughly $1  billion; in  this                                                                    
case, the tariff  would go up roughly 50 cents  to 80 cents,                                                                    
depending  on several  factors. He  explained that  the next                                                                    
column down  depicted what would  happen if Alaska put  in a                                                                    
$1  billion  contribution  that  was  not  included  in  the                                                                    
tariff. The next  column down added a  sensitivity to return                                                                    
on equity of  1 percent. The next column  down depicted what                                                                    
would happen if the bond length was extended.                                                                                   
                                                                                                                                
4:23:07 PM                                                                                                                    
                                                                                                                                
Mr. Dubler compared  slide 9's burner tip  cost estimates to                                                                    
the  current   costs.  He   explained  that   Fairbanks  was                                                                    
currently  playing about  $23 per  MMBTu and  that Anchorage                                                                    
was paying about $9.70 per MMBTu.                                                                                               
                                                                                                                                
Senator Bishop  inquired if the  Fairbanks burner  tip price                                                                    
under ASAP  would be in  the range of  $8 to $10  per MMBTu.                                                                    
Mr. Kleppin replied in the  affirmative, but related that it                                                                    
would be in the range of $8.25 to $10 per MMBTu.                                                                                
                                                                                                                                
Co-Chair Meyer  requested clarification and wondered  if the                                                                    
rates  would  double  if  the   open  season  only  achieved                                                                    
commitments for 250 Mcf per day  instead of 500 Mcf per day.                                                                    
Mr. Kleppin  replied that if  the line only secured  250 Mcf                                                                    
and did  not change  its cost structure,  it would  have the                                                                    
same capital costs and the tariff would effectively double.                                                                     
                                                                                                                                
Vice-Chair  Fairclough discussed  the  anticipation  of a  6                                                                    
month delay  going to the RCA  and remarked on the  costs of                                                                    
project  delays  to  Alaskans.  She  pointed  out  that  the                                                                    
committee was  looking for consumer protection  and inquired                                                                    
if the RCA would set  the segment-based recourse tariff rate                                                                    
once, or  whether the agency  would be  responsible multiple                                                                    
times during the process to  examine the number. Mr. Kleppin                                                                    
responded that  as it  was currently  outlined in  the bill,                                                                    
the RCA  would be  required to look  at the  recourse tariff                                                                    
prior to  an open season  and then approve that  tariff; the                                                                    
legislation  also  allowed  for  revisions  at  the  project                                                                    
startup, when  the project had  actual costs. The  bill also                                                                    
allowed  for  expansions of  the  pipeline.  He discussed  a                                                                    
hypothetical scenario under which  gas was discovered in the                                                                    
Nenana Basic  and the pipeline  was expanded  to incorporate                                                                    
the discovery;  in the  case of an  expansion, if  there had                                                                    
not been  a revised recourse tariff  in the last 2  years, a                                                                    
new tariff would have to  be recalculated and offered during                                                                    
an open season for that expansion.                                                                                              
                                                                                                                                
Vice-Chair   Fairclough  wondered   if   there  were   risks                                                                    
associated with a gas discovery  the Nenana Basin, which the                                                                    
state   was  currently   incentivizing,  to   the  segmented                                                                    
delivery cost to  Fairbanks. She observed that  if the state                                                                    
went "all  in" on  the project but  found producible  gas in                                                                    
the  Nenana  Basin or  another  closer  source, the  project                                                                    
would not have  to extend or build  the Fairbanks component.                                                                    
She inquired if  this was an option. Mr.  Kleppin replied in                                                                    
the  affirmative  and added  that  it  could be  a  possible                                                                    
option.                                                                                                                         
                                                                                                                                
Senator Bishop  surmised that  it was  important to  get the                                                                    
right  pipeline  contractor  with the  right  experience  to                                                                    
bring ASAP in  or below the advertised price,  so that there                                                                    
was not a disparity between  the first recourse rate and the                                                                    
true  up  after  project  completion; this  would  keep  the                                                                    
tariff  where  it  should be.  Mr.  Kleppin  responded  that                                                                    
Senator  Bishop was  correct and  that if  the actual  costs                                                                    
were higher than the initial  estimates, the recourse tariff                                                                    
would typically  have a mechanism  to incorporate  how costs                                                                    
overran or came under with flow through to the tariff.                                                                          
                                                                                                                                
4:29:03 PM                                                                                                                    
                                                                                                                                
Senator Bishop  observed that  it would  make sense  to have                                                                    
the project come  in on budget so that the  consumer was not                                                                    
paying  for  the  overrun.  Mr.  Kleppin  responded  in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough  wondered if  there was  a reclamation                                                                    
clause in  the bill.  Ms. Delbridge  responded that  part of                                                                    
the terms of the lease  covenants for the state right-of-way                                                                    
lease  included   dismantle,  remove,  and   restore  (DR&R)                                                                    
provisions.  She  pointed  out   that  because  natural  gas                                                                    
pipelines were  underground and operated  for a  long period                                                                    
of time,  the process for  DR&R was usually less  costly; it                                                                    
was less environmentally  damaging to leave the  line in the                                                                    
ground, empty  it, and  cap it  at its ends  than it  was to                                                                    
excavate it for removal.                                                                                                        
                                                                                                                                
Vice-Chair  Fairclough wondered  how a  possible reclamation                                                                    
could affect  the tariff  rate and inquired  if there  was a                                                                    
cost or number  that was established inside  the tariff that                                                                    
included the  reclamation cost. She further  inquired if the                                                                    
money for  the reclamation  would reside  with the  owner of                                                                    
the asset,  as with TAPS, or  with the State of  Alaska. Mr.                                                                    
Kleppin  replied  that  AGDC  needed  to  acquire  a  better                                                                    
estimate  for what  the DR&R  cost would  be in  the tariff;                                                                    
typically the DR&R cost would  be included in the tariff. He                                                                    
added that normally,  the money collected in  the tariff for                                                                    
the reclamation would reside with the pipeline company.                                                                         
                                                                                                                                
Senator Hoffman queried  the cost of acquiring  the right of                                                                    
way for  the project.  Mr. Kleppin  replied that  there were                                                                    
estimated  costs  for  the right-of-way,  but  that  he  was                                                                    
unsure of the exact estimates.                                                                                                  
                                                                                                                                
Senator  Hoffman requested  AGDC  to  provide the  estimated                                                                    
costs for the project's  right-of-way. Mr. Kleppin agreed to                                                                    
provide the requested information.                                                                                              
                                                                                                                                
Senator Hoffman  inquired how detailed  the estimate  of the                                                                    
right-of-way  costs was.  Mr.  Richards  explained that  the                                                                    
estimate was  based on the  project's current  alignment and                                                                    
that  he would  be glad  to provide  the committee  with the                                                                    
requested information.                                                                                                          
                                                                                                                                
4:32:15 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:37:59 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
4:38:21 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer commented  that  the  state's investment  of                                                                    
$330  million  could  be  at  risk  if  there  a  large  gas                                                                    
discovery  in   the  Cook  Inlet   that  resulted   in  non-                                                                    
participation at the  open season. He added  that neither he                                                                    
nor the  utility companies thought  there was that  much gas                                                                    
in the  Cook Inlet. He  thought that Ms. Delbridge  also had                                                                    
the answers to some previous questions asked in committee.                                                                      
                                                                                                                                
Ms. Delbridge  discussed Co-Chair Meyer's  concern regarding                                                                    
a  gas  discovery in  the  Cook  Inlet risking  the  state's                                                                    
investment of  $330 million. She  acknowledged that  the co-                                                                    
chair's concerns  could be  seen as a  risk, but  added that                                                                    
because  the  $330  million  would   bring  the  project  to                                                                    
sanction,  the state  would potentially  not have  spent the                                                                    
entire amount  if the open  season did not  bring sufficient                                                                    
shipper  commitments  to  finance the  pipeline;  the  state                                                                    
would also  have valuable assets  in form  of right-of-ways,                                                                    
leases, and  other data. She observed  that Speaker Chenault                                                                    
and  Representative Hawker,  who were  the bill's  sponsors,                                                                    
had  approached  the  legislation   carefully  in  order  to                                                                    
prevent harm  to the  Cook Inlet oil  and gas  industry. She                                                                    
stated that the bill's  sponsors had heard non-objection and                                                                    
support  from  the producers  in  Cook  Inlet regarding  the                                                                    
legislation; some  of the  companies in  the Cook  Inlet had                                                                    
also stated that providing that  the state did not subsidize                                                                    
a pipeline from the North  Slope, the other companies should                                                                    
not  be in  business in  the inlet  if they  were unable  to                                                                    
provide a better  price than Cook Inlet gas.  She noted that                                                                    
if there  was a large  discovery in Cook Inlet,  there might                                                                    
be an  opportunity to re-open  an export mark in  the Inlet,                                                                    
through which North Slope gas  could still play a beneficial                                                                    
role after its journey  through Fairbanks, the Interior, and                                                                    
other communities.                                                                                                              
                                                                                                                                
Senator  Meyer observed  that some  believed that  the state                                                                    
should build  a pipeline from  Cook Inlet to  Fairbanks, but                                                                    
that he was not one of those people.                                                                                            
                                                                                                                                
4:41:46 PM                                                                                                                    
                                                                                                                                
Ms. Delbridge  discussed a question from  the previous day's                                                                    
committee meeting  regarding the repositioning of  AGDC from                                                                    
a  subsidiary   corporation  of  AHFC  into   a  stand-alone                                                                    
corporation of the state. She  also recalled a question from                                                                    
the  current  meeting  regarding  how much  of  the  current                                                                    
legislation in  HB 4 was  in direct response to  what AGDC's                                                                    
recommendations were. She  stated that the shift  of AGDC to                                                                    
a  stand-along  corporation  and  its  empowerment  to  look                                                                    
beyond ASAP to consider other  pipelines in the future was a                                                                    
significant policy  call that was  made during  the crafting                                                                    
of the  legislation and was  not necessarily part  of AGDC's                                                                    
recommendations.  She  believed   that  the  transition  was                                                                    
something  AGDC  was supportive  of,  but  stated that  AGDC                                                                    
would have needed a number  of the corporate authorities and                                                                    
permissions  that were  attached to  it. She  concluded that                                                                    
the  change was  not in  AGDC's recommendation.  She pointed                                                                    
out  that  the bill's  sponsors  believed  that AHFC  was  a                                                                    
strong  state  entity  in  which to  incubate  an  idea  and                                                                    
concept to advance in-state gas  pipelines; with the release                                                                    
of the  project plan  in 2011,  which demonstrated  that the                                                                    
project had  merit, the  sponsors believed  that it  was the                                                                    
prudent  choice to  create an  independent  entity with  own                                                                    
strong,  mission-specific board  of  directors  and its  own                                                                    
mission-specific  duties  and  responsibilities.  She  added                                                                    
that  AGDC had  also  experienced  confusion from  potential                                                                    
bond markets  and others from the  financing world regarding                                                                    
its placement within AHFC; the  shift would help the rest of                                                                    
the  world see  that Alaska  had a  strong intent  and meant                                                                    
business with creating  a corporation that was  going out to                                                                    
advance the mission that it  had been given. She stated that                                                                    
the final component to the  legislation's transition of AGDC                                                                    
to a  stand-alone corporation  was the  desire to  make sure                                                                    
that AHFC  was able  to continue the  strong course  that it                                                                    
had maintained  in its keys functions,  particularly as ASAP                                                                    
grew in intensity; the sponsors  did not want the project to                                                                    
inadvertently affect AHFC's ability to pursue its mission.                                                                      
                                                                                                                                
Senator  Hoffman  wondered where  the  32  positions in  the                                                                    
bill's fiscal  note would  be employed.  He inquired  if the                                                                    
positions would be housed in  AHFC's office or whether space                                                                    
would  be leased.  Ms. Delbridge  deferred  the question  to                                                                    
AGDC.                                                                                                                           
                                                                                                                                
4:45:14 PM                                                                                                                    
                                                                                                                                
Mr. Dubler explained that the  positions in the fiscal note,                                                                    
some  of which  were  from other  state  agencies, would  be                                                                    
housed within  AGDC and  not AHFC. He  stated that  AGDC had                                                                    
many options available regarding  where the location for the                                                                    
positions would  be, one of  which was a building  that AHFC                                                                    
fully owned on International Avenue in Anchorage.                                                                               
                                                                                                                                
Co-Chair Meyer noted  that there had been a  request to hear                                                                    
some opposing  views to  HB 4  and asked  that the  names of                                                                    
potential testifiers be supplied to his office.                                                                                 
                                                                                                                                
CS SS SB 4(FIN) was HEARD  and HELD in committee for further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
HB 4 ASAP-Project-Plan-Update_11Jan2013_WEB.pdf SFIN 4/7/2013 2:00:00 PM
HB 4
HB 4 Opposition Letter - Lee.msg SFIN 4/7/2013 2:00:00 PM
HB 4
HB 4 AML Resolution.pdf SFIN 4/7/2013 2:00:00 PM
HB 4