Legislature(2009 - 2010)HOUSE FINANCE 519

03/15/2010 09:00 AM House FINANCE

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09:06:17 AM Start
09:06:23 AM HB369
10:30:36 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
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Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 15, 2010                                                                                            
                         9:06 a.m.                                                                                              
9:06:17 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 9:06 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Mike Hawker, Co-Chair                                                                                            
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Vice-Chair                                                                                      
Representative Allan Austerman                                                                                                  
Representative Mike Doogan                                                                                                      
Representative Anna Fairclough                                                                                                  
Representative Neal Foster                                                                                                      
Representative Les Gara                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Woodie Salmon                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Speaker  Mike  Chenault;  Robert  Swenson,  Instate  Gasline                                                                    
Project  Manager,  Office  of  the  Governor;  Keith  Meyer,                                                                    
Engineering   Manager,   Michael  Baker   Associates,   Cost                                                                    
Estimation Services                                                                                                             
PRESENT VIA TELECONFERENCE                                                                                                    
Mike Sotak, ASRC Energy Services, Inc.                                                                                          
HB 369    IN-STATE PIPELINE MANAGER/TEAM/COMMITTEE                                                                              
               HB 369 was HEARD and HELD in Committee for                                                                       
               further consideration.                                                                                           
9:06:23 AM                                                                                                                    
Co-Chair Stoltze brought the meeting to order.                                                                                  
9:06:53 AM                                                                                                                    
HOUSE BILL NO. 369                                                                                                            
     "An Act  relating to an in-state  natural gas pipeline,                                                                    
     the  office of  in-state gasline  project manager,  the                                                                    
     Joint In-State  Gasline Development  Team, and  the In-                                                                    
     State Gasline Steering Committee;  and providing for an                                                                    
     effective date."                                                                                                           
SPEAKER MIKE CHENAULT, presented his synopsis of the in-                                                                        
state gas pipeline legislation by reading the Sponsor                                                                           
Statement for the Committee Substitute for House Bill                                                                           
     Committee  Substitute  for   House  Bill  369(RES)  was                                                                    
     introduced as an effort to  expedite the process for an                                                                    
     in-state natural  gas pipeline.  The  in-state gas line                                                                    
     has been a  topic of discussion in  the Legislature and                                                                    
     the Administration  for a number of  years.  Currently,                                                                    
     there  are  two  separate state  entities,  the  Alaska                                                                    
     Natural Gas Development Authority  and the in-state gas                                                                    
     line  coordinator, working  on a  project.   House Bill                                                                    
     369  combines   these  two  entities  along   with  the                                                                    
     Department of Transportation  and Public Facilities and                                                                    
     the Alaska Railroad Corporation to create a Joint In-                                                                      
     state Gas  line Development  Team within the  Office of                                                                    
     the Governor.   The Development  Team is to  ensure the                                                                    
     in-state  gas line  is construction  ready  by July  1,                                                                    
     2011  with gas  flowing by  2015.   It is  my hope  the                                                                    
     Development  Team will  be able  to  focus the  state's                                                                    
     efforts  in putting  a construction  plan together  and                                                                    
     leverage  the best  ideas and  data to  get a  gas line                                                                    
     The Department of  Transportation and Public Facilities                                                                    
     and the  Alaska Railroad  Corporation were  included as                                                                    
     members  of  the team  due  primarily  to their  having                                                                    
     existing  rights  of  way  which  could  speed  up  any                                                                    
     permitting  process that  may  need  to be  undertaken.                                                                    
     The  Alaska  Railroad   Corporation  also  has  bonding                                                                    
     ability which  could be  an answer  in financing  a gas                                                                    
     The  Development Team  will cover  all  aspects of  the                                                                    
     line's  development   and  are   to  select   the  most                                                                    
     economically  sound  route  that will  deliver  gas  to                                                                    
     Alaskans,  plan permitting  and  construction by  using                                                                    
     existing rights  of way and  take any  action necessary                                                                    
     to  get  the  project  underway as  soon  as  possible.                                                                    
     Additional  duties  of  the Joint  Development  Gasline                                                                    
     Development  Team  are  also  spelled  out  within  the                                                                    
     The bill  provides for an  expedited review  and action                                                                    
     process  and  the  sharing   of  information  that  may                                                                    
     already have  been accumulated or completed.   The bill                                                                    
     also   requires  that   state   agencies  or   entities                                                                    
     cooperate  with  and  give  priority  to  requests  for                                                                    
     information from the Development Team.                                                                                     
Co-Chair Hawker  emphasized that  Alaskans think it  is time                                                                    
for  action on  in-state gas  providing energy  security and                                                                    
jobs. He stated  his intention is not to  interfere with the                                                                    
AIGA process but  to create and swiftly  implement an option                                                                    
for gas development if none exists.                                                                                             
9:10:58 AM                                                                                                                    
Representative  Gara   expressed  concern  about   the  bill                                                                    
language  on  Page  3,  lines  23-24,  "take  [all]  actions                                                                    
necessary to  enable natural gas  to flow down  the pipeline                                                                    
by  2015." He  wondered if  that language  precluded a  best                                                                    
option  scenario,   [development  of  a  major   export  gas                                                                    
pipeline]. He asked if the  sponsor would consider inserting                                                                    
language in the  bill stipulating that this  plan would only                                                                    
proceed  if  it  was  the  best  option  available.  Speaker                                                                    
Chenault  stressed that  the state  must have  a ready-to-go                                                                    
project with  a set  timeline. He  asserted that  a timeline                                                                    
gets the  job done. The  state has spent  countless millions                                                                    
of  dollars  and  many  years  looking  at  gas  development                                                                    
without  fruition.  He felt  that  the  process always  gets                                                                    
sidetracked  and delayed  by other  uncharted possibilities.                                                                    
He determined that there is  a known quantity of natural gas                                                                    
(35 tcf trillion cubic feet)  in Prudhoe Bay, gas is rapidly                                                                    
declining in  Cook Inlet, and  those consumers will  be left                                                                    
without  gas   in  the  near   future.  He   concluded  that                                                                    
legislation that contains timelines addresses those needs.                                                                      
9:14:41 AM                                                                                                                    
Representative  Gara asked  if the  legislation would  force                                                                    
the state  to proceed if  evidence proves the  in-state gas-                                                                    
line  is more  expensive  for consumers  than other  options                                                                    
such as the development of a major export pipeline.                                                                             
Speaker Chenault  replied that there are  many options under                                                                    
discussion but  the state  limited its  own options  for in-                                                                    
state gas  development when the legislature  entered into an                                                                    
agreement   to  prohibit   participation  in   any  projects                                                                    
producing over 500 million cubic  feet (mcf) of gas. He felt                                                                    
that  action  was  not  correct; the  state  needs  to  give                                                                    
Alaskans  every opportunity  to have  in-state gas.  He does                                                                    
not think  anyone has an  accurate idea  of the cost  of gas                                                                    
with  any  line or  importation  of  liquefied natural  gas.                                                                    
Estimates  exist  but not  factual  information.  It is  the                                                                    
intent  of the  legislation to  develop a  project based  on                                                                    
factual cost information.                                                                                                       
9:16:55 AM                                                                                                                    
Representative Doogan asked  if the goal was  to establish a                                                                    
plan  to  build  a  pipeline  from the  North  Slope  to  an                                                                    
undetermined southern  terminus by the middle  of next year.                                                                    
Speaker Chenault  affirmed. He  did not  want to  decide the                                                                    
gas-line  route prematurely.  One  goal of  the  bill is  to                                                                    
allow the  In-state Gas-line  Development Team  to determine                                                                    
the best economical route.                                                                                                      
Representative Doogan  inquired about  the cost  of planning                                                                    
for the  in-state gas line.  Speaker Chenault noted  that he                                                                    
does  not know  all  of the  set costs.  He  is waiting  for                                                                    
fiscal notes. He guessed that the  cost could be in the tens                                                                    
of   millions   or   hundreds  of   millions   of   dollars.                                                                    
Representative Doogan  asked what happens in  July 2011 when                                                                    
the  planning is  complete.  Speaker  Chenault offered  that                                                                    
either a private corporation could  carry out the project or                                                                    
the legislature could decide to build the gas-line.                                                                             
9:20:00 AM                                                                                                                    
Representative  Kelly asked  if  any  future discovered  gas                                                                    
reserves  could  connect  to   the  proposed  line.  Speaker                                                                    
Chenault stated that projects will bid in an open season.                                                                       
Representative  Kelly  asked  if  the gas-line  would  be  a                                                                    
common carrier. Speaker Chenault affirmed.                                                                                      
9:21:45 AM                                                                                                                    
Representative Gara  expressed that his biggest  concern was                                                                    
cost to the consumer. Evidence  suggests that natural gas is                                                                    
cheaper  through  a larger  line.  An  obligated 20-30  year                                                                    
contract  is  necessary in  order  to  build a  pipeline.  A                                                                    
scenario could  develop that consumers are  obligated to the                                                                    
more  expensive smaller  in-state gas-line  even if  cheaper                                                                    
gas flows through a major line  at some point in the future.                                                                    
Speaker  Chenault   believed  that  a  larger   concern  was                                                                    
depleted Cook Inlet gas reserves  in 2015 or 2018. The state                                                                    
needs to  be ready with a  viable project. He agreed  that a                                                                    
bigger line means  a cheaper price, but  that gas-line might                                                                    
not  start until  2025 or  later,  if ever.  He warned  that                                                                    
without the certainty of gas Alaska will not move forward.                                                                      
Representative Gara shared that  facts reveal Cook Inlet gas                                                                    
will  still  be  available  but more  difficult  to  extract                                                                    
therefore,  more   expensive.  He  wondered  if the  sponsor                                                                    
considered  subsidizing   natural  gas  while   waiting  for                                                                    
completion of  a larger line.  Speaker Chenault  agreed that                                                                    
was  an option  but  that historically  incentives have  not                                                                    
increased gas  production in  Cook Inlet.  Approximately 500                                                                    
natural gas related  jobs have been lost and  more are being                                                                    
threatened  due  to a  diminishing  supply  of gas  in  Cook                                                                    
Inlet. A  gas storage facility  may also be lost.  He argued                                                                    
that  although  the  legislation  might  not  be  a  perfect                                                                    
solution  the  legislature  must  make a  decision  to  move                                                                    
forward for energy security and opportunity.                                                                                    
9:26:48 AM                                                                                                                    
Co-Chair  Stoltze  wondered  how  expensive  a  natural  gas                                                                    
subsidy to Anchorage  and south central Alaska  would be. He                                                                    
guessed that it would be controversial.                                                                                         
Speaker  Chenault acknowledged  that  there is  more gas  in                                                                    
Cook  Inlet,  possibly  up  to  1.8  tcf  according  to  the                                                                    
Department  of  Natural  Resources.  However,  the  cost  of                                                                    
recovery  and   increased  costs  to  the   consumer  remain                                                                    
undetermined. The  legislation is  an attempt to  develop an                                                                    
option  and provide  all of  the facts  without guesses  and                                                                    
9:28:29 AM                                                                                                                    
Representative  Kelly commented  that the  state will  still                                                                    
need  a gas-line  to south  central Alaska  even if  a major                                                                    
line is developed.  He assumed that the  in-state line would                                                                    
be designed to fall within the  500 mcf limit on natural gas                                                                    
imposed on the  state by AGIA if the line  is built. Speaker                                                                    
Chenault agreed.                                                                                                                
9:29:40 AM                                                                                                                    
Representative   Austerman  believed   in  taking   care  of                                                                    
Alaskans  first via  an in-state  line. He  opined that  gas                                                                    
might  not be  less expensive  for Alaskans  through takeoff                                                                    
lines from a  big export line. He inquired  if the Resources                                                                    
Committee addressed the concerns  of the bill's legal issues                                                                    
by the  Department of Law.  He referenced their  memo (March                                                                    
3,  2010 copy  on  file).  Representative Chenault  reported                                                                    
that CS HB 369 (RES) attempted to address those issues.                                                                         
9:31:21 AM                                                                                                                    
ROBERT SWENSON,  INSTATE GASLINE PROJECT MANAGER,  OFFICE OF                                                                    
THE  GOVERNOR,  agreed   with  Representative  Chenault  and                                                                    
believed the  state needs to  be committed to  in-state gas.                                                                    
He  relayed that  the  Governor is  also  very committed  to                                                                    
development  of in-state  gas. He  reported  on his  project                                                                    
goals. A report  of cost estimates will be  presented to the                                                                    
legislature on  July 1,  2010 for  multiple scenarios  for a                                                                    
stand  alone   in-state  gas-line.  The   administration  is                                                                    
working  diligently   on  state  and   federal  right-of-way                                                                    
permits  and expects  to have  them completed  by the  first                                                                    
quarter  of  2011. He  added  that,  a complete  information                                                                    
package describing  the risks and  cost assessments  will be                                                                    
available  to   private  entities  who  are   interested  in                                                                    
partnering in the pipeline.                                                                                                     
Mr.  Swenson  noted  that  the   Governor  agreed  with  the                                                                    
majority of the  provisions in HB 369  with some exceptions.                                                                    
Mr.  Swenson is  working  with the  sponsor  to resolve  the                                                                    
differences. Specifically,  the bill  sanctions construction                                                                    
before the costs are known.                                                                                                     
9:34:41 AM                                                                                                                    
Representative  Gara   reiterated  his   concerns  regarding                                                                    
completed construction  of a big gas-line  for export versus                                                                    
a smaller in-state line.                                                                                                        
Co-Chair Stoltze  asked Representative Gara to  clarify what                                                                    
he is  referring to by  "big" gas-line. He answered  that he                                                                    
is referring  to the  4tcf export  line via  Trans-Canada or                                                                    
Mr. Swenson  stated that  the work  going on  now associated                                                                    
with an in-state gas pipeline  is insurance for Alaskans. He                                                                    
felt that the  cost to the state is  a reasonable investment                                                                    
for that insurance.  The results from the  work will provide                                                                    
the costs for gas  transportation infrastructure and service                                                                    
to  the consumer.  The Governor  is focused  on getting  the                                                                    
work  done  in   a  timely  manner  in   order  to  analyze,                                                                    
understand, and compare  all of the in-state  and major gas-                                                                    
line options. Representative Gara  repeated his concern with                                                                    
the  language  of  the legislation,  forcing  the  state  to                                                                    
commit to construction  of an in-state line if  a major line                                                                    
was going  to be  built providing  cheaper gas.  Mr. Swenson                                                                    
stated   that   the   bill  language   enacting   start   up                                                                    
construction in  July 2011 is  problematic in  that context.                                                                    
He added that the Governor  will review all of the necessary                                                                    
data before moving forward on the in-state pipeline.                                                                            
Representative Gara  restated his question, "If  the big gas                                                                    
line were  going to go  ahead would  you want the  small gas                                                                    
line  to  go  ahead  also?" Mr.  Swenson  acknowledged  that                                                                    
current analysis suggests that spur  lines from a major line                                                                    
would cost much less than  a single stand alone in-state gas                                                                    
line.  However,  their  development  would  be  specifically                                                                    
related to  development of  a large  diameter gas  line from                                                                    
Prudhoe Bay. In  order for the Governor to  make an informed                                                                    
decision he  felt it  was important to  move forward  in the                                                                    
present direction, considering all  of the unresolved issues                                                                    
around  development  a  major   Prudhoe  Bay  gas  line.  He                                                                    
repeated his  concern with HB 369  mandating construction of                                                                    
the in-state  line in 2010  prior to completion of  the cost                                                                    
9:40:31 AM                                                                                                                    
Representative Austerman noted that  during the AGIA process                                                                    
gas-line startup dates  were estimated at 2018  and now they                                                                    
are  being  discussed at  2024.  The  dates keep  moving  up                                                                    
giving  him more  reason to  support the  in-state line.  He                                                                    
reported that  he read that  the administration  is planning                                                                    
the in-state  gas line  as a  back-up to  the main  gas line                                                                    
through Canada.  He asked Mr.  Swenson to estimate  when the                                                                    
administration will determine,  during the planning process,                                                                    
if  the   in-state  line  is   a  viable  option,   will  be                                                                    
constructed,  and at  what point  is  the in-state  planning                                                                    
process itself worth continuing?  Mr. Swenson explained that                                                                    
he did not want to cause  confusion by the term back-up line                                                                    
in  reference  to  the  smaller  in-state  gas  line  versus                                                                    
progress on the large diameter  main gas line. Their current                                                                    
work on  planning and cost  estimates for the  in-state line                                                                    
is proceeding on schedule. He  identified two issues for the                                                                    
large  gas-line  that must  still  be  resolved: timing  and                                                                    
completion. He  indicated that along  with costs  those will                                                                    
be determined  by the end  of open season. In  addition, the                                                                    
administration's  work will  be  completed  on the  in-state                                                                    
line by  that time. The  information will then  be available                                                                    
to make decisions on viable  options. He revealed that North                                                                    
Slope natural gas  resources are much larger  than the 35tcf                                                                    
of proven  reserves at Pt.  Thompson and Prudhoe Bay.  It is                                                                    
possible both lines could co-exist.                                                                                             
Representative Austerman explained  that the producer's bids                                                                    
come with  conditions and  asked at  what point  open season                                                                    
will be finalized.                                                                                                              
9:45:27 AM                                                                                                                    
Mr. Swenson  declared that he is  not an expert on  AIGA and                                                                    
is narrowly focused  on the in-state gas  line. The in-state                                                                    
line he is working on will  not have an open season and will                                                                    
not  be   regulated  by  FERC  (Federal   Energy  Regulatory                                                                    
Commission).  He understands  that the  initial open  season                                                                    
process will allow  the state to find out  what entities and                                                                    
companies   are  interested   in   purchasing  Alaska   gas.                                                                    
Representative Austerman assumed that  the open season could                                                                    
go  on for  years, and  suggested that  the administration's                                                                    
plan contingent  on a  finalized open  season could  hold up                                                                    
development of an in-state gas-line  for years. He suggested                                                                    
that an expert on AGIA could answer the timeframe question.                                                                     
9:47:14 AM                                                                                                                    
Co-Chair Hawker  announced that he monitored  the process of                                                                    
the  bill  through  the  Resources  committee  hearings.  He                                                                    
alleged  that during  the  meetings  the administration  was                                                                    
referring to  an in-state gas line  as "plan B" or  the fall                                                                    
back plan. He asked where  the legislative authority for his                                                                    
work  comes from.  Mr. Swenson  answered that  the authority                                                                    
was enacted  in Section  19, of  the FY  2010 appropriations                                                                    
bill [HB 81].  Co-Chair Hawker confirmed and  added that the                                                                    
authority came from intent  language, not statutory language                                                                    
and the  administration is not legally  obligated to comply.                                                                    
He asked if  the intent language suggested  that the project                                                                    
could be  considered a fall  back plan. Mr.  Swenson replied                                                                    
that  he considered  the  in-state gas  line  project a  co-                                                                    
commitment  along   with  the   large  diameter   line.  The                                                                    
administration  is moving  forward with  all aspects  of the                                                                    
project  and  progress is  not  being  held hostage  to  any                                                                    
developments with the larger line.                                                                                              
Co-Chair  Hawker  queried  if  it would  be  better  if  the                                                                    
administration's   current  project   was  operating   under                                                                    
statutory  language.  Mr.  Swenson  responded  that  if  the                                                                    
legislature  believes  the project  is  not  on the  correct                                                                    
pathway, then clarification would  be appreciated. He stated                                                                    
that he  was providing updates  by his team and  thought the                                                                    
project was diligently moving forward  on the correct track.                                                                    
Co-Chair  Hawker  wondered   if  statutory  authority  would                                                                    
protect the project from being  sidetracked. Mr. Swenson did                                                                    
not feel that statutory authority was necessary.                                                                                
9:51:43 AM                                                                                                                    
Representative  Doogan asked  who  was involved  in the  in-                                                                    
state  gas line  process  and to  what  extent. Mr.  Swenson                                                                    
answered that  the administration's  current gas  line team,                                                                    
was composed of himself,  an assistant, and contractors. His                                                                    
team works  with the Department of  Transportation on right-                                                                    
of-way  issues  and   acquisitions.  Permitting,  pipe  line                                                                    
engineering   and   costs    are   being   handled   through                                                                    
contractors.  The  cost of  service  analysis  will be  done                                                                    
through the Department of Natural  Resources and AIGA models                                                                    
that were done last year.                                                                                                       
Representative  Doogan  wondered   if  the  Alaska  Railroad                                                                    
Corporation (ARRC) was involved  in the process. Mr. Swenson                                                                    
stated   that   the   ARRC  is   not   currently   involved.                                                                    
Representative  Doogan  asked  if  the  Alaska  Natural  Gas                                                                    
Development  Authority  (ANGDA)  was involved.  Mr.  Swenson                                                                    
replied  that the  project  has  had numerous  consultations                                                                    
with ANGDA to ensure that  work was not being duplicated and                                                                    
to  provide   cost  estimations  of  the   right-of-way  and                                                                    
Environmental Impact Statement [EIS] work.                                                                                      
Representative  Doogan guessed  that Mr.  Swenson's position                                                                    
as current  instate gas line  project manager is  similar to                                                                    
the  position  created  in   the  legislation.  Mr.  Swenson                                                                    
Representative Doogan  asked if  the Joint  In-state Gasline                                                                    
Development Team defined by HB  369 would be a policy making                                                                    
group. Mr.  Swenson explained that the  development team was                                                                    
not a  policy making group,  rather a managing  and decision                                                                    
making  entity.   Representative  Doogan  queried   how  Mr.                                                                    
Swenson envisions the  team working as defined  by the bill.                                                                    
Mr.   Swenson  answered   that   the  legislation   provides                                                                    
statutory language defining that the  team will be lead by a                                                                    
group   of   four   people   and   clarifies   their   joint                                                                    
communication effort.                                                                                                           
Representative  Doogan  asked   what  the  differences  were                                                                    
between his current  project and the project  defined by the                                                                    
legislation. Mr. Swenson explained  that his current project                                                                    
was to specifically focus on  the development of an in-state                                                                    
stand alone 24 inch diameter  gas line originally called the                                                                    
"bullet line."  The language  in the  bill broadens  the in-                                                                    
state gas  line effort  from tidewater  to the  North Slope.                                                                    
He noted  that ANGDA's efforts  were focused on a  spur line                                                                    
feeding off  of the large  diameter 48 inch gas  line [AGIA]                                                                    
9:57:50 AM                                                                                                                    
Representative  Doogan concluded  that there  will be  three                                                                    
pipeline   efforts  in   progress  including   the  proposed                                                                    
legislation.   He  wondered   what  would   happen  to   the                                                                    
administration's current project if HB  369 passes. He asked                                                                    
how it  would work to  have three separate  pipeline efforts                                                                    
simultaneously. Mr.  Swenson related that his  project would                                                                    
continue.  He believed  that the  legislation would  provide                                                                    
improved communication  and information sharing  between the                                                                    
entities and avoid duplicated  effort. The statutory mandate                                                                    
would ensure continued action.                                                                                                  
Representative  Kelly   shared  his  frustration   with  the                                                                    
uncertainty of the  route the in-state gas  line would take.                                                                    
He identified two  possible routes: Glenn/Richardson Highway                                                                    
or the Parks  Highway. He wondered which route  was the best                                                                    
option. Mr. Swenson  responded that the best  route would be                                                                    
the  shortest. This  equates to  cost.  The Glenallen  route                                                                    
would  be the  shortest  but is  contingent  upon the  large                                                                    
diameter line being built. The  Parks Highway route starting                                                                    
in  the North  Slope to  Livengood with  a feeder  line into                                                                    
Fairbanks is the preferred route for a standalone gas-line.                                                                     
Representative Kelly  asked when the route  will be decided.                                                                    
Mr. Swenson  replied that he cannot  make that determination                                                                    
yet. He expected to have an  answer by July 1, 2010 when the                                                                    
first phase  of his project  is completed. He added  that as                                                                    
the   project  continues   more   information  will   become                                                                    
10:04:59 AM                                                                                                                   
Representative Gara asked if Mr.  Swenson could estimate the                                                                    
cost of gas to consumers from  an in-state gas line. He felt                                                                    
he could not  wait for an answer until July  1, 2010 with HB
369  pending.  Mr. Swenson  replied  that  without the  cost                                                                    
estimates  for the  pipeline available  he was  not able  to                                                                    
speculate the cost  of service. There are  so many variables                                                                    
that still must be known before this could be determined.                                                                       
KEITH MEYER, ENGINEERING  MANAGER, MICHAEL BAKER ASSOCIATES,                                                                    
COST  ESTIMATION SERVICES,  added that  the cost  estimation                                                                    
services  are  currently  ongoing under  his  direction.  He                                                                    
offered  that   the  engineering  specifications   were  now                                                                    
available  to  help  determine   cost  estimates.  Once  the                                                                    
[construction] cost  estimates are finished  the information                                                                    
will be provided  to the Department of  Natural Resources to                                                                    
determine the  cost of service.  The cost estimates  will be                                                                    
ready  by July  1, 2010.  He  furthered that  part of  their                                                                    
contractual duties  was to develop  a schedule to  feed into                                                                    
the department's  cost model. He  explained the  schedule as                                                                    
follows:   procurement  by   the   middle   of  2012,   pre-                                                                    
construction services  in 2013, construction  would continue                                                                    
into 2015.  He elaborated on  the implications of a  July 1,                                                                    
2011  construction start.  He  defined "construction  ready"                                                                    
[language contained in HB 369]  as building the pipeline. He                                                                    
expounded on  the difficulties of meeting  this deadline. He                                                                    
argued there  would be no  time to  complete the bid  or for                                                                    
the  orderly  transition  of information  from  the  Gasline                                                                    
Development  Team  to  the   outside  entity.  In  addition,                                                                    
engineering  needs   to  be  complete,  major   permits  are                                                                    
required, right-of-way  acquisitions finalized, construction                                                                    
camps, line  pipe, and facilities material  orders in place.                                                                    
A 24  month lead  in period  is required  to order  the line                                                                    
pipe.  He speculated  that unfinished  engineering would  be                                                                    
disregarded  if an  outside entity  took  over the  project.                                                                    
Finally, an implied  warranty would have to  be addressed if                                                                    
construction began  under the auspices  of the state  and an                                                                    
outside entity stepped in.                                                                                                      
10:10:40 AM                                                                                                                   
Representative  Austerman asked  Mr. Meyer  to elaborate  on                                                                    
the schedule. Mr.  Meyer recapped the schedule.  In 2012 the                                                                    
line  pipe will  be  ordered. In  2013 preconstruction  will                                                                    
begin.   This  involves   preparing   the  material   sites,                                                                    
surveying, and  preparing the  right of  way. In  2014 start                                                                    
construction which  would last 2  years over the  summer and                                                                    
winter seasons.  He estimated  opening the  construction bid                                                                    
in 2013.  Representative Austerman deduced that  the flow of                                                                    
gas would begin in 2016. Mr. Meyer affirmed.                                                                                    
10:12:47 AM                                                                                                                   
Representative Gara  understood that  an anchor  consumer is                                                                    
needed to  move forward  with an  in-state gas  pipeline. He                                                                    
wondered  how long  a purchase  commitment  with the  anchor                                                                    
consumer would obligate consumers  to purchase gas under the                                                                    
contract.  Mr. Swenson  guessed  it would  be a  significant                                                                    
number of years. He stated  he would provide the information                                                                    
at a later date.                                                                                                                
Representative Gara gathered that  under the timeline of the                                                                    
bill the  state would  have to  make costly  and inefficient                                                                    
decisions  regarding  engineering  the pipeline  that  would                                                                    
have to  be redone  by the private  third party  entity. Mr.                                                                    
Meyer answered  that in  order to  be construction  ready by                                                                    
2011   they   need   engineering  to   supply   information.                                                                    
Engineering is necessary to  collect information for design,                                                                    
regulatory,  and  environmental   stipulations.  However,  a                                                                    
prudent  third  party  who takes  over  would  supplant  the                                                                    
previous  design engineering  effort with  their own.  There                                                                    
may be  some previous data  used, but the  engineering would                                                                    
have to be specific to their own needs.                                                                                         
Mr.  Swenson added  that an  early  construction date  would                                                                    
challenge  promoting the  project to  an interested  private                                                                    
entity because of the detailed engineering required.                                                                            
10:18:17 AM                                                                                                                   
Representative Gara  inquired if  the early timeline  in the                                                                    
bill would  affect the  choice of  routes the  in-state line                                                                    
would  take.  Mr. Swenson  replied  that  length equates  to                                                                    
cost. The  Parks Highway  route was  longer but  the shorter                                                                    
Glenallen  route  would depend  on  development  of a  large                                                                    
diameter line.                                                                                                                  
Co-Chair  Stoltze relayed  that  in previous  administration                                                                    
testimony  the  Glenallen  route  was reported  to  be  more                                                                    
expensive. He  requested clarification. Mr.  Meyer responded                                                                    
that in the first briefing  led by Harry Noah, Alaska Mental                                                                    
Health Land  Trust Resource  Manager, Department  of Natural                                                                    
Resources,   an  alternative   analysis  was   offered.  The                                                                    
findings concluded  that for a standalone  in-state gas line                                                                    
the Parks Highway  Route was a less expensive  route by $480                                                                    
million. He  concurred that the  difference in cost  was the                                                                    
difference  in length.  Each mile  costs approximately  five                                                                    
million dollars.                                                                                                                
10:20:38 AM                                                                                                                   
Representative  Gara reiterated  his concern  that the  time                                                                    
line  in the  legislation would  force the  state to  pick a                                                                    
less than optimal  route. Mr. Swenson felt that  from a cost                                                                    
stand   point   the   correct   route   would   be   chosen.                                                                    
Representative  Gara deduced  that the  Parks Highway  Route                                                                    
would be  chosen. Mr. Swenson  offered that  the legislation                                                                    
requires  choosing the  most  economical  route. That  would                                                                    
mean the shortest  route. Glenallen was the  shortest if the                                                                    
terminus  was in  Valdez.  The Parks  Highway  Route is  the                                                                    
shortest to south central Alaska.                                                                                               
10:22:12 AM                                                                                                                   
Representative Doogan  mentioned that right-of-way's  can be                                                                    
difficult to  obtain. He wondered how  acquisition of right-                                                                    
of-way's will proceed on either route.                                                                                          
MIKE    SOTAK,    ASRC    ENERGY   SERVICES,    INC.    (via                                                                    
teleconference),  responded that  both routes  will have  to                                                                    
find right-of-way access.  The gas line cannot  use the same                                                                    
right-of-ways  as  the  TransAlaska Pipeline.  Much  of  the                                                                    
Parks Highway  route right-of-ways  were joint use  on state                                                                    
roads and  power lines routes. Approximately  ten percent of                                                                    
rights-of-ways  are  located  on  state land  on  the  Parks                                                                    
Highway  route.   He  felts  that   if  problems   arise  in                                                                    
acquisition  they  can  be  resolved  within  the  project's                                                                    
timeframe. Representative  Doogan inquired  if right  of way                                                                    
acquisition  difficulties  were  expected on  the  Glenallen                                                                    
route. Mr. Sotak expected the process  to be the same as the                                                                    
Parks Highway route.                                                                                                            
10:26:51 AM                                                                                                                   
Mr.  Swenson concluded  that  the administration's  in-state                                                                    
gas pipeline  project was committed  to working  in parallel                                                                    
with all  other gas  line projects in  the state.  He agreed                                                                    
with  Speaker  Chenault  that   all  in-state  gas  pipeline                                                                    
options must  keep moving  forward in  order to  develop the                                                                    
state's natural gas resources in the near future.                                                                               
Representative   Austerman   commented  that   he   strongly                                                                    
supports HB 369 so Alaskan's  can have access to natural gas                                                                    
as soon as  possible. He alleged that the  AGIA process will                                                                    
take many  years and might  never result  in a gas  line. He                                                                    
felt that  the administration's current project  was tied to                                                                    
the outcome of AGIA.                                                                                                            
10:30:36 AM                                                                                                                   
Representative  Kelly   wondered  if  construction   of  the                                                                    
pipeline could  begin south  to north  and who  would decide                                                                    
that. Mr. Swenson could not  address construction issues. He                                                                    
guessed that the legislature would make the decision.                                                                           
Co-Chair Stoltze noted that a  committee substitute for this                                                                    
legislation would be offered in the near future.                                                                                
HB  369  was  HEARD  and   HELD  in  Committee  for  further                                                                    
The meeting was adjourned at 10:34 AM                                                                                           

Document Name Date/Time Subjects
AS 39.20.180.docx HFIN 3/15/2010 9:00:00 AM
HB 369
AS 39.25.110.docx HFIN 3/15/2010 9:00:00 AM
HB 369
Dept of Law re Statute Authority 4-09.pdf HFIN 3/15/2010 9:00:00 AM
HB 369
HB369-OOG-EO-03-01-10 fiscal note attachments.pdf HFIN 3/15/2010 9:00:00 AM
HB 369
HB 369 ADN Article 2.14.10[1].pdf HFIN 3/15/2010 9:00:00 AM
HB 369
Sectional Analysis-RES.pdf HFIN 3/15/2010 9:00:00 AM
HB 369
Sponsor Statement-RES.pdf HFIN 3/15/2010 9:00:00 AM
HB 369
HB 369 Resources Changes Summary.docx HFIN 3/15/2010 9:00:00 AM
HB 369
HB 369 OOG Fiscal Note NEW.pdf HFIN 3/15/2010 9:00:00 AM
HB 369
HB369-CED-ARR-3-12-10.pdf HFIN 3/15/2010 9:00:00 AM
HB 369