Legislature(2007 - 2008)BELTZ 211
05/07/2007 01:30 PM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| Spencer Hosie: Duty to Produce | |
| Kenneth M. Minesinger:antitrust Matters | |
| William H. Sparger: Construction Issues, Economic Certainty and Financial Risks | |
| Rick Harper: Independent Advisor to the Legislature | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
May 7, 2007
1:35 p.m.
MEMBERS PRESENT
Senator Hollis French, Chair
Senator Bill Wielechowski
Senator Lesil McGuire
Senator Gene Therriault
MEMBERS ABSENT
Senator Charlie Huggins, Vice Chair
COMMITTEE CALENDAR
Presentations:
Spencer Hosie: Duty to Produce
Rick Harper and W.H. Sparger: Pipeline Economics
HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
Spencer Hosie
Hosie McArthur LLP
San Francisco, CA
POSITION STATEMENT: Discussed the duty to produce
Kenneth M. Minesinger, Attorney
Greenberg Traurig
Washington D.C.
POSITION STATEMENT: Discussed gas pipeline economics.
William H. Sparger
Energy Project Consultants, LLC
Colorado Springs, CO
POSITION STATEMENT: Discussed gas pipeline economics.
W.R. Harper, Consultant
Econ One Research, Inc.
Los Angeles, CA
POSITION STATEMENT: Discussed gas pipeline economics.
ACTION NARRATIVE
CHAIR HOLLIS FRENCH called the Senate Judiciary Standing
Committee meeting to order at 1:35:30 PM. Present at the call to
order were Senator Wielechowski, Senator Therriault, and Chair
French. Senator McGuire arrived shortly thereafter.
^SPENCER HOSIE: Duty to Produce
CHAIR FRENCH announced the committee would hear from Mr. Hosie
about the duty to produce.
1:36:04 PM
SPENCER HOSIE, Founding Member of Hosie McArthur LLP, said he
was asked to testify on the subject of duty to develop under the
Alaska lease form specifically, and oil and gas law generally.
He began with an outline of his background in the area and the
perspective he brings to the duty to develop question. He's been
an oil and gas lawyer for about 25 years and he began his career
working for the State of Alaska on what was then known as the
Amerada Hess case. His company now runs a national oil and gas
practice from San Francisco representing both private and public
royalty owners. For about a decade he has served as the lead
outside lawyer for the State of Louisiana in its energy matters
related to litigation and regulation. The company has
represented the State of Hawaii and has also worked with the
U.S. Department of Justice in federal royalty matters in the
whistleblower context. Over the last several decades he's had
the opportunity to see and review millions of pages of oil
company documents. Some that were produced in litigation. From
that he has a deep and detailed understanding of the processes
that oil companies bring to the question of a capital intensive
upstream investment. That includes what matters, what doesn't
matter, why things get built, and why other things don't get
built. "And it's that perspective that I bring to duty to
develop," he stated.
1:38:01 PM
MR. HOSIE said that with regard to the substance of the duty to
develop, it's necessary to understand the basic nature of the
relationship that an oil and gas creates between the royalty
owner and the oil producer. That relationship is profoundly
unlike a traditional arms-length commercial relationship, he
stated. The process begins with a landowner with real estate
that may or may not have mineral resources. Because the
landowner doesn't have the knowledge or expertise to drill,
explore, develop and market the hydrocarbons that might be
found, the landowner needs a partner that has that particular
set of skills. Of course, that is a major oil company.
MR. HOSIE explained that the landowner and the oil company
execute an oil and gas lease, which is often a short and simple
contract to govern a relationship over 50- to 70- years. In that
relationship the landowner contributes the real estate and the
oil company contributes the promise to use its expertise to
explore and develop the property diligently and to market the
production for the mutual benefit of the landowner and itself.
That's the deal that the oil company strikes to get the initial
lease, he stated. As a consequence of making that promise, which
includes the promise of diligent development, the oil companies
get most of the value of the production. In Alaska, under the
Division of Lands 1 Lease Form (DL1), the oil companies get 87.5
percent of the value of the production while the state's royalty
share is 12.5 percent. That is low under modern standards, but
it was the norm when the DL1 lease form was drafted in the late
1950s.
MR. HOSIE emphasized that the main point is that the producers
get the lion's share of the value because of the promises they
make to get the initial lease. That includes the promise to
explore, to develop, and to market for the mutual benefit of the
royalty owner and the oil company.
1:40:35 PM
MR. HOSIE informed members that for decades the courts have
recognized that an oil and gas lease creates a relationship of
mutual interdependence and mutual benefit. Importantly, that
means that the oil company that is under a lease is no longer
able to make decisions based on its unilateral economic best
interest. "It can't say 'This is how we make the most money; we
want to spend our dollars here and not there.'" Rather, it must
make development decisions based on both its interest and the
economic best interest of the royalty owner. They're in it
together and that covenant to make decisions based on the mutual
best interest of both parties is a promise the oil companies
make in the initial lease agreement, he stated.
MR. HOSIE said that the economic interests of the royalty owner
are often times fully aligned with the economic interest of the
oil company. For example, both are interested in high prices;
high prices are good for the oil company and the landowner.
However, under some circumstances the oil company's economic
interest diverges from the royalty owner's economic interest. A
key instance where that happens is with development. Almost
invariably the landowner wants their property developed and the
hydrocarbons produced and sold, because that activity is what
generates the royalty check. "After all, they went to the oil
company in the first instance precisely to have the land
developed and the property producing and the hydrocarbons sold,"
he stated.
MR. HOSIE explained that sometimes an oil company is disinclined
to develop and produce--at least right now. For example: the
company might be long on a particular resource so it doesn't
value it right now; the company might be capital constrained;
the company might have a lot of capital, but for various reasons
it might want to spend it elsewhere. "If you're a major oil
company with a development opportunity in Kazakhstan or Qatar,
if you don't spend your dollars there, if you don't move that
project forward there's likely to be an unhappy consequence for
you. You have to go forward in those jurisdictions," he stated.
MR. HOSIE relayed that another reason for not developing right
now is that the company might have high internal hurdle rates or
ROI that, as a corporate policy, governs all investment in the
company. The internal hurdle rate could be 30 percent, 40
percent, or as high as 45 percent and it won't invest any money
in an upstream project unless it believes it will achieve that
return. "That may be its internal hurdle rate and if a project
is only 25 percent profitable it's not going to pass the gating
test and won't get built," he stated.
1:44:09 PM
MR. HOSIE said that for any number of reasons an oil company can
decide not to spend money on development right now. Those
decisions might be perfectly sensible and from company
perspective that may be the right decision. But that's not the
right question with regard to the duty to develop. The right
question there is, "Is the project in Alaska, on its own merits,
reasonably economic." If it is reasonably economic, the oil
company has an obligation to go forward. That's how the implied
duty to develop solves this conflict between a royalty owner who
wants his/her field produced and an oil company that wants to
spend its dollars somewhere else. Duty to develop solves that.
It says, "If the project is…on its own merits, reasonably
economic, you have an obligation to go forward." He emphasized
that goes back to the basic bargain that the royalty owner
struck with the oil company to get the first lease signed.
"That's the promise the oil company made then."
MR. HOSIE stated that in this instance, the oil company went to
the state and said it would produce diligently and that is why
it got 87.5 percent. The oil company said it would use its
expertise to explore, develop, and market the production. That
is why the oil company gets the lion's share. "Those were
promises they made to get the leases in the first instance and
it is inconsistent--with that bargain long since struck--for an
oil company 30-years down the road to say, 'Oh incidentally,
this project may be reasonably economic, but we think we can get
a bigger bang for our buck in Kazakhstan or Qatar or in
Mississippi, or in East Texas.'" That isn't the right question,
he emphasized.
1:46:23 PM
MR. HOSIE said he thinks about it in terms of the following
analogy. Toyota is thinking of building a manufacturing facility
in one of five or six southern U.S. states. It goes to those
states and asks what incentives they can provide Toyota so it
builds the facility in one state as opposed to another. That
leads to a reverse auction--or race to the bottom--to find which
state can put together the most attractive package of economic
inducements so that Toyota builds in one state as opposed to
another. Say Kentucky wins that race to the bottom and cuts a
deal with Toyota, but as part of the deal Kentucky gets Toyota
to agree that if the first plant is successful and Toyota
decides to build a second plant, it must build it in Kentucky.
Toyota made that promise as part of the original deal. "That is
exactly what the duty to development is under the Alaska deal on
lease form," he emphasized. If an Alaska gas pipeline is
reasonably profitable on its own merits, then the oil companies
have an obligation to go forward even if more money could be
made elsewhere.
MR. HOSIE said he noted yesterday that Exxon has spent $41
billion in the last two years buying back its stock on the open
market. It's doing that to drive the Exxon share price up, and
Wall Street loves that. It shows fiscal discipline, it reduces
outstanding shares, and the value of the remaining shares rise
showing that Exxon is a good and promising investment. From
Exxon's perspective that may be a rational economic decision.
But when you ask whether they have an obligation to commit
dollars to a particular development project, it doesn't matter
if they believe they might be better off buying back $41 billion
of their own stock. He again emphasized that, "If the project is
economic on its own merits they have an obligation, under the
deal they entered into…to build the project."
1:49:10 PM
CHAIR FRENCH asked if he's saying that the industry might be in
the position that it has to build a pipeline, or is it more
accurate to say that they have to be in a position to sell into
an economic pipeline.
MR. HOSIE suggested that he is really asking what remedies the
royalty owner has if there is a breach of the duty to develop.
To begin with, he said, litigation is never the first option and
rarely is it a good option. "A company can force you into
litigation if it wants to, but that's not really where you want
to be." Fortunately though, in the duty to develop context
there's a better remedy. If the oil company refuses to go
forward with a development project because it says it's not
economic, then it must give the resource back. There is a
consequence to saying the project isn't economic, he stated.
Once an oil company says a project isn't economic, the resource
reverts to the royalty owner. Then the resource owner can go to
a different oil company that may have a greater need for that
production now as opposed to some years later. That's the
royalty owners right. He reiterated that the first remedy is if
the oil company doesn't want to build a pipeline, then they have
to give the resource back so it can be relet through another oil
company that is willing to build a pipeline on your schedule.
"That is the important remedy here," he stated.
MR. HOSIE explained that if a third party with the means,
desire, or ability to build a pipeline goes to the producers and
if the producers refuse to commit gas at a reasonable market
price, then the producers violate the implied duty. They're in
violation because effectively that bottles up the resource
indefinitely. The courts call that in-ground warehousing. It is
speculative warehousing of a hydrocarbon. "If you're Exxon with
a lot of gas on line, maybe that's a good thing for you, but it
is not a good thing for the royalty owner that needs the gas to
be produced to generate revenue now."
MR. HOSIE said the short answer is that the right remedy is not
to spark a complicated litigation. The right remedy is to ask
for the resource back. It's really that clear in the law; they
can't have it both ways. In this state they have to move it or
lose it, he said. If a third party is willing to come forward
they can't say they won't build the project and also not sell it
to someone that is willing to build it.
1:52:59 PM
SENATOR WIELECHOWSKI said a concern he has relates to the need
to reinject the gas to produce the oil.
MR. HOSIE agreed it's an important consideration and if there
are conservation and field preservation reasons that make it
imprudent to sell gas because it would impede oil production,
that is a legitimate reason for a producer to say no. However,
in that situation the economic interest of the oil company and
the state are aligned. Both parties have an interest in
preserving the field and certainly the AOGCC would have
something to say about that if someone were of a different
perspective. "But that's…not…the problem here. The problem
here…is that you don't have a pipeline cuz Exxon doesn't want to
build a pipeline-not yet."
SENATOR WIELECHOWSKI noted that recently all the producers came
forward and said they would not put a bid in under AGIA. He
asked if he believes that is a violation of the leases they have
signed with the state. What action would you recommend the state
take?
MR. HOSIE replied it may be a violation of their duty to market
and it may be a violation of the promises they made to the state
a number of years ago. "I think the right action for the state
is to avoid complicated, expensive litigation." Instead, tell
the producers they can't have it both ways. If they aren't
willing to build the pipeline then they must commit to tender it
at market price-with AOGCC concerns covered-to a third party
consortium. If they aren't willing to do that either then they
should be told they forfeit the resource. "Otherwise…they're
just bottling it up indefinitely and that is contrary to every
tenet of oil and gas law in this country," he stated.
1:55:10 PM
SENATOR McGUIRE said she thought Senator Wielechowski was going
mention the issue of the unit agreement on the North Slope. She
asked if he had reviewed aspects of that and if he had an
opinion as to whether there would be a violation of that unit
agreement if one or two of the three producers made the decision
to commit their gas in the form of a firm transportation
commitment. If they do she believes there might be antitrust
issues there. "You have a unit agreement that…on its face
precludes any movement from that basin," she stated.
MR. HOSIE said the antitrust question is interesting and the
state has looked at that in past years in the context of its
prior issues with the oil companies in terms of how the
production is marketed and how royalties are reported. The
question was: Were they acting in concert to report an
artificially depressed price? In terms of the current contract,
if the producers act together to not take advantage of a
reasonable market activity, that could be a violation of Section
1 of the Sherman Act. It prohibits concerted action for the
purpose and with the effect of sustaining or maintaining prices.
MR. HOSIE said the second point is that the fact that there is a
unit agreement that requires unitary action is itself not a
legal or antitrust issue. Unit agreements are pro-competitive
and good for both the oil company and the landowner. "You want
there to be a unit with a unit operator that runs the thing
sensibly to make sure that there isn't waste in the field." The
more sensitive point is whether the oil companies have reached
an agreement between and amongst themselves to stand together
and say "No." to reasonable market activity or options such as a
willing third party. "That is something they would have to be
careful about," he stated.
CHAIR FRENCH advised that Mr. Minesinger will talk more about
antitrust.
SENATOR WIELECHOWSKI asked if he has an opinion as to whether or
not the AGIA process is the appropriate approach. "If the leases
are interpreted that way you're saying, it would seem to me that
we don't need AGIA-that we don't need the incentives and the
inducements."
1:58:29 PM
MR. HOSIE said it is the correct approach; the $500 million is a
catalyst to try to get a third party to get past certain
regulatory hurdles to make it a reality. "It's in the state's
interest to do that to make that happen." And it doesn't
undermine the larger legal point, which is that the state does
have the benefit of the duty to develop and the producers do
have the obligation to move it or lose it. They don't have the
option to warehouse the resource in the ground and wait for
something to change, he stated.
MR. HOSIE said the legal question asks if this project is
economic, so it's essential that the state know what the
producers really think about this. It's not just the negotiating
posture that should be evaluated here because these are people
who negotiate for a living. He said he noted recently that Exxon
told the Securities and Exchange Commission in its 2005 K-1
annual report that the Pt. Thomson Unit was economically
feasible that year based on 2005 prices and economics. He
continued to say:
That is in their 10-K. Why is it there? Because in
2005 Exxon changed its accounting for its capitalized
Pt. Thomson costs. And it changed its accounting under
FASB-Financial Accounting Standards Board-Standard 19-
1, which lets a company undertake a certain type of
accounting only if it concludes that the project is
economically feasible based on then current prices and
conditions-FASB 19.1. Exxon made that conclusion and
its auditors-Price Waterhouse Cooper (PwC)-signed off
on it and it's footnoted in their 10-K.
That is what Exxon really thinks about Pt. Thomson.
Exxon is not misleading the SEC. Exxon is not
misleading Wall Street. Exxon's position may have been
a little different in its negotiations with the state
in years past, but those are negotiation positions.
You expect them to be forceful in negotiations. That's
what they do for a living.
The point…is that it's essential that the state really
know what these companies think about their upstream
economics. They have documents, they have upstream
investment guidelines that govern where they invest
money and what the gating hurdles are and what the
return investment has to be for them to green-light a
project. These companies are companies with processes
that govern these activities. And it's all there in
their internal documents.
2:01:36 PM
SENATOR WIELECHOWSKI said that after sitting through about seven
weeks of this process he knows that he and others have asked
repeatedly what they want and whether this is a profitable
project. We haven't gotten a whole lot of straight answers, he
said. Do you have any suggestions that this body can do to get
the information? In your opinion are we entitled to this
information under the leases? Should we be requesting the
information in a more formal manner?
MR. HOSIE said you are entitled to the information. That's
particularly so if the oil companies have said the project is
not economic unless the state changes its royalty percentage or
tax regime. "In making those kinds of requests-and I appreciate
that was in the prior administration…the industry is essentially
trying to recut the deal." He reminded members of the Toyota
analogy and said if the oil companies are asking for a change
then it seems that they have an obligation to show their
internal economic analyses including their upstream investment
hurdle rate documents. Those are the ones that say, "Here's when
we invest and here's what we need to invest. Here's what we
think we can safely warehouse." The first thing an oil company
thinks about is what happens if a project isn't developed. Is
there a risk of losing it? "My personal view is that Exxon and
the others have not, until very recently, considered the risk of
losing the resource real in the state of Alaska.…They thought
they could safely warehouse these resources here."
2:03:23 PM
SENATOR McGUIRE, noting that the Chair has the power to ask
witnesses to swear under oath and the power to subpoena relevant
documents, asked if it might become a political question that
the court wouldn't touch, if the oil companies failed to produce
the documents that were subpoenaed.
MR. HOSIE said he isn't sure how that would be resolved under
Alaska political law. Other avenues would be to formally ask
Exxon for the documents through new or current litigation, or
ask Exxon to give him permission to show the documents. He said
he can't show them without permission because they were produced
under protective order, but he does have them. All oil companies
have internal investment guidelines; they can't do business
without them. Given the fact that you are interdependent, in all
fairness I think that you are entitled to see them, he stated.
2:05:00 PM
SENATOR THERRIAULT noted that for 30 some years the price was
such that the project was not economic. Is it with the tacit
approval of the landowner that you're able to go from year to
year, he asked. At what point does the landowner make the
determination that somebody else should have the right to go
forward?
MR. HOSIE said Pt. Thomson, where a discovery well was drilled
in 1977, is a good example. The unit was created 30 years ago
and not a drop or oil or gas has been produced from that unit.
For a long time the lack of development may have been due to the
fact that it wasn't economic. "But certainly for the past many
years it has been economic to do a project at Pt. Thomson. And
the state has been slowly escalating its insistence that the
producers move the project forward." There have been agreements
for drilling as well as agreements on expansion and contraction
financial penalties, so it's worth looking at ExxonMobil's
performance under those agreements. There have been multiple
defaults and they currently owe the state $20 million. That is a
penalty ExxonMobil agreed to pay if it didn't do certain
development. It didn't do the development and it won't pay its
share of the $20 million so there comes a time when the royalty
owner is entitled to make the oil company decide. If the project
is economic, then move forward and if you truly think it's not
economic, then let it go. It's the royalty owner that has to
make the call, he stated.
MR. HOSIE said the duty to develop is the law in Alaska. It is
specifically referenced in paragraph 19 of the DL1 lease form.
It clearly says that further development will be done with due
regard "to the interests of both the royalty owner and the oil
company." That matter was litigated in the ANS royalty case
where Judge Carpeneti decided that there was a full array of
implied duties in Alaska law including the duty to develop.
"There's just no question but there's a duty to develop in
Alaska," he stated. The real question is will the state say
"Move it or lose it." if the oil company says the project is not
economic.
2:07:56 PM
SENATOR WIELECHOWSKI asked who would have standing to file a
lawsuit ordering the producers to develop the resource.
MR. HOSIE replied a lawsuit posing that question on the Pt.
Thomson matter is proceeding right now in the superior court in
Anchorage. A decision was made to terminate that unit as of
December 2006 because of inadequate plans of development. He
noted that there are procedural questions as to which court has
jurisdiction and what the proper sequence ought to be. That
argument will likely take the next 60 days. But the state will
ultimately win the move it or lose it point, he stated.
SENATOR WIELECHOWSKI asked if only the State of Alaska has
standing to bring suit, or could the legislature or any citizen
do so.
MR. HOSIE said he doesn't know, but DNR certainly has standing.
As the responsible agency it has the obligation to police the
field and the plans of development. If it believes there has
been a default, then it has the obligation to act appropriately
and require the oil company to cure the default, put the field
in production, or surrender the leases. "Right now DNR is
actively…pursuing that with the full support and assistance of
the Department of Law. That is underway as I speak--for Pt.
Thomson." Asking that question will have a clarifying effect on
the company's willingness to commit. "There's just no question
but that Pt. Thomson's economic. They will never let their
leases go."
2:10:28 PM
SENATOR WIELECHOWSKI said he has heard from some legislators and
from the public that the producers wouldn't say they weren't
going to put in a bid unless they really meant it. He noted that
Mr. Hosie has an impressive resume, "but I guess from a
negotiating standpoint, how credible is a statement from a
producer when they say we're not going to put in a bid under
AGIA?" Are they bluffing or are we negotiating?
MR. HOSIE said yes, you are in a negotiation. He said it is a
mistake to look at the oil companies as one. They are very
different companies with different needs and desires. He
believes Chevron and ExxonMobil feel very differently about
Alaska development. So would Shell, he added. "When they take a
unified stance in a negotiation, it is important to remember
that they are very good at speaking with one voice to you, but
internally they are kicking each other under the table all the
time." They like to characterize the state as being litigious,
but that is untrue. And they are very quick to sue one another.
"It is just part of the business that they are in, and it is a
negotiating tactic to back the state up on its heels." It is a
negotiation, and "who knows what they individually think and who
knows what they will do if you move forward anyway?"
SENATOR THERRIAULT asked if it would be good to know if other
companies had to try to buy the acreage, because the company can
release it back to the state or sell to another. He noted that
other companies have approached ExxonMobil and have been shooed
away.
2:13:24 PM
MR. HOSIE said absolutely yes. "If you have another major oil
company, or even a smaller oil company that has a foothold in
the North Slope and wants more, if they're coming to Exxon and
offering to take over the Exxon leases and pay a significant
bonus, that's because they think it's an economic project." He
has not doubt that the state could generate significant bids if
it relet the Pt. Thomson leases today with nine zeros.
SENATOR THERRIAULT said that back when Mr. Hosie made a
presentation to the LB&A committee, the committee asked the
administration for a formal request for information from the
companies holding the lease acreage and suggested using Mr.
Hosie's expertise on what documents needed to be requested. Did
they approach you about how to phrase such a request?
MR. HOSIE said no.
CHAIR FRENCH said the lynchpin is if the gas pipeline is
economic. He is skeptical that the state can force the oil
companies to build a pipeline, but seems that the state can
force the industry to sell into an economic pipeline.
MR. HOSIE said the first thing that the state is entitled to is
a hard, clear informed answer from ExxonMobil about whether it's
economic. "You are entitled to that at a bare minimum." They
have equivocated because it's a lose/lose point for them. "If
they don't want to build it now, but prefer to negotiate to see
how many inducements Toyota can get in Kentucky, they don't want
to say equivocally we're not going to build it. It's…we need
your cooperation; we need some inducements. On the other hand,
if they say it isn't economic, bluntly and flatly, then they
have just proven their way out of their leases." So the key
thing for the state to do right away is to make them take a
definitive position. Ask them to square what they've told the
state with what they've told the SEC in terms of Exxon's
accounting for Pt. Thomson capital costs.
CHAIR FRENCH said he has gotten himself locked into the mindset
that he has to prove this affirmatively and keep marshalling
state experts and outside analysts to prove that this is
economic, when they have the answer and we just haven't forced
it out of them.
2:16:39 PM
MR. HOSIE said, yes and, "you can't, as a royalty owner, prove
it is economic." The legislature doesn't have that information.
"That's not what you do. That's why you have them. That's why
they're getting 87.5 percent of production. That's their
expertise, and so the last thing a royalty owner wants is a long
drawn out litigation from the oil company about whether a big
project is economic or not." It's not the fight you want or one
that you need to fight, he said. You have to make them tell you.
"Are you going to build it or you going to give it back?" If
they give it back, the state can release to a company with
specific timetables. That is the right of the royalty owner.
What is improper is that the state has been in limbo through
these interminable negotiations and sliding down a slippery
slope.
2:18:01 PM
SENATOR McGUIRE said when a licensee commits to build the line
and there becomes an economic way to transport that gas to
market and one of the big three companies won't make a firm
transportation commitment, "we get into this morass of
litigation that goes on for years and years and years, and we
lose opportunity." What about expedited consideration? Is
anything like that contained in the lease agreements? Does it
already exist in disputes governing the lease itself? Can there
be a compelling argument to the superior court that this is the
kind of matter that needs to be expedited.
MR. HOSIE said he believes there is nothing DL1 lease form for
both the North Slope and Pt. Thomson that compels arbitration or
provides for expedited treatment. There is absolutely the
ability to ask a superior court judge to expedite a given
matter. The state has emphasized the need for prompt treatment
in the Pt. Thomson case. He said Judge Gleason is moving it
forward very quickly indeed. He said he thinks the parties will
be deeply into the substance of the dispute in two months.
2:20:03 PM
SENATOR WIELECHOWSKI asked the definition of "reasonably
profitable." He has asked that question repeatedly and he
expects the answer to be that they don't know because they don't
know what the pipeline deal is going to look like. Is it fair
because of the unknowns?
MR. HOSIE said reasonable profitability means that they can
build the project out, get the gas market-ready, with an
expectation of making a reasonable return on their investment.
It may be six percent or ten percent. It isn't 30 percent, he
stated. If there is an internal hurdle rate of about 20 percent,
it can still be profitable at half of that. Bond rates and
investment debt are what a court looks at. There are
uncertainties. But there are always uncertainties in any
upstream oil and gas project. That is the deal they took when
they got the lease. "It's theirs to develop diligently." They
can't tell the state to make it risk free for us, because that
is a renegotiation the basic deal by which they got the North
Slope leases, under which they've taken hundreds of billions of
dollars of profit. Yes, there may be contingencies and risk.
Maybe gas will drop by 90 percent in three years. "I don't think
so." But no one can guarantee that. "It's not their right to
insist that the state compromise its economic position to make
their business riskless. They're getting the lion's share
because they agreed to take the risk."
2:22:42 PM
SENATOR THERRIAULT said under the Stranded Gas Act, AS
43.80.300, if the administration is negotiating a package under
that act, if the application is approved the respective
commissioners shall require the successful applicant to provide
financial, technical and market information. "So the
commissioner gets to determine what information he wants." If
the information is not provided, then the application can't go
forward under the act. "Since you were part of the previous
administration, you had done some work for them, are you aware,
was such a request ever put into the producers to see whether,
in fact, the economics of this project were acquired, the things
that were being offered up?"
MR. HOSIE said he is not aware of any such requests.
SENATOR THERRIAULT said in a conversation with the previous
chief of staff specifically on the work that you had done, he
warned me that there was a hole in your argument. "He called it
a circular non-sequitur that you get into some little loop." He
asked what flaw he referenced.
MR. HOSIE said no one in the prior administration commented any
such thing to him. If they had thought that, he would have
appreciating knowing. "I do not think that there is." For an oil
and gas lawyer, these are not abstract shades of gray concepts.
There is a duty to develop and it is in the DL1 lease form. They
do have the obligation to go forward and if they don't there is
price to pay: they have to turn the resource back to the state.
"Those are black letter rules of law."
MR. HOSIE said his final point is that the producers are all
very different with fundamentally different views and
willingness to go forward with a project in spite of speaking to
the state with one voice.
^KENNETH M. MINESINGER:Antitrust Matters
2:25:49 PM
KENNETH M. MINESINGER, Attorney, Greenberg Traurig, said he has
practiced before the FERC for 15 years representing several
major gas pipelines and other clients. He has tried some of the
major FERC market power cases, including cases around the recent
so-called "California energy crisis." He has served as chair of
the Energy Bar Association antitrust committee and has
significant experience on energy-related antitrust matters. He
said he will cover three issues today: 1) antitrust and
competitive problems associated with a producer-owned pipeline,
2) how AGIA would largely fix or ameliorate those problems, and
3) the question of what if the producers fail to bid in an open
season.
2:28:10 PM
MR. MINESINGER said in 1977 the U.S. Attorney General found that
a producer-owned pipeline would present serious vertical market
power issues and recommended a complete ban on producer
ownership. The issue is that there would be a disincentive to
expand the line to serve third party competing gas supplies, he
said. He addressed this in a December 21, 2006 memorandum that
is on the Legislative Budget and Audit website. The 1977 opinion
is consistent with subsequent precedent of the Department of
Justice and FERC dealing with vertical market power issues. It
is like three trains owned by three companies and one company
buys the one bridge they all need to go over. That company will
have an incentive to favor its train and discriminate against
its rivals. That is what the attorney general was talking about
in 1977. It boils down to expansion, delay, and access, he said.
MR. MINESINGER said a producer-owned pipeline would have a
disincentive to expand. AGIA, however, fixes that because it has
a requirement that if it's economic to do so, the pipeline must
expand. If there are customers willing to pay, the pipeline must
expand. AGIA also requires that the pipeline hold open seasons
every two years. AGIA addresses the issue of delay by requiring
the winning applicant to hold an open season within 36 months
and requiring the applicant to propose specific dates by which
it will file for a FERC certificate and initiate the prefiling
process. So AGIA goes a long way in addressing the delay problem
with a producer-owned line. AGIA addresses the access issue in
the area of rates. If there's a producer-owned pipeline, the
producers (Exxon, BP, and Conoco) would be indifferent to a high
tariff rate, because it is money from one pocket into another.
2:32:35 PM
MR. MINESINGER said AGIA requires the pipeline to have lower
rates. A 70/30 debt to equity ratio, for example, drives the
rate lower than if there were a higher debt to equity ratio.
AGIA requires rolled-in rates. That's related to the expansion
issue where the pipeline would be required to roll in up to 15
percent above the initial rate. Lower rates improve access for
third parties, like BG or Anadarko. AGIA establishes an open,
competitive process for all parties, unlike the 1977 attorney
general opinion, which advocated a total ban on producer
ownership. AGIA invites the producers into the process. It
establishes a middle ground between not banning them and
negotiating with them exclusively. His opinion on the failure to
bid is similar to Mr. Hosie's. If the failure to bid by the
producers were the result of an agreement amongst the producers,
"you could have a very serious issue under Section 1 of the
Sherman Act." It's premature to go beyond that regarding
antitrust issues. "We need to wait and see what happens." We all
hope it will be a successful open season no matter who conducts
it, he stated. The documents Mr. Hosie spoke of would be
interesting from the duty-to-produce perspective and they might
be interesting from an antitrust perspective. But we need to
wait and see.
2:35:28 PM
SENATOR THERRIAULT said he met with him in Washington D.C. prior
to writing the memo for LB&A. "If there is a waiver of the
earlier language that said that the producers should not own a
part of this particular transportation system, there was some
concern that that would not necessarily satisfy the Department
of Justice…and that there are some turf battles that always goes
on between the…federal agencies. Just because one has signed off
doesn't mean the other wouldn't be putting a proposal through
all these hurdles. And so if I take your testimony correct…if we
did have a producer participating, or the three producers
participating together, in a proposal under AGIA to be the owner
of the transportation system, the requirements of AGIA would go
a long way to satisfy that Department of Justice process?"
MR. MINESINGER said, "Correct, and we discussed that in the
memo." He said he is glad he mentioned the waiver. It is a
detail that is covered in his handout. The Reagan Administration
came along and said that producers can perhaps own the pipeline
so long as they satisfy the FERC that there is no antitrust
problem. He said in 2005 the FERC Chair said the antitrust
issues were still valid and will be addressed in any FERC
certificate proceeding.
SENATOR THERRIAULT said, "So that would be part of a FERC
proceeding that would invite input from the Department of
Justice."
MR. MINESINGER said it would be a FERC certificate proceeding if
the producers win the AGIA license or otherwise submit an
application to FERC for a certificate to build the line. At that
time parties could raise antitrust issues. There are multiple
agencies and the Department of Justice or the Federal Trade
Commission could show interest, particularly if there was
evidence of joint agreement to not bid or other reasons.
2:38:57 PM
SENATOR THERRIAULT asked if there is a potential antitrust issue
that AGIA doesn't speak to.
MR. MINESINGER said he thinks AGIA speaks to the issues. He said
it is a middle ground, particularly with access issues. It
significantly improves the situation, short of banning producer
ownership.
^WILLIAM H. SPARGER: Construction Issues, Economic Certainty and
Financial Risks
2:40:05 PM
WILLIAM H. SPARGER, Principal, Energy Project Consultants, LLC,
Colorado Springs, Colorado, said he has 35 years experience in
natural gas pipelines and has worked in project management, cost
control, engineering, and construction management. He has worked
for two major pipeline companies in the United States. He said
terminology changes with whoever is speaking, so he gave the
following definitions:
· Project: An assumed natural gas pipeline along the southern
route through Alaska into Canada
· Producers: The three existing North Slope oil producers
· North America: United States and Canada only
MR. SPARGER noted the following unfounded "concerns" advanced by
primarily the producers:
· Shippers bear all of the financial risks of the project
cost overruns.
· Producers must have economic certainty.
· Producers are the only ones qualified to construct the
project.
· Schedules with milestone dates drive up the project cost,
so firm dates are bad.
MR. SPARGER said it is simply not true that the shippers bear
all the financial risks of cost overruns. Most new projects have
negotiated rates. The rates are negotiated between the shipper
and the pipeline company. Those rates may be some form of firm
transportation and may take some form of risk sharing, whereby
the pipeline company may take some risk of an overrun and the
shipper may take some. "I think that's what's going to happen
with this project," he stated. He said he doesn't know how that
risk sharing will take place, but it is a certainty that the
shippers will not bear 100 percent of the risk of cost overruns.
2:43:27 PM
CHAIR FRENCH said, "What you're saying is that should the
initial pipeline tariff be estimated at $2.00 and should cost
overruns drive the tariff up to $4.00…that full $4.00 tariff
isn't just automatically passed on to the shipper." It is
possible that a shipper could negotiate a $1.75 tariff in the
first place, and then have some protections from assuming that
cost overrun tariff.
MR. SPARGER said that is true. A multi-billion dollar project in
the Lower 48 (Rockies Express) has negotiated rates. "And those
rates are, in fact, firm, whereby the pipeline bears all of the
risk of cost overruns."
CHAIR FRENCH asked, "100 percent of the overrun risk put on the
pipeline builder?"
2:44:47 PM
MR. SPARGER said yes. He referred to the idea of producers
needing economic certainty. That certainty breaks down into
three areas, and one is supply or upstream, and for this project
the supply side is as certain as it gets. "The gas is there;
they know it's there; they know what the reservoir looks like;
they know within reason how it behaves; and the producers have
much more economic certainty on the supply side than most any
other producers on normal projects." A good example is Rockies
Express where the producers signed FTs without having 500
million per day to turn on-they only think they will by the time
the pipeline is in place. In Alaska's case, about "twice the
volumes that are being talked about is being recirculated as we
speak," he explained. People are talking about a billion cubic
feet a day pipeline and over eight is being recirculated today.
MR. SPARGER said that the negotiated rates will mitigate
midstream cost overrun issues. The market and the downstream is
a normal business risk faced every day. If you look in the
producer's annual reports or their 10-Ks, it is listed as a
business risk. It is a risk assumed all over the world every
day.
2:46:44 PM
SENATOR WIELECHOWSKI asked if he agrees with the producers
repeated statement that the size of this project takes it to a
new level of risk.
MR. SPARGER said no. Pipeline projects are not rocket science;
they are relatively simple from an execution and engineering
standpoint in North America where there are rules that don't
change. He said he won't minimize the magnitude of the project;
however, pipelines are constructed one mile at a time, and the
length makes little difference to the execution. It just needs
more surveys, rights-of-way, contractors and other resources.
The Rockies Express is 1,400 miles long and on an execution-
basis it is not being treated any different than any other
pipeline, he noted. "I would not agree with those statements."
SENATOR THERRIAULT referred to the Rockies Express and the FT
commitments for more gas then is known about, and asked about
paying for unused pipeline capacity and the market for that
capacity.
MR. SPARGER said these companies think they will have that gas,
but they also can sell that reserve space to someone who has the
gas. The FT is a commodity. If they don't use it and there is a
market for it, then someone will take that space.
2:49:22 PM
MR. SPARGER said he has heard testimony saying that schedules
with milestone dates drive up the project cost. AGIA has only
one firm date and that is to go to an open season 36 months
after the license is awarded. All other dates that are asked for
are dates that will develop in proposals. They are not
prescriptive dates. Without a schedule, projects tend to go on
forever. "No project is ever, to my knowledge, started or
executed without a schedule for not just through the FERC
certificate, but from beginning to end." If things drive up
costs, then the schedule is revaluated under a total project
economic analysis. It happens on every large project that at
certain points one must revisit the schedule and adjust it
depending on the economic decisions at the time.
2:51:40 PM
SENATOR THERRIAULT asked if Mr. Sparger has looked at
information that consultants supplied to the previous
administration about large project scheduling. There was some
caution that if a timeline is too rigid "you force things
along…you move from one step to the next step…before you have
everything lined up and you're ready to take that step."
MR. SPARGER said he has seen it and believes it is IPA's paper
presented last year in Centennial Hall. He's seen a course they
put on regarding the same topic. "I think it's being quoted out
of context." He said he thinks the intent was not to say there
shouldn't be a schedule, but that one shouldn't set unrealistic
or arbitrary dates. The dates should be realistic, he stated,
and that is what the cost estimate is based on. The dates should
be open to change as circumstances change, and then an economic
decision is made based on the entire economics of the project.
MR. SPARGER noted other unfounded issues and concerns. It is
false to say that leading-edge technology is required to reduce
project costs. Also, the statement that AGIA requirements for a
detailed project description are premature and costly is not
correct. "I believe, although I can't put any specificity to
this, that the currently proposed schedule may be able to be
shortened." He thinks it is somewhat pessimistic. The proposed
schedule is built on end-to-end dates whereby one step is
finished before the other begins. However, that is not the way
pipeline projects are built-they are overlapped. Procurement
overlaps with the FERC process, for example.
^RICK HARPER: Independent Advisor to the Legislature
2:54:49 PM
CHAIR FRENCH said the committee would next hear from Mr. Harper
who would talk about FT commitments and their affect on a
company's balance sheet as well as other economic issues.
RICK HARPER, Independent Advisor to the Legislature, said he is
working in collaboration with Econ One Research, Inc. He has
been involved in this capacity for two years.
CHAIR FRENCH pointed out that Mr. Harper is not a consultant for
the administration, but for the legislature.
2:55:38 PM
SENATOR THERRIAULT asked Mr. Harper to disclose his relationship
with the Murkowski Administration prior to working for the
legislature.
MR. HARPER said in addition to assisting the legislature over
the better part of the last two years, "during that time I also,
on occasion, advised the Murkowski Administration on matters
related to the proposed gas line contract, specifically with
regard to issues related to capacity release, capacity
brokering, and those types of issues."
MR. HARPER spoke of being involved in the oil and gas industry
for over 34 years and with Alaska gas since 1977. He worked for
Atlantic Richfield for 15 years running its North American
natural gas business operations. He served as president of Arco
Gas and he was retained as an advisor for 10 years after that.
Also he has served as president and chief executive officer of a
Canadian oil and gas exploration and production company. And he
was the senior vice president and officer of a natural gas
pipeline distribution and storage company. He said he has been
involved in his own international oil and gas consulting
business activities for over six years.
2:57:13 PM
MR. HARPER said he has been asked to look at the testimony on
AGIA. His observations will focus on the overall risk of a
pipeline from a commercial transactional standpoint, the nature
of FTs, and how a company evaluates projects. He will put the
term "internal rate of return" (IRR) in perspective. He said he
agrees with Mr. Sparger, substantially, that the Alaska gas
pipeline, unlike many other pipelines, will serve a developed
market with adequate existing downstream infrastructure and will
access known supplies. "The risk of this pipeline from that
perspective is certainly not very substantial." This pipeline
will stimulate unprecedented gas exploration in Alaska. He
believes that many of the estimates have been understated.
Producers have the obligation to develop, market and account to
the lessors. It presumes a reasonable expectation of profit, not
a reasonable certainty. The IRR is always an indicator that is
looked at along with cash flow, return on capital employed, and
net present value. The primary determinate on the producing and
pipeline sides is net present value. He said he and Econ One
Research have reviewed Antony Scott's recent work, and the
methodology is accurate. "With the current world that we live
in, in terms of interstate natural gas pipelines, no commitment
of supplies is required. No commitment of supplies is called
for." In order to support a project, transportation commitments-
generally firm ones-are required. The obligation to make
payments under those commitments, which are called demand
charges, begins when a pipeline is placed in service-normally
when gas flows. Demand charges and FTs are not take-or-pay
commitments and aren't even related, he said. There have been
suggestions and confusion about that. As Mr. Sparger said,
natural gas pipelines are not generally considered high risk
propositions, and traditionally producers have not been involved
in the construction, with some minor exceptions. Producers or
their marketing affiliates, however, do routinely subscribe to
FTs. Producers are not generally the primary FT holder on a
given pipeline. It varies, he said. For a pipeline such as this,
one would expect to see a large participation on the part of the
producers, both to maximize and to protect their interests. He
would expect to see others as well. There might be some
speculative taking of FT capacity here.
3:02:39 PM
MR. HARPER said pipeline transportation costs, whether firm or
interruptible, are generally treated as expenses and not as
debt. It is not only producers, but gas pipelines, distribution
companies, and others that take on these obligations. They are
obligations he said, but they are not treated in that fashion,
at least from an SEC [Securities and Exchange Commission]
earnings perspective. Occasionally consideration is given and
perhaps implemented as a way of amortizing the cost from a tax
standpoint, but that is much different from looking at SEC-type
rate of return calculations. The duty to develop and the duty to
market are essential duties, he said. He has seen pervasively
this pipeline and the taking of FT referred to as risk, and that
is not consistent with his experience. It is an expense that has
to be managed. "But what you're really dealing with is the
opportunity to monetize substantial resources." One would never
contemplate that unless there was a prospect for a reasonable
expectation of profit.
MR. HARPER said the pipeline transportation side is not
generally considered to be a material risk, but it's considered
to be a part of the real opportunity of monetizing resources. He
agrees that FT subscribers do not bear all the risk of project
overruns. They can be shared and mitigated contractually through
negotiated rates. There are also processes through FERC should
the overruns result from a lack of diligence in the project. He
said he has been involved in situations where FERC was asked to
require the pipeline company to absorb the overruns. There are
different ways, "but it is absolutely not a given that FT
subscribers will bear all the risk of project cost overruns."
3:05:49 PM
SENATOR THERRIAULT asked what his duties entailed as president
of Arco Gas.
MR. HARPER said, "We were generally responsible for everything
that happened to the corporation's natural gas once it got to
the wellhead. That included marketing, trading, pipelines,
processing, and you name it." He was also responsible for the
operation of the company's intrastate pipeline company.
SENATOR THERRIAULT said he is trying to figure out if he knows
what he is talking about. He said FTs not being take-or-pay, is
"sort of something that I think we've fallen into here, and it
is my understanding…that the take-or-pay comes from the old
pipeline model where the pipeline took the molecules of gas or
had to pay for them." But this is more use-or-pay, whereby you
either use your capacity or you pay for it. If take-or-pay
really is not the correct terminology, I want to be clear, he
said.
MR. HARPER said take-or-pay is a vestige in the natural gas
industry of a bygone era when pipeline companies purchased all
of the gas from producers in or near the field. Today pipeline
companies are precluded from purchasing natural gas in
interstate commerce and must function solely as transporters.
"Take-or-pay was a concept whereby the pipelines would agree to
take a certain amount of production or pay for it in lieu there
of--not as a penalty but as a cash flow device and had the
opportunity later on to make it up." From the "deregulation" of
the natural gas industry, where interstate pipeline companies
became contract carriers, the ability to ship required a company
to enter into an agreement to acquire space, either on a firm
basis or on a non-firm basis. On a firm basis there are two
components: "you pay a demand charge, which is a charge you pay
whether you move gas or not…it generally covers the fixed cost
portion of the pipeline, and then there's a commodity charge,
which generally covers the variable components of rates." The
payment is made whether the gas is moved or not. But that has
become a commodity in and of itself in the industry. "It's not
something that you are necessarily saddled with." It can have
more or less value than you pay for. The value can oscillate
over time, and people make good livings doing nothing but
managing that activity. It doesn't relate to take-or-pay; it's
just a marketing function and expense that occurs within the
industry and that is how it is generally treated.
3:09:17 PM
SENATOR THERRIAULT asked what happens if he commits to a certain
capacity and then can't fill it, but he doesn't want to sell it
on the open market. "I haven't filled my own capacity…I have to
pay for it even if I'm not utilizing it, but then the pipeline
company is operating a pipe that's not up to its full
potential." How is that addressed?
MR. HARPER said, "As a part of addressing competitive concerns
at the time that the industry went through its transition,
mechanisms were put into place; just like lessees, as Mr. Hosie
said, cannot warehouse oil and gas reserves at the lease level,
you can't warehouse capacity through paying demand charges. If
you're not using your capacity on a given day, the pipeline has
an obligation to make that capacity available to others on an
interruptible basis. You can step back in and exercise your
rights under certain guidelines that are established, but no,
that capacity would not sit idle if there is a need for it or a
demand for it."
SENATOR THERRIAULT asked if the capacity is made available on an
interruptible basis, is the person with the FT commitment
relieved of the obligation to pay for it. "They don't get double
billed?"
MR. HARPER said there are mechanisms for crediting a portion of
what is received by the pipeline.
SENATOR THERRIAULT said he has heard the suggestions that if one
pipeline company had a portion of the pipeline and another had
another portion then they can participate in each other's open
seasons, and "end up with a virtual straw from a to b even
though they don't own it all."
MR. HARPER said that is correct. "Owning the pipeline and
controlling space in the pipeline and another pipeline are
really two distinct issues. And in a situation where you've got
two pipelines which own interlocking segments, I would expect
that each of those pipelines might take positions in the other
vis-à-vis FT. In fact, in the industry, [that] has happened
before."
3:12:09 PM
CHAIR FRENCH said he used to be an oil production operator, and
he didn't know about the legalities of oil production, "but we
did a lot of arithmetic. We were always counting how much money
the industry was making and even though we were getting pretty
well paid, we thought, well, they're making a lot of money too."
If the proposed gas line moves 4.5 bcf/day and gas prices are at
$5.00, would that be $22.5 million a day in revenue?
MR. HARPER said he believes that is correct.
CHAIR FRENCH said if the tariff was $2.00, it would be
subtracted from that revenue, and there would be $13.5 million
per day in revenue.
MR. HARPER said that is correct, and that is referred to as a
net-back calculation.
CHAIR FRENCH said that every 73 days-after paying the tariff-
there would be $1 billion in revenue. "So every couple of months
you're putting $1 billion into the cash register."
MR. HARPER said, "Your math and your concepts appear to be true
to form."
SENATOR THERRIAULT asked if he can speak to the blessings from
the Econ One team regarding the work Antony Scott has done.
MR. HARPER said he is ill-equipped, but he has had contact with
his colleagues at Econ One who did review the methodology that
was used in his calculations. They support the methodology and
the treatment of FT, acknowledging that FT is an important
consideration and not one taken lightly by producers or anyone
else. The fact that it might be treated as an expense doesn't
minimize the obligation itself, "but we think the overall
methodology that was utilized is correct."
SENATOR THERRIAULT asked, "But is it your understanding in the
calculations done by Dr. Finizza or Mr. Scott, that the
obligation to pay for those FTs was calculated; a netback
calculation was done so that's all accounted for in the
calculations?"
MR. HARPER said yes; last year, at the request of the
legislature, Econ One made an attempt to simulate the upstream
and midstream returns on the producer project, and there was no
scenario, including the downside, that was not profitable. He
said BP's presentation had numbers "quite a bit higher than what
has been seen before, but there has been no supporting
documentation provided that would allow a critical review of any
update of those numbers at this time. But as of last year, based
upon Econ One's analysis, there was no scenario that…didn't
suggest that there was a reasonable expectation of profitability
from North Slope natural gas."
3:16:26 PM
SENATOR THERRIAULT said one of the companies told him that it
has been careful to not call FT debt, but it said it was debt-
like. It appears that the FT commitment gives the pipeline
company something to go to the financiers with to get financing,
so it must have value. The company seemed to be pitching that
even though the FT is an obligation to pay in the future as a
monetized resource, "that it was almost as if they had
transferred value-actually paid cash across, and so they want to
be compensated for that." He said it doesn't seem like that can
be done. "Other than taking it into consideration for what the
netback--the profitability of monetizing the resource-is, that
there's any way that they should expect to be compensated or
that it should be calculated in, to drag down the overall
profitability."
MR. HARPER said it shouldn't drag down overall profitability
aside from being a marketing expense. It certainly is an
important decision that has to be made, but one generally does
that when one has substantial opportunity to monetize assets or
to gain market share, and it is usually regarded as a very
positive thing. "Usually there's quite a bit of celebration
associated with acquiring it and the business proposition that
is implied that goes along with it." Chair French's calculation
is exactly the way one takes a look at it when one is talking to
one's board of directors.
SENATOR THERRIAULT expressed disappointment that the TV camera
wasn't present so the testimony could be replayed. He asked for
a transcript to be posted.
3:19:13 PM
CHAIR FRENCH said he too regrets the lack of cameras, and that
is a good idea. He recessed the meeting until 6:00 pm.
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