Legislature(2001 - 2002)

09/19/2001 09:09 AM NGP

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                         ALASKA LEGISLATURE                                                                                   
             JOINT COMMITTEE ON NATURAL GAS PIPELINES                                                                         
                        September 19, 2001                                                                                      
                             9:09 a.m.                                                                                          
SENATE MEMBERS PRESENT                                                                                                        
Senator Torgerson, Chair                                                                                                        
Senator Kelly                                                                                                                   
Senator Olson                                                                                                                   
SENATE MEMBERS ABSENT                                                                                                         
Senator Halford                                                                                                                 
Senator Ellis                                                                                                                   
HOUSE MEMBERS PRESENT                                                                                                         
Representative Green, Vice Chair                                                                                                
Representative Ogan                                                                                                             
Representative Davies                                                                                                           
Representative Porter                                                                                                           
Representative Chenault                                                                                                         
Representative Fate                                                                                                             
OTHER MEMBERS PRESENT                                                                                                         
Representative Lancaster                                                                                                        
Representative Dyson                                                                                                            
Representative McGuire                                                                                                          
COMMITTEE CALENDAR                                                                                                            
Discussion of Producers' Legislation:                                                                                           
Patrick Coughlin, Special Consultant to the                                                                                     
     Senate Resources Committee                                                                                                 
Producers Team:                                                                                                                 
     Mr. Ken Konrad, Senior Vice President                                                                                      
     Business Unit Leader - Alaska Gas                                                                                          
     BP Exploration Alaska Inc.                                                                                                 
     119 Second Street, B                                                                                                       
     Juneau AK 99801                                                                                                            
     Mr. Joseph Marushack, Vice President                                                                                       
     ANS Gas Commercialization                                                                                                  
     Phillips Alaska, Inc.                                                                                                      
     P.O. Box 100360                                                                                                            
     Anchorage AK 99510                                                                                                         
     Mr. Michael Hurley                                                                                                         
     Alaska Gas Producers' Pipeline Team                                                                                        
     No address provided                                                                                                        
Mr. John Ellwood, Vice President                                                                                                
Engineering and Operations                                                                                                      
Foothills Pipe Lines Ltd.                                                                                                       
3100 - 707 Eighth Ave. S.W.                                                                                                     
Calgary Alberta T2P 3W8                                                                                                         
Mr. Curt Feldman                                                                                                                
Representing Foothills Pipe Lines, Ltd.                                                                                         
VanNess Feldman, P.C.                                                                                                           
1050 Thomas Jefferson Street, NW                                                                                                
Washington, DC  20007                                                                                                           
(202) 298-1930                                                                                                                  
Mr. Mark Hanley, Public Affairs Manager                                                                                         
Anadarko Petroleum Corporation                                                                                                  
3201 C Street 603                                                                                                               
Anchorage AK 99503                                                                                                              
Mr. Bill Walker, General Counsel                                                                                                
Alaska Gasline Port Authority                                                                                                   
Walker Walker and Associates                                                                                                    
550 West 7th Ave., Suite 1850                                                                                                   
Anchorage AK 99501                                                                                                              
Public Testimony:                                                                                                               
Mr. Scott Heyworth, Chairman                                                                                                    
Citizens for the All Alaska Gasline to Valdez Initiative                                                                        
P.O. Box 100531                                                                                                                 
Anchorage AK 99510                                                                                                              
Mr. Harold Heinze                                                                                                               
Special Assistant to the Legislative Majority                                                                                   
Alaska State Capitol                                                                                                            
Juneau AK  99811                                                                                                                
Ms. Nan Thompson, Chair                                                                                                         
Regulatory Commission of Alaska                                                                                                 
Department of Community and Economic Development                                                                                
1016 W 6th Ave.                                                                                                                 
Anchorage AK 99501                                                                                                              
Mr. John Katz                                                                                                                   
Director of State/Federal Relations and                                                                                         
  Special Counsel                                                                                                               
Office of the Governor                                                                                                          
444 N. Capitol NW, Suite 336                                                                                                    
Washington DC 20001-1512                                                                                                        
Committee discussion on federal legislation                                                                                     
ACTION NARRATIVE                                                                                                              
TAPE 01-17, SIDE A                                                                                                            
CHAIRMAN TORGERSON called  the Joint Natural Gas Pipelines Committee                                                            
meeting  to order  at 9:09  a.m. He  announced that  the purpose  of                                                            
today's  meeting was discussion  of the  Producers' legislation.  He                                                            
said that  four or  five entities  were working  on legislation  and                                                            
that he wanted to formulate  the Alaska Legislature's position so he                                                            
could  present it  to the U.S.  Energy Natural  Resources  Committee                                                            
meeting, which is scheduled for October 2 in Washington, D.C.                                                                   
He noted that he had a  letter from the Governor with 10 points, but                                                            
he told  the Energy  Committee  that he  would be  writing a  letter                                                            
clarifying  that the  Alaska Legislature  does not  agree with  them                                                            
necessarily, since they hadn't even discussed them yet.                                                                         
MR. PATRICK  COUGHLIN, Special  Consultant  to the Senate  Resources                                                            
Committee, said  he was providing the committee with  an overview of                                                            
the proposed  legislation  circulated  by the  Alaska Gas  Producers                                                            
Pipeline Team,  composed of BP, Phillips  Petroleum and ExxonMobil,                                                             
entitled  "The Alaska  Natural Gas  Pipeline Act  of 2001." He  will                                                            
point out differences  between that Act and "The Alaska  Natural Gas                                                            
Transportation  Act  of 1976."  He said  he would  also reflect  and                                                            
summarize  the comments  they  have  received from  various  parties                                                            
including  Anadarko  on the  proposed legislation.  It  was not  his                                                            
intent to support any of the positions. He explained:                                                                           
     In July  of 2001, the Alaska  Gas Producers Pipeline  Team                                                                 
     circulated  their proposed legislation,  which I'll  refer                                                                 
     to  as their  Proposed  Act.  Its stated  purpose  is  "to                                                                 
     expedite the approval, construction  and initial operation                                                                 
     of…transportation   systems for  the  delivery  of Alaska                                                                  
     Natural  Gas to  the Lower  48 states."  The Proposed  Act                                                                 
     purports to advance this purpose by:                                                                                       
     1.  Relying  on competitive  market  forces  to determine                                                                  
     which transportation  system can be built and  operated in                                                                 
     an economical manner; and                                                                                                  
     2.  Providing for various  measures  designed to expedite                                                                  
     the construction and operation of that line.                                                                               
     The stated  purpose is very similar to the stated  purpose                                                                 
     of  the Alaska  Natural Gas  Transportation  Act of  1976,                                                                 
     which  I'll refer to as ANGTA.  That purpose is stated  as                                                                 
          The  purpose of this chapter is to provide  the means                                                                 
          for  making a sound decision  after the selection  of                                                                 
          a  transportation   system  for  delivery  of Alaska                                                                  
          natural  gas to the Lower  48 states and to expedite                                                                  
          its  construction and operation  by (1) limiting  the                                                                 
          jurisdiction  of the courts to review  the actions of                                                                 
          federal  officers or agencies  taken pursuant to  the                                                                 
          direction  and  authority of  this chapter,  and  (2)                                                                 
          permitting    the   limitation   of   administrative                                                                  
          procedures  and affecting the limitation  of judicial                                                                 
          procedures related to such actions.                                                                                   
     The similarity  between the two acts continues.  They both                                                                 
     contain similar  provisions relating to the creation  of a                                                                 
     new  federal   official  to  direct  and  coordinate   the                                                                 
     permitting   efforts,  expediting   the  permit  approval                                                                  
     process,  limiting  the  agency  discretion  and limiting                                                                  
     judicial review.                                                                                                           
     The next topic that I want  to touch upon is the selection                                                                 
     process that  is contained in the act. The producers  have                                                                 
     said it's  designed to be route neutral and it  allows for                                                                 
     the selection of any project.  In comparison, under ANGTA,                                                                 
     an operator, Foothills,  and a route, the Alcan route, has                                                                 
     been selected through a  lengthy process, which included a                                                                 
     treaty  with Canada, a presidential  finding and decision                                                                  
     and approval by the U.S. Congress.                                                                                         
     Although the  producers' proposed act does not  explicitly                                                                 
     repeal  ANGTA,  the  proposed  act would  begin  anew  the                                                                 
     selection  process of  both an operator  and a route.  The                                                                 
     producers  in their  remarks  say that this  is necessary                                                                  
     because  ANGTA has been a failure  and that a competitive                                                                  
     market should  be allowed to select a system/route  rather                                                                 
     than government.                                                                                                           
     Foothills, on the other  hand, is wary about any assertion                                                                 
     that a  new federal law is necessary.  Foothills believes                                                                  
     that an Alcan  route can be built quickly and  efficiently                                                                 
     under the  ANGTA without any statutory changes.  Foothills                                                                 
     is concerned about statements  that a new law is necessary                                                                 
     because  it  is possible  a law  will  not pass.  If  that                                                                 
     becomes  the case,  then the  viability of  the ANGTA  has                                                                 
     been called into question.                                                                                                 
     Continuing on to the neutrality  principle, the producers'                                                                 
     legislation   is route  neutral.   It  would  authorize  a                                                                 
     variety   of  routes.  It  would  clearly  authorize   the                                                                 
     proposed over-the-top  route and would call into  question                                                                 
     the constitutionality in  SB 164 that banned the over-the-                                                                 
     top route that the legislature passed last session.                                                                        
     On the issue  of owner neutrality, the producers  say that                                                                 
     the  act is available  to any party  including Foothills.                                                                  
     What it  does do that ANGTA did  not do originally was  to                                                                 
     allow the producers, themselves,  to be the only owners of                                                                 
     the transportation system.                                                                                                 
     Initially, under ANGTA,  the producers were not allowed to                                                                 
     have  any  ownership   interests  because  of  anti-trust                                                                  
     concerns.  Later, in  1981, ANGTA was  modified through  a                                                                 
     waiver  of law  that allowed  the producers  to have  some                                                                 
     ownership  interest.  However,  I should  note  that  when                                                                 
     President  Regean forwarded  that waiver  to Congress  for                                                                 
     its approval,  it contained explicit  conditions that  the                                                                 
     Federal Energy Regulatory  Commission, which is the agency                                                                 
     that  is back in Washington,  D.C. that  deals with  these                                                                 
     issues,  which I'll  call FERC,  had to  make an explicit                                                                  
     finding after consultation  with the Attorney General that                                                                 
     the  participation  of the owners  in the  line would  not                                                                 
     raise  an anti-trust  problem. FERC had  to make a second                                                                  
     finding that in and of itself  the participation would not                                                                 
     cause  concerns by non-owners  who wanted  to ship on  the                                                                 
     line, that  they would not get [indisc.] and there  had to                                                                 
     be a finding regarding capacity  and expansion. So, that's                                                                 
     a significant difference.                                                                                                  
     Both   Foothills   and   other  commentators,   including                                                                  
     Anadarko,  have expressed some concerns that the  proposed                                                                 
     act  eliminates  competitive   market  forces  by placing                                                                  
     market  power in the hands of  the producers and allowing                                                                  
     them to control  when and how a pipeline can be  built. In                                                                 
     addition, Foothills asserts  that ANGTA is consistent with                                                                 
     the   market-based  approach,   because   it  allows   the                                                                 
     commercial  negotiations between the producers  of the gas                                                                 
     and the pipeline  owners for tariff terms and  conditions.                                                                 
     The next  topic I would like  to address in this overview                                                                  
     is  instate access to  gas. Unlike  ANGTA, the Producers'                                                                  
     proposed act  makes no mention of in-state access  to gas.                                                                 
     Section 13(b) of ANGTA, however, explicitly states:                                                                        
          The  State  of  Alaska  is  authorized  to  ship  its                                                                 
          royalty  gas on  the approved  transportation system                                                                  
          for   use  within  Alaska  and,  to  the  extent   it                                                                 
          contracts  for the sale  of royalty gas, to withdraw                                                                  
          such  gas from the interstate  market for use within                                                                  
          Alaska.  The FERC (the former  FERC) shall issue  all                                                                 
          authorizations    necessary   to   effectuate    such                                                                 
          shipment and withdrawal….                                                                                             
MR. COUGHLIN  said the proposed act  has no similar provision.                                                                  
The  producers  proposed  legislation  would  have significant                                                                  
benefits for them in terms of reducing  uncertainty and risk in                                                                 
building "this very  expensive pipeline." Some of these  issues                                                                 
relate to  the withdrawn  partners, whether  or not there's  an                                                                 
obligation  to construct  a Dempster  Lateral,  whether or  not                                                                 
ANGTA has the  ability to be modernized  and how the tariff  is                                                                 
determined.   They  believe  that   their  proposed  act   will                                                                 
eliminate  some of those  risks or reduce  them. Foothills,  on                                                                 
the other  hand, has responses  to most, if  not all, of  those                                                                 
MR. COUGHLIN compared the proposed bill section by section:                                                                     
     Section 1 is simply the title.                                                                                             
     Section  2  sets forth  the  congressional  findings  that                                                                 
     justify  the proposed  act.  The Findings  (1)  - (6)  are                                                                 
     uncontroversial and are  setting forth the need for gas in                                                                 
     the  Lower 48 and a  short history of  ANGTA. Finding  (6)                                                                 
     states  that despite  the passage of  more than 20 years,                                                                  
     the parties  seeking to develop the Alaska portion  of the                                                                 
     ANGTA  project have  been unable to  obtain the necessary                                                                  
     regulatory   approvals   or  to  attract   the  necessary                                                                  
     financing. This finding  leads the producers to claim that                                                                 
     the ANGTA effort is a "failure."                                                                                           
     Others,  in  their  comments  to  us,  have  claimed  that                                                                 
     Finding (6)  is misleading because Foothills has  obtained                                                                 
     many authorizations  and financing  could not be obtained                                                                  
     primarily  because the producers were unwilling  to commit                                                                 
     their reserves to the project  due to market conditions in                                                                 
     the Lower 48.                                                                                                              
     Finding  (7) states that because  of the passage of  time,                                                                 
     some  of  the design  features  of the  ANGTA  system  are                                                                 
     outdated  and  would have  to be  modified.  Although  the                                                                 
     statement  is true,  it implies that  these modifications                                                                  
     cannot  be obtained under ANGTA.  Foothills has submitted                                                                  
     numerous  briefing materials  that such modifications  can                                                                 
     be obtained with the design framework of ANGTA.                                                                            
     Finding  (8)  states  that  because  of a  change  in  the                                                                 
     nation's  energy supply situation,  interest in an Alaska                                                                  
     project  has been renewed.  This finding,  as well as  the                                                                 
     entire  proposed act has been  criticized for ignoring  an                                                                 
     LNG  option.   The  Port  Authority   has  presented   the                                                                 
     committee  with a  draft bill  in our  Fairbanks meeting,                                                                  
     which incorporated an LNG option.                                                                                          
     Findings  (9) and  (10) suggest  that in  order to assess                                                                  
     economic  certainty,  one must  know whether  permits  and                                                                 
     environmental   assessments   can  be   timely  obtained.                                                                  
     Foothills  asserts that  these findings  ignore the  ANGTA                                                                 
     provisions  regarding  expedited   permitting,  limits  on                                                                 
     agency  discretion and  limits on judicial  review,  which                                                                 
      provide more certainty than any other federal statute.                                                                    
     Section 3 is the congressional  statement of purpose which                                                                 
     I have  already gone  over. Again, the  purpose under  the                                                                 
     Producers' proposed legislation  and under ANGTA appear to                                                                 
     be quite similar.                                                                                                          
     Section  4  is a  definitional  section  and most  of  the                                                                 
     definitions  are  not controversial,  but  a few  are.  In                                                                 
     particular,  it's 5, 6, and 7, which deal with  Alaska gas                                                                 
     being  transported  to  Lower 48  markets  and addressing                                                                  
     facilities  to be  built in  Alaska and  Lower 48 states.                                                                  
     These  provisions  do  not address  Canadian  facilities.                                                                  
     Foothills notes ANGTA, through  the treaty with Canada and                                                                 
     an   agreement   with  Canada,   does   address  Canadian                                                                  
     facilities.  Foothills  suggests  that  the  proposed  act                                                                 
     could   create   confusion   and   significant   lack   of                                                                 
     coordination  between the two countries on regulatory  and                                                                 
     commercial issues. Additionally,  other commentators again                                                                 
     noted that the definitions  excluded an LNG option through                                                                 
     Section  5  is the  section  dealing  with  the expedited                                                                  
     approval  process. Section  5(a) adds  new definitions  to                                                                 
     the Natural  Gas Act, that is the Act that normally  under                                                                 
     federal   law  governs  construction   of  operations   of                                                                 
     pipelines,  which is administered by FERC. Again,  most of                                                                 
     those definitions are non-controversial.                                                                                   
     Section  5(b) amends the Natural  Gas Act to provide  that                                                                 
     FERC shall  issue a Certificate of Public Convenience  and                                                                 
     Necessity  to a firm to construct  and operate the Alaska                                                                  
     portion  of a pipeline if three  conditions are met.  They                                                                 
        · FERC determines that the applicant has contracted                                                                     
          with a "shipper" to transport Alaska natural gas to                                                                   
          Lower 48 markets;                                                                                                     
        · FERC determines that rates, terms and conditions                                                                      
          for transportation service can be established under                                                                   
          the Natural Gas Act; and                                                                                              
        · FERC determines that the terms and conditions for                                                                     
          compliance with all applicable environmental laws                                                                     
          can be established in accordance with the Natural                                                                     
          Gas Act.                                                                                                              
     To help expedite  the process, Section 5(b) requires  that                                                                 
     the   FERC  makes   these  determinations   and  issue   a                                                                 
     certificate  within  18  months  after the  filing  of  an                                                                 
     application.  Section 5(b) also adds a new section  to the                                                                 
     Natural   Gas  Act  authorizing   the  FERC  to  issue   a                                                                 
     certificate  to  transport Alaska  gas from  the Canadian                                                                  
     border  to the  Lower 48 through  normal  Natural Gas  Act                                                                 
     (NGA) procedures.                                                                                                          
     The  Department  of  Law's  outside  counsel,  Morrison  &                                                                 
     Foerster (MoFo), and Foothills  have suggested that upon a                                                                 
     finding  that  these three  conditions  exist,  FERC  must                                                                 
     issue a certificate.  MoFo has suggested that  FERC has no                                                                 
     other   discretion.  Along  the   same  lines,  Foothills                                                                  
     suggests that  the proposed act would eliminate  the NGA's                                                                 
     requirement   that   an  applicant   demonstrate  "public                                                                  
     convenience and necessity."                                                                                                
     As I  stated, the  first condition is  that the applicant                                                                  
     has to  show that it's contracted  with a shipper and  has                                                                 
     raised  some concerns  with producers  whose summary  says                                                                 
     that  a shipper  is "anyone  who,  through a  contract  or                                                                 
     otherwise,  controls Alaska natural gas." MoFo  and others                                                                 
     have suggested  that this requirement gives the  producers                                                                 
     a  significant leg  up on  any other  potential applicant                                                                  
     because they already control  the gas. Foothills and other                                                                 
     commentators  believe that giving  the producers too  much                                                                 
     control  raises  antitrust concerns.  The  producers  have                                                                 
     disagreed  on that point. They suggest that a  shipper can                                                                 
     be  anyone and  as  long as  you have  a contract  with  a                                                                 
     shipper,  you can be an applicant.  This may be something                                                                  
     that you wish to clarify today.                                                                                            
     Foothills  also  contends that  the "can  be established"                                                                  
     language is designed to  allow the applicant under the new                                                                 
     law to catch up with the  ANGTA applicants. Under the NGA,                                                                 
     Foothills  says  that  rates,  terms  and  conditions  are                                                                 
     reviewed to  insure that public convenience and  necessity                                                                 
     standard is satisfied before,  not after, a certificate is                                                                 
9:36 a.m.                                                                                                                     
     Section 6 deals with environmental  reviews and requires a                                                                 
     single  EIS for  what the  producers define  as a segment                                                                  
     from  Alaska to Alberta  and a single  EIS for Alberta  to                                                                 
     the  Lower 48.  In other  words,  there are  two separate                                                                  
     EIS's  required and the producers  believe that this  is a                                                                 
     more  efficient   way  to  deal  with  the  environmental                                                                  
     statement issue.                                                                                                           
     Section 6 designated the  FERC as lead agency and provides                                                                 
     that  an EIS  shall be  prepared  in accordance  with  the                                                                 
     FERC's regulations and procedures.  It further states that                                                                 
     such  an  EIS shall  satisfy  the National  Environmental                                                                  
     Policy Act  (NEPA) obligations and that the scope  of this                                                                 
     EIS shall  be limited to the scope of the application.  It                                                                 
     requires   that  the  preparation  of  an  EIS  shall   be                                                                 
     expedited  and the draft shall be issued within  12 months                                                                 
     after filing and the final  EIS shall be issued within six                                                                 
     months thereafter absent good cause.                                                                                       
     Foothills and others assert  that Section 6 in combination                                                                 
     with  the  mandatory  provisions   of  Section  5  can  be                                                                 
     interpreted  to eliminated NEPA's requirement  to evaluate                                                                 
     alternative   routes  and  to eliminate   the  "no action                                                                  
     alternative   before  issuing   a  certificate.  Further,                                                                  
     Foothills argues that the  FERC could be required to issue                                                                 
     a certificate for an over-the-top  route even though there                                                                 
     are more environmentally accessible alternatives.                                                                          
     Finally, Foothills notes  that two EISs and a supplemental                                                                 
     EIS  has already  been  prepared  for the  ANGTA project.                                                                  
     These reviews  were prepared and concluded after  numerous                                                                 
     opportunities  for  public review  and  comment. Congress                                                                  
     found that those EISs satisfied NEPA.                                                                                      
     Section  7 creates  the  Office  of the  Federal Pipeline                                                                  
     Director  within  the executive  branch. The  director  is                                                                 
     responsible  for making sure the project is expedited  and                                                                 
      for coordinating between the various federal agencies.                                                                    
     Section  7 basically  duplicates the  provisions of  ANGTA                                                                 
     that  created the Office  of the Federal  Inspector.  That                                                                 
     position was later abolished  by Congress in 1992, but the                                                                 
     functions  were transferred  to the  Secretary of Energy,                                                                  
     which presumably still has that power today.                                                                               
     Section  8 deals  with  agency  review and  decisions.  It                                                                 
     requires  that all actions  taken by  federal agencies  be                                                                 
     expedited  and  that  actions  be  coordinated  under  the                                                                 
     direction  of the  director. Any  necessary authorization                                                                  
     may include  terms and conditions permitted by  law unless                                                                 
     the  director  determines   that  they  would  impair  the                                                                 
     expeditious   construction   and  initial   operation   to                                                                 
     transport  Alaska gas  to market. Section  8 is basically                                                                  
     the same as Section 9(a) of the ANGTA.                                                                                     
9:38:50 a.m.                                                                                                                  
     Section 9  - Judicial Review - limits review of  a federal                                                                 
     agency's action in connection  with the Alaska Gas Project                                                                 
     claims  that the action violated  the Constitution or  was                                                                 
     in excess of statutory authority.  It also limits the time                                                                 
     within  which an action  can be brought.  Claims that  the                                                                 
     agency's   actions  were  arbitrary  and  capricious   are                                                                 
     precluded.  Section 9 requires that all claims  be brought                                                                 
     exclusively in the District  of Columbia Circuit Court and                                                                 
     that the court treat all  claims as a matter for expedited                                                                 
     consideration.   Section  9 of  the  proposed  act limits                                                                  
     judicial review, similar to Section 10 of ANGTA.                                                                           
     Finally, Section 10 - Separability  - provides that if any                                                                 
     provision  of the proposed act  is invalid, the remainder                                                                  
     of it is unaffected. This  is similar to Section 16 of the                                                                 
9:40 a.m.                                                                                                                     
REPRESENTATIVE  OGAN said  page 2  of Mr. Coughlin's  overview  says                                                            
that the proposed  act would allow  an over-the-top route  and would                                                            
call into  question the constitutionality  of  SB 164 that  bans the                                                            
over-the-top  route as  violating  the federal  commerce clause.  He                                                            
asked if the Producers'  proposal is passed into federal  law, would                                                            
that  supercede  our  state  law and,  "they  could  build  a  route                                                            
wherever they want."                                                                                                            
MR. COUGHLIN  answered  that concerns  were raised  when the  Alaska                                                            
legislature  passed SB 164 and this,  "in essence puts into  federal                                                            
law the  authority to construct  such a route  and thereby  agreeing                                                            
with you, yes it would supercede state law."                                                                                    
CHAIRMAN  TORGERSON said,  "It was our  legislative legal's  opinion                                                            
that SB 164 was constitutional  because ANGTA was in place, which in                                                            
effect selected  a route that  ran south and  I think he went  on to                                                            
say that without  that, we're stepping  on commerce clause  problems                                                            
and that  we would  be  forbidding interstate  trade.  But with  the                                                            
over-the-top route  authorized, it would make our  language null and                                                            
REPRESENTATIVE  OGAN asked if he thought this would  be a subject of                                                            
litigation or would it automatically supercede our state law.                                                                   
MR. COUGHLIN  replied that  even though he  is a lawyer, he  thought                                                            
the Attorney  General could  better answer  that question.  He said,                                                            
"It clearly  goes further  in weakening the  state's position  on SB
164. There's no doubt about that."                                                                                              
CHAIRMAN  TORGERSON  said that  was the  most effective  way at  the                                                            
time, but the state has  two or three other options that are just as                                                            
REPRESENTATIVE  GREEN asked, in reference to Sections  6 - 8, if Mr.                                                            
Coughlin thought  that the existing  EIS could be modified  slightly                                                            
to cover the [indisc.]  route as opposed to a full  EIS. He said the                                                            
Producers are  talking about a one  year expedited EIS with  maybe a                                                            
six-month  EIS following  that and  asked if Mr.  Coughlin had  ever                                                            
seen an EIS of this magnitude expedited in such a short time.                                                                   
MR. COUGHLIN  replied that he hadn't,  but if this special  piece of                                                            
legislation passes, it  mandates that to happen. "I think that's one                                                            
of the things that the producers clearly want."                                                                                 
In answer to the first question, MR. COUGHLIN said:                                                                             
     I think that Foothills has done a very detailed analysis                                                                   
         of that issue and they believe that the President                                                                      
     provided  that when the EIS was  approved that no further                                                                  
     EIS would  be necessary, but there would be site  specific                                                                 
     review  and the President  in ANGTA  specifically allowed                                                                  
     for that.  So, if new or different environmental  concerns                                                                 
     came up,  that's how they would  be dealt with under  that                                                                 
REPRESENTATIVE DAVIES said:                                                                                                     
     The flip  side of the route neutral  question is the  fact                                                                 
     that  the  benefits   of  an  expedited  review   are  not                                                                 
     conferred  in a tidewater approach. Is that a  fair way to                                                                 
     state  that? Can  you amplify  on that a  little bit?  And                                                                 
     there seems  to be a little bit of ambiguity about  what's                                                                 
     meant by the  Canadian border in some of the discussions.                                                                  
     It's  probably   just  sloppy  drafting,  but  there   are                                                                 
     references  to the Alaska  to Alberta  section and things                                                                  
     like that, which - that  might include the Mackenzie River                                                                 
     Valley,  for example.  Do you  have any  comment on  those                                                                 
MR. COUGHLIN responded:                                                                                                         
     It's my  reading of the act and  others, particularly  YPC                                                                 
     who  is of course  directly interested  in that, that  the                                                                 
     definitions  exclude a route  such as they would propose,                                                                  
     because  it explicitly appears  to be to carry gas to  the                                                                 
     Lower 48 markets. If they  were going to a foreign market,                                                                 
     that  would not be  included within  the definitions  and,                                                                 
     second, it talks about an over-land pipeline route.                                                                        
     I  will tell  you frankly,  that [Canadian  border] was  a                                                                 
     little  bit unclear to  me and I think  you might talk  to                                                                 
     the producers about what  their intent was. But, it looked                                                                 
     to me  like when they were focused  on the one part  about                                                                 
     the   authority  of   what  the  United   States  federal                                                                  
     government  would do,  they broke it  into Prudhoe to  the                                                                 
     Canadian  border and  then from the  Canadian border to  a                                                                 
     final  destination market in  the Lower 48, but then  they                                                                 
     recognize  that an EIS would  have to be prepared for  the                                                                 
     entire route  and that's how I understood it,  but I can't                                                                 
     say that's exactly what they meant.                                                                                        
9:47 - 9:53 a.m. - BREAK                                                                                                      
CHAIRMAN  TORGERSON  announced  that Mr.  Ken  Konrad,  BP; Mr.  Joe                                                            
Marushack,  Phillips; and  Mr. Robbie Schilhab,  ExxonMobil  [of the                                                            
Producers'  Team] would testify next.  He said that the information                                                             
they had received from them was basically their overview and                                                                    
sectional analysis that they had presented in Fairbanks.                                                                        
MR. JOE MARUSHACK offered to review four or five summary slides and                                                             
then they could go through and answer questions. His review was as                                                              
     You  may need a little  background on  why we headed  down                                                                 
     this path  of enabling legislation to start out  with. The                                                                 
     project that we're working  on right now has some economic                                                                 
     hurdles  and economic  hurdles  are highly  influenced  by                                                                 
     risk.  To the  extent  that we  can  reduce risk  in  this                                                                 
     project,  one can accept  the hurdle  ranks that are  less                                                                 
     than you would  have to accept if there was a  lot of risk                                                                 
     in that. So that's really  what we're focusing on with our                                                                 
     enabling   legislation  here.  We're  reducing   risk  and                                                                 
      increasing our ability to develop an economic project.                                                                    
     One  of the key  risks we  have had associated  with  this                                                                 
     project right now is cost  numbers sitting out there. They                                                                 
     have  been  out there  for some  period  of time.  We  are                                                                 
     trying  to  assess those  costs'  risk  by trying  to  use                                                                 
     technology  to reduce the cost to the extent that  we can.                                                                 
     And, also, what we're trying  to do with cost risk is look                                                                 
     at  how can we  eliminate  timing problems  and that  gets                                                                 
     into the enabling legislation.                                                                                             
     Price volatility  - that's a situation of the  market that                                                                 
     we're  living in. There  is really no  surprise in what's                                                                  
     happening in the market  in terms of last year, this year,                                                                 
     what's  going  to  happen  in the  future.  We  are  price                                                                 
     takers. We don't make the  market; we take the prices that                                                                 
     are  out  there.  Ten  dollars  last  year  was  a market                                                                  
     phenomena;  $2.46 right  now is a  market phenomena;  it's                                                                 
     been up and  down and it will continue to be up  and down.                                                                 
     So, we've  got to have a project  that weathers all  these                                                                 
     storms and that's what we're focusing on there.                                                                            
     Fiscal risks - a number  of things we're addressing there.                                                                 
     One  thing we're trying  to do is work  with the state  on                                                                 
     assessing  what is  the actual  fiscal - how  can we  just                                                                 
     know what  the rules are in the  State of Alaska and  live                                                                 
     with  those rules  whatever  they are.  We are  trying  to                                                                 
     finalize what those things are.                                                                                            
     Regulatory  risks - [Indisc.]  We're spending around  $100                                                                 
     million  on this project this  year. It's an unsanctioned                                                                  
     project  [indisc.].  As we go  through this  process,  you                                                                 
     cannot continue  to spend this kind of money and  not know                                                                 
     what the timing  is, what permitting process you're  going                                                                 
     to  be working  under. So,  this enabling  legislation  is                                                                 
     really  design  to  put  some  parameters   and  put  some                                                                 
     certainty around the regulatory risk.                                                                                      
     The  big point  is that we're  here today  to discuss  and                                                                 
     answer questions on any new legislation for you.                                                                           
     The next slide  - what it does - and Patrick Coughlin  hit                                                                 
     on a number  of these things.  It creates a market driven                                                                  
     expedited  regulatory   process  for  any viable  project                                                                  
     subject  to FERC regulations,  fair and reasonable terms,                                                                  
     open access, just like many  pipelines that are out there.                                                                 
     There's  nothing special in that  regard. It's subject  to                                                                 
     all environmental  laws and regulations  and in 18 months                                                                  
     an EIS completion.                                                                                                         
     Now on this, a couple of  points to make. We believe it is                                                                 
     extremely  important  that this  project be  managed by  a                                                                 
     market  driven process. Again,  what market driven really                                                                  
     means  - the only  reason the producers  came together  on                                                                 
     this  project in  my mind is  to try and  find the lowest                                                                  
     cost way of getting gas  to market. Historically, we don't                                                                 
     own a lot of pipelines.  It's not what we choose to do. In                                                                 
     this  case,  we've  come  together   to  assess  what  the                                                                 
     pipeline  costs  would  be so  we can  really  manage  the                                                                 
     tariff costs. What we want  is a low cost tariff and a low                                                                 
     cost  project that  competes  with other  projects in  the                                                                 
     Lower 48.                                                                                                                  
     The  FERC  regulatory  - fair  and  reasonable  terms  and                                                                 
     conditions.  Obviously, with  FERC managing [indisc.],  we                                                                 
     believe there  are requirements that those things  be met.                                                                 
     This is  not an attempt to put  unreasonable unfair  terms                                                                 
     and conditions.  In fact, at the end of the day,  it's not                                                                 
     certain who will own this  pipeline. The only reason we're                                                                 
     working  on this right  now is to try  and make sure  that                                                                 
     the cost is  as low and the tariff is as low and  economic                                                                 
     as possible.                                                                                                               
     We do  believe, however, that  a new EIS is a good thing.                                                                  
     We think that will limit  the amount of regulatory reviews                                                                 
     and  we have no fear  that we can do  this in an 18  month                                                                 
     period  with the enabling legislation.  It certainly  is a                                                                 
     challenge. The whole project  is a challenge. A new EIS is                                                                 
     a good  thing; it's  not something we  think should be  of                                                                 
     concern to people.                                                                                                         
     As Patrick  indicated, this proposed  legislation creates                                                                  
     an Office  of Federal Pipeline  Director in the executive                                                                  
     branch.  The whole point there  is to have a single  point                                                                 
     of contact to coordinate  and make this project as certain                                                                 
     and as coordinated as possible.                                                                                            
     Timing  the  judicial  review is  in  there and  we  think                                                                 
     that's a good  thing. There will be many challenges.  It's                                                                 
     not our  intent to limit challenges,  but it is an intent                                                                  
     to save. There  are challenges and let's get through  them                                                                 
     as quickly as possible.                                                                                                    
     Finally, the  last point mitigates regulatory  uncertainty                                                                 
     risk  provisions   relevant  to  any  project.  [Indisc.]                                                                  
     Patrick  said this  would only  provide  ownership to  the                                                                 
     producers  and  that  is  not  true.  Any  party  in  this                                                                 
     legislation  can build  a pipeline. It  is true, however,                                                                  
     that  any  party  is  going  to  have  to  have  shipping                                                                  
     commitments  and you're  going  to have  to have shipping                                                                  
     commitments with the producers one way or another.                                                                         
     This  is an overview  of what  we have  in here. However,                                                                  
     none of this is locked in  stone. We are trying to come up                                                                 
     with  a process  that works well  and works  well for  all                                                                 
     parties. If  there's changes to be made, we're  willing to                                                                 
     consider them and implement those things.                                                                                  
     There  is not [indisc.] the north  route. We're not  going                                                                 
     to pick  something the State  of Alaska does not want.  At                                                                 
     the end  of the day, this was  never an attempt to find  a                                                                 
     way of mandating  north. We continue to be route  neutral.                                                                 
     We do not  know enough information to give you  a route at                                                                 
     this point in time on an economical project.                                                                               
TAPE 01-17, SIDE B                                                                                                            
10:10 a.m.                                                                                                                    
MR. KEN KONRAD, BP Alaska, said he wanted to spend a few moments                                                                
talking about what the legislation doesn't do:                                                                                  
     The  first thing is  that this enabling  legislation  does                                                                 
     not affect  existing provisions or rights and  obligations                                                                 
     of ANGTA.  It doesn't change the companion legislation  in                                                                 
     Canada; it does not change  the treaty with Canada. If the                                                                 
     project  sponsor under  ANGTA  can somehow  make that  old                                                                 
     legislation   and  that  old   project  work  on  a   cost                                                                 
     competitive  basis, that's a good thing. That's  something                                                                 
     we  support. So,  nothing  in this  legislation precludes                                                                  
     that project  from going forward - if they can  manage all                                                                 
     their  issues and come up with  a competitive project.  We                                                                 
     have encouraged the Foothills groups to do just that.                                                                      
     We are  not wed to  own a pipeline;  we're wed to getting                                                                  
     gas to  market as cost effectively  as possible, which,  I                                                                 
     think,  maps  very  directly   in terms   of the  state's                                                                  
     interests as well.                                                                                                         
     It  does  not  apply only  to  producers  and  it doesn't                                                                  
     actually  increase producer  control.  I think there  have                                                                 
     been a number  of comments that one of the three  criteria                                                                 
     that's  set  out  in the  legislation  requires  shipping                                                                  
     commitments,   requires   new  environmental   standards,                                                                  
     requires that it meets fair  terms and conditions per FERC                                                                 
     - those things  are required for any project.  Any project                                                                 
     that  goes ahead requires  shipping  commitments; that  is                                                                 
     not unique;  that is not special.  An ANGTA project  would                                                                 
     require   shipping  commitments   to  gain  financing.   A                                                                 
     producer   project  would  require  that;  a  third-party                                                                  
     project  would require  that. That  is not  unique or  new                                                                 
     and, indeed, anyone can  be a shipper. The State of Alaska                                                                 
     could  be a shipper;  a gas marketing  company could be  a                                                                 
     shipper.  Again,  it is  available  to any  project.  It's                                                                 
     probably worth  noting the word 'producer' never  actually                                                                 
     shows  up in  the legislation.  So, it  is actually  quite                                                                 
     It  doesn't seek  relief from  any  current environmental                                                                  
     requirements.  It says the project must meet all  existing                                                                 
     modern  day  environmental  requirements.   What  it  does                                                                 
     limit,   in  terms  of  trying   to  go  beyond  existing                                                                  
     environmental  requirements, in terms of judicial  review,                                                                 
     does  not predetermine  a route  or project.  It does  not                                                                 
     predetermine  a  project  sponsor.  That has  caused  some                                                                 
     clear  concerns in Alaska, but  as Joe said, and as  we've                                                                 
     said repeatedly  over the past  quite a while, at the  end                                                                 
     of the  day the producers  are not going  to do a project                                                                  
     that  Alaska does  not want.  It really should  not be  an                                                                 
     issue. And to the extent  we want to enshrine that in some                                                                 
     way, that  can be done, but I don't think anyone  has ever                                                                 
     thought that a project would  go ahead that Alaska doesn't                                                                 
     want.  Nor do we think that a  project will go ahead  that                                                                 
     Canada doesn't  want; nor do we think that a project  will                                                                 
     go ahead  that people  in Washington  D.C. don't want.  We                                                                 
     need to build  a pipeline all 3,500 miles, we  need to get                                                                 
     gas all the way to market.  If there's a 100-mile gap or a                                                                 
     1,000-mile  gap somewhere along  the way, it's simply  not                                                                 
     going to happen and that's the reality.                                                                                    
     There's  been  some questions  raised  about  the state's                                                                  
     ability   to  market  gas  and  certainly  this  enabling                                                                  
     legislation  does not limit the state's ability  to market                                                                 
     its royalty gas. The old  provisions that were part of the                                                                 
     old  ANGTA legislation  were needed back  then because  we                                                                 
     were  living  in  a different  regulatory   environment  -                                                                 
     bundled   services,  a  regulated   environment.  Special                                                                  
     provisions  needed to  be made to carve  that out. That's                                                                  
     not  necessary   today  in  today's   world.  Under   this                                                                 
     legislation  certainly, Alaska  would be agreed to either                                                                  
     to  take its  gas in kind  or take  its gas  in value  and                                                                 
     we've  certainly  talked  to  this  committee  about  that                                                                 
10:05:54 a.m.                                                                                                                 
MR. KONRAD continued his testimony:                                                                                             
     Another  question they have heard  is why not just revise                                                                  
     ANGTA  that  was  there  25 years  ago?  And  isn't  there                                                                 
     something  we  could  do  to dust  off  this  25-year  old                                                                 
     project   to  make  it  right  for   today's  21-Century                                                                   
     environment?  As we  said earlier,  this legislation  does                                                                 
     not preclude a project proceeding  under ANGTA if they can                                                                 
     resolve all  of their issues. Back then it was  focused on                                                                 
     the then  competing projects.  The legislation was put  in                                                                 
     place around the regulatory  environment that was there at                                                                 
     that  time and  what was  going on  at that  time. But  it                                                                 
     doesn't actually provide for a competitive framework.                                                                      
     A competitive  framework encourages  multiple projects  to                                                                 
     come  forward  and  the most  cost  effective  project  to                                                                 
     proceed.   And,  again,  that's  certainly  in   the  best                                                                 
     interests  of Alaska and certainly  in the best interests                                                                  
     of producers.  It's probably not in the best interests  of                                                                 
     folks  that  are seeking  to  limit  the  competition.  It                                                                 
     doesn't  really have a  process in it  for new lower  cost                                                                 
     applications   either  through  other  companies,   be  it                                                                 
     Williams,  Duke,  Enron, producers,  whatever.  It didn't                                                                  
     have  a process for  that and it also  had quite specific                                                                  
     technical  specifications attached to it. Again,  we would                                                                 
     expect  that if a  project did proceed  under ANGTA,  that                                                                 
     they would update it to  modern day technology, but what's                                                                 
     in the  actual legislation is  quite specific in terms  of                                                                 
     pipeline design  and pressure design. I would  expect that                                                                 
     could  be changed,  but the way  it sits  now it is  quite                                                                 
     specific. I know the ANGTA  project sponsors are certainly                                                                 
     looking at coming up with  a more modern design that would                                                                 
     be much more cost effective than the old design.                                                                           
     Another  thing we  touched on  before is  that the market                                                                  
     structure is fundamentally  different than it was 25 years                                                                 
     ago. Back  then we were in regulated markets and  the cost                                                                 
     of a pipeline was really  on the back of consumers. Prices                                                                 
     were regulated.  People were  told where gas would go  and                                                                 
     under  what  pricing  and a  large portion  of  the  ANGTA                                                                 
     legislation  is  actually built  around  addressing  those                                                                 
     Current markets are deregulated  and the risks in terms of                                                                 
     where gas goes, as Joe said,  we're price takers not price                                                                 
     makers.  Gas will flow freely  through the North American                                                                  
     grid and  it's very much deregulated  and the risk of  the                                                                 
     project  has  shifted  from consumers  to  investors  -  a                                                                 
     fundamentally different  framework. That is kind of a high                                                                 
     level snapshot  of where we are. What we really  wanted to                                                                 
     do today  was just sit  down and talk  to you, answer  any                                                                 
     and all questions possible  and see what suggestions might                                                                 
     be  around  to  improve  it...We  do  want  some  sort  of                                                                 
     enabling   legislation   that  is  competitive,   sets   a                                                                 
     framework  for  investors  to move  forward in  a certain                                                                  
     fashion,  but it's  not cast  in stone,  but we certainly                                                                  
     need  to make  sure it  addresses  the needs  just not  of                                                                 
     investors, but also of stakeholders.                                                                                       
CHAIRMAN TORGERSON  said he wanted  to focus on his thoughts  on the                                                            
competitive  framework and that he  didn't think it allowed  a route                                                            
different from the Alcan.  He asked if that's why he is saying ANGTA                                                            
isn't competitive.                                                                                                              
MR. KONRAD answered, "No,  it doesn't have provisions for a pipeline                                                            
sponsored  by producers…whoever  comes  up with the  best idea,  the                                                            
most innovation  that we all  know is going  to be necessary  to get                                                            
the economics where they need to be."                                                                                           
CHAIRMAN TORGERSON asked  if that decision wasn't made with the then                                                            
competing projects.  Projects were  brought forward and a  party was                                                            
selected. "Now  you're saying that  the party was selected  and that                                                            
route was selected  and their engineering  was selected,  but that's                                                            
not competitive."                                                                                                               
MR. KONRAD  responded, "If  that project  was competitive,  it would                                                            
have been done a while  ago, when we hope that it can be turned into                                                            
a competitive project,  but we would also hope that other folks with                                                            
better ideas would have the opportunity to create…"                                                                             
CHAIRMAN  TORGERSON said  he had heard  his debate  on that,  but it                                                            
doesn't change  the federal law. "What you're implying  here is that                                                            
because they were  chosen long ago, it's not competitive  anymore to                                                            
other things. The law is still there. Right?"                                                                                   
MR.  KONRAD  responded  that the  law  is still  there.  "We're  not                                                            
proposing  to change  the law, we're  not proposing  that a  project                                                            
couldn't proceed under  that. What we are proposing is that the best                                                            
project proceed."                                                                                                               
CHAIRMAN TORGERSON  responded that  the decision was made,  although                                                            
it was 27 years  ago, that a group  and a selection was made  on how                                                            
to proceed for  getting that gas out and it was never  repealed. And                                                            
now your  position is:  Well,  it's old, so  we ought to be  able to                                                            
file under  the same old law that  you made your choice on  27 years                                                            
ago and start all over again.                                                                                                   
MR. KONRAD replied:                                                                                                             
     If people want to vote for  the status quo and want to say                                                                 
     the status quo is fine and  whatever has happened over the                                                                 
     past  25 years is  fine, that's a  decision policy makers                                                                  
     can  make. I  don't think  that's a decision  that policy                                                                  
     makers  want to make, but that's  their decision. I  don't                                                                 
     know  if a vote  for status  quo actually  moves the  ball                                                                 
     forward.  Maybe it does. That's  certainly not what  we're                                                                 
CHAIRMAN TORGERSON  responded, "We'll get into that  this afternoon,                                                            
but I don't know  of anybody who will recommend the  status quo, but                                                            
the status quo changes and has modernized in the 21st Century."                                                                 
MR. MARUSHACK explained:                                                                                                        
     The real  point of enabling legislation  to me is that  we                                                                 
     have  an opportunity  to have different  projects come  in                                                                 
     and  have the lowest  cost project. This  is not code  for                                                                 
     north.  People  think it  is, but  it's not.  Assume  it's                                                                 
     south, if you will. What  we're trying to do is have a way                                                                 
     of making  sure that  the lowest cost  project and lowest                                                                  
     tariff succeeds. That is  good for producers and it's good                                                                 
     for the state, also. So, we're a little confused….                                                                         
REPRESENTATIVE  OGAN said he  wanted to ask  him about a comment  he                                                            
heard by Curtis  Thayer that sent shock waves through  a lot of them                                                            
saying,  "If there's  any  route specific  legislation,…  that  they                                                            
would just pull the plug  on the state and go home and leave our gas                                                            
stranded for I don't know how many more decades."                                                                               
MR. KONRAD responded:                                                                                                           
     Let me  say as clearly as we  can that we're not going  to                                                                 
     do a project Alaska doesn't  want; we're not going to do a                                                                 
     project  Canada  doesn't want;  we're  not going  to do  a                                                                 
     project that  any political body doesn't want,  because it                                                                 
     won't  happen.  I think  what we're  saying  is that  it's                                                                 
     actually  in the  best interests  of we  think everyone  -                                                                 
     ourselves  and the  state - to  do the work,  look at  the                                                                 
     attributes   and  decide.   Alaska  has   already  passed                                                                  
     legislation and I think  we're still doing work. If Alaska                                                                 
     ultimately  decides  that it  doesn't support  a project,                                                                  
     then  it's not going  to go ahead. I  think that's fairly                                                                  
     straight-forward. We don't  think right now is the time to                                                                 
     take  away  options,  when no  one actually  has  all  the                                                                 
     answers. We  don't have all the answers and I  know you're                                                                 
     relying on  us to provide information to make  assessments                                                                 
     and  I think that's  all we're saying.  I know that's  all                                                                 
     we're saying…                                                                                                              
REPRESENTATIVE  GREEN said  they had gone over  this before,  but he                                                            
still has difficulty understanding what they say:                                                                               
     Producers  are not going to proceed with a project  Alaska                                                                 
     doesn't want, and Alaska  is telling you we don't want the                                                                 
     over-the-top  route,  because it  doesn't do  a litany  of                                                                 
     things  for  the people  of  the  state  and yet  you  are                                                                 
MR. KONRAD  responded  that, "We're  not proceeding  with any  route                                                            
right now. What we're doing is a study…"                                                                                        
He  said they  were trying  to  share results  with  Alaska as  they                                                            
became  available.   The  state  has   said  that  revenues,   jobs,                                                            
environment  and gas  access  are important  and  the producers  are                                                            
showing  them how that  can be accommodated.  He  said they  had not                                                            
selected  a northern  route or  identified  a route  or an  economic                                                            
project to date.                                                                                                                
REPRESENTATIVE GREEN responded:                                                                                                 
     When you go  through the litany of procedure,  the process                                                                 
     that you go through, the  first stage is the study. That's                                                                 
     proceeding  in  my vernacular.  So,  you  are proceeding.                                                                  
     You're  not selecting  a route  that the  State of Alaska                                                                  
     doesn't want, but you are proceeding.                                                                                      
MR. KONRAD responded,  "We're doing what we told you  we would do in                                                            
January,  we're doing  what we  told you  we would  do in  March…and                                                            
we're continuing  with that work program  and we're still  on target                                                            
with that work program."                                                                                                        
REPRESENTATIVE GREEN said:                                                                                                      
     Let's   assume  that  you're   through  with  it  as   all                                                                 
     indications   seem   to  be   that  you   find  for   your                                                                 
     stockholders  that the best route  would be through  other                                                                 
     fields that  you have an interest in and collect  gas from                                                                 
     those  other fields  and then  you come  down through  the                                                                 
     Mackenzie  route.  That is certainly  the  best from  your                                                                 
     standpoint. When you say  you want to establish the lowest                                                                 
     cost  tariff,  that  is  again the  bottom  line  for  the                                                                 
     producers,  but it  isn't necessarily  the  best route  to                                                                 
     take.  In your analysis, are  you going to consider  those                                                                 
     issues that are best for  the state including jobs and use                                                                 
     of gas in  state and those kinds of things or  is it going                                                                 
     to  be the process  you're  going through  right now  that                                                                 
     comes out with dollars?                                                                                                    
MR. MARUSHACK replied:                                                                                                          
     The  process we're  under right  now is  we're looking  at                                                                 
     both  the   north  and  the  south.  There  are   tons  of                                                                 
     challenges  on both of those  routes. Phillips, I feel  is                                                                 
     pretty  clean on  this issue,  because we  don't have  any                                                                 
     interest in  Canada. We still need to look at  both routes                                                                 
     and see what happens there  in terms of what's getting the                                                                 
     do-ability and getting the  cost. Now, we are fully, fully                                                                 
     understanding   of   Alaska   that  jobs   are  extremely                                                                  
     important, gas is extremely  important, the wellhead price                                                                 
     is extremely  important. All  that will work in there  and                                                                 
     at the end  of the day, there's a conclusion and  maybe we                                                                 
     have perpetuated that through  the information, there is a                                                                 
     conclusion  that the north is cheaper. We don't  know that                                                                 
     yet. That's why we have  to continue it. At the end of the                                                                 
     day,  we  might  find  out  that  the  south  is actually                                                                  
     cheaper,  but it's still  not economic  and then we'll  be                                                                 
     back sharing  that information  with you. We may find  the                                                                 
     north  is cheaper and  there's ways  of getting all  these                                                                 
     other  things. If that's  not acceptable  to the State  of                                                                 
     Alaska, we won't be going forward.                                                                                         
     Someone  mentioned earlier today  the idea of litigation.                                                                  
     The last  thing on earth we want  to do is spend a lot  of                                                                 
     time  and money  in litigation.  It could  happen, but  we                                                                 
     wouldn't  do that.  We would  rather sit back  and say  we                                                                 
     couldn't  make a project  happen and  let the other  folks                                                                 
     bring  their projects  and let's see  if anybody else  can                                                                 
     make it happen.                                                                                                            
REPRESENTATIVE  GREEN  said  they  are  looking  at  do-ability  and                                                            
affordability  and the do-ability  is best  down the Alcan,  because                                                            
that's already  permitted. Affordability  is the question  that they                                                            
are going through and he asked:                                                                                                 
     Would  it  be in  your  analysis that  you're  making  and                                                                 
     you've  referred to several times,  that you come up  with                                                                 
     the  fact  that  it's  not  economic.   Do  you  have  any                                                                 
     objection  to  selling  gas on  the  Slope to  some  other                                                                 
     conduit whose plans could afford it?                                                                                       
MR. MARUSHACK replied, "No objection."                                                                                          
MR. KONRAD  said they had encouraged  all the pipeline companies  to                                                            
come up with a better answer than they can.                                                                                     
REPRESENTATIVE DAVIES said  that a number of them are wondering what                                                            
the Curtis Thayer  comments were all about. "We feel  there is a lot                                                            
of resistance  to our stating what  is in the best interests  of our                                                            
citizens and  those comments, you  need to clarify them directly  or                                                            
you need to retract them."                                                                                                      
MR.  KONRAD  said  that was  a  miscommunication  in  their  opinion                                                            
between him and the reporter.  They apologize for that and said that                                                            
what the Joint  Team says carries more weight than  what anyone else                                                            
working for them may or may not have said.                                                                                      
MR. MARUSHACK  asked which comments  in particular he was  concerned                                                            
REPRESENTATIVE  DAVIES  said  it  was  the  specific  comment  about                                                            
shutting down the study.                                                                                                        
MR. MARUSHACK responded:                                                                                                        
     On that  regard, the process  we are on is trying to  find                                                                 
     an economic project. We  know we need enabling legislation                                                                 
     in order to put timing around  that. What should have been                                                                 
     said and I think has been  said, is at the end of the day,                                                                 
     if  the joint producer  group doesn't  have any certainty                                                                  
     around  these  parameters,  we cannot  continue  to  spend                                                                 
     money  on a project  that we can't see  any endpoint.  So,                                                                 
     it's  got to  be economic;  we've got to  have regulatory                                                                  
     certainty;  we have to be making progress on working  with                                                                 
     the state so we know what  the rules are. And we're trying                                                                 
     to do all those things.  It's certainly not a threat; it's                                                                 
     a statement  of fact. If we don't  have all those things,                                                                  
     we can't  spend $100 million  and keep doing that and  not                                                                 
     know  what  the  endpoint  is. I  don't  want  to mislead                                                                  
     anybody. We need those things;  we are working hard to get                                                                 
     those  things. We're asking you  to support us in helping                                                                  
     get those things.                                                                                                          
REPRESENTATIVE DAVIES said the legislation specifically requires                                                                
FERC to issue a certificate if three items are met and he asked                                                                 
what is taken off the table by that requirement.                                                                                
     Is the finding  of public necessity and convenience  taken                                                                 
     off  the  table  - question  one?  Question  two  is,  are                                                                 
     antitrust  concerns  taken off  the table?  In your  view,                                                                 
     does FERC  no longer have a comment on whether  or not the                                                                 
     portfolio  would have antitrust violations? And,  thirdly,                                                                 
     especially  with  the  couple  of  scope questions,   what                                                                 
     environmental concerns are you taking off the table?                                                                       
MR. MARUSHACK answered:                                                                                                         
     Regarding  the first  statement  - the finding  of public                                                                  
     convenience.  We think there is a need for Alaskan  gas to                                                                 
     come to  the Lower 48. So, what  that first statement  was                                                                 
     intended  to do  is say  that  has already  been decided.                                                                  
     There is a  need for Alaskan gas to come to the  Lower 48.                                                                 
     So, yes that is off the  table there, but what it replaced                                                                 
     was  you  have  to  acknowledge  that  you  have  to  have                                                                 
     commitments to make a pipeline  happen. So, if someone can                                                                 
     take those commitments forward,  you come to the producers                                                                 
     and you  have an agreement that  you'll make 4 BCF of  gas                                                                 
     appear  for 20 years, then that  suffices that particular                                                                  
     issue.  So, it was an  attempt to say  why you need to  go                                                                 
     there on that one. You don't  need to go there, but you do                                                                 
     need  to  have  shipping  agreements,   just  as  any  big                                                                 
     pipeline is going to have to have.                                                                                         
MR. KONRAD said if that provision was taken out, he didn't think                                                                
anyone would object, because it's just a fact of life. "All                                                                     
pipelines need shipping commitments."                                                                                           
MR. MARUSCHACK continued:                                                                                                       
     With  the idea  that that's  a stranglehold  on producers                                                                  
     owning  the pipeline,  that  point we  completely missed,                                                                  
     because  that was never the intent,  whatsoever. In  terms                                                                 
     of  your  statements  on  antitrust,   no. All  antitrust                                                                  
     issues,  to the extent  that there  are antitrust issues,                                                                  
     that is not taken off the table.                                                                                           
     The environment  - we think we've proposed something  that                                                                 
     is  significantly   more  consistent  with  current   2001                                                                 
     environmental  requirements.  We're going to do a new  EIS                                                                 
     for this process and it's  going to be a full blown, fully                                                                 
     evaluated  EIS, but we do believe  that in order for  that                                                                 
     process  not  to  take  forever,   in  order  to  get  the                                                                 
     certificate,  we did put in an  18 month commitment.  What                                                                 
     we're really saying there  is that's just a priority; that                                                                 
     just  gets some certainty  and that  gets around reducing                                                                  
MR. KONRAD said it would be built to the highest environmental                                                                  
standards. He thought the antitrust issue was a Justice Department                                                              
issue, not a FERC issue.                                                                                                        
REPRESENTATIVE FATE asked them to explain how the proposed enabling                                                             
legislation would not impair the state's marketing options.                                                                     
10:27 a.m.                                                                                                                    
MR. KONRAD replied:                                                                                                             
     Back in that time frame  in a regulated market, there were                                                                 
     provisions  for bundled services  and where gas needed  to                                                                 
     go.  Back then  they  recognized  that Alaska  might  have                                                                 
     within  state needs  and that  gas should  be exempt  from                                                                 
     those   regulated   bundling   provisions.    In  today's                                                                  
     environment,  those  things don't  exist. We're  not in  a                                                                 
     regulated   market;  we're  in  unbundled  services.   So,                                                                 
     there's not  a need for it. The state would be  free - any                                                                 
     shipper, party, producer,  state would be free to move and                                                                 
     market  their gas  any way  they wanted  to.  In the  21st                                                                 
     Century,  that's the way it is.  It's not an issue today;                                                                  
     it was an issue 30 years ago.                                                                                              
REPRESENTATIVE FATE asked if they are speaking primarily of                                                                     
marketing gas rather than instate use of gas. "What I'm getting at                                                              
is that it says it's going  to impair marketing and that's true, but                                                            
will it impair instate use?"                                                                                                    
Both gentlemen indicated it wouldn't.                                                                                           
MR.  KONRAD said  that  he thought  the  provisions  back then  were                                                            
around state royalty gas and:                                                                                                   
     Today the  state would be free to do whatever  it wants to                                                                 
     do  and anyone  could  provide gas  for instate  gas.  Any                                                                 
     pipeline  that's built, in the  case of a southern route,                                                                  
     would  have onramps and  offramps and  gas coming into  it                                                                 
     and off of it.                                                                                                             
REPRESENTATIVE  FATE said that would  become a function included  in                                                            
the over-the-top  route. There wouldn't be instate  gas unless there                                                            
was  some  kind  of   lateral  coming  down  and  they   would  need                                                            
infrastructure and that's not in the discussion.                                                                                
MR. MARUSHACK  said their proposal does not preclude  taking gas and                                                            
using it instate. "It's not intended to do that."                                                                               
MR. KONRAD agreed.                                                                                                              
CHAIRMAN TORGERSON asked  if they would object to clarifying that in                                                            
their legislation.                                                                                                              
Both men indicated they wouldn't object.                                                                                        
CHAIRMAN  TORGERSON  said  there were  a  number of  provisions  the                                                            
committee thought were left out of their proposal.                                                                              
REPRESENTATIVE  OGAN asked  what kind of  interaction they  had with                                                            
the other  pipeline group.  Were they also  looking at 4 BCF/D  line                                                            
that's economically feasible.                                                                                                   
MR. MARUSHACK replied that  Steve Alleman reports to him from within                                                            
Phillips and the LNG work  that he's referring to is happening under                                                            
his watch, too.  Four BCF/D is 28 MTPA, a huge number.  They are not                                                            
looking to try to place that in a market.                                                                                       
REPRESENTATIVE  OGAN said there  was a lot  of interest in  building                                                            
LNG on the West Coast and  they have receiving facilities. His whole                                                            
district's number  one question to him is why are  they even looking                                                            
at going  down  through Canada.  There  is a  lot of  support for  a                                                            
tidewater port  in the state. "I think  we're at a watershed  moment                                                            
with Alaska  and the producers.  I would like  to caution us  all to                                                            
handle  this very  delicately, because  people  are emotional  about                                                            
marketing this  gas and different routes and these  kinds of things.                                                            
Mr. Thayer's comments weren't helpful."                                                                                         
MR. MARUSHACK responded:                                                                                                        
     It just doesn't  make sense. The whole idea of  regulatory                                                                 
     certainty  is to limit, to know how much time  it takes so                                                                 
     you can buy your materials  and get them in the ground. To                                                                 
     the extent  that we end up doing something you  don't want                                                                 
     and  we  end up  in  all sorts  of  court  actions,  we've                                                                 
     destroyed that. It doesn't make economic sense.                                                                            
REPRESENTATIVE  OGAN said the bigger  picture now is that  we have a                                                            
national security  issue, not only  for a gas pipeline, but  for the                                                            
possibility of  opening ANWR. "…I'm going to hold  you to it that at                                                            
the end of the  day, if it's something we can't live  with, that you                                                            
won't do that…"                                                                                                                 
REPRESENTATIVE  DAVIES asked them  to comment on language  under (B)                                                            
rates and charges,  "can be established in accordance  with…" in the                                                            
proposed legislation on page 8.                                                                                                 
MR.  MARUSHACK answered  that  perhaps it  should  have said,  "…are                                                            
established".  The point is it has to be reviewed  and acceptable to                                                            
FERC. "This  was drafted  by lawyers  and we're  just engineers.  We                                                            
know what the intent is, though."                                                                                               
10:35 a.m.                                                                                                                    
REPRESENTATIVE  PORTER asked, "If this proposed legislation  were to                                                            
pass and the producers  had a proposal for a northern  route, and it                                                            
was accepted,  could other parties  use the legislation for  another                                                            
route? One proposal  is specific and everything else  is precluded."                                                            
MR. MARUSHACK  answered that it could  be used for any route,  north                                                            
or south.                                                                                                                       
MR. MARUSHACK  added  that Foothills  could use  it and anyone  else                                                            
could use it.  They talked to the owners of Foothills  last week and                                                            
continue to talk  to them. "It's a difference of we  really think we                                                            
need this in  order to have the most  competitive project  for us or                                                            
anybody else to do.                                                                                                             
MR. KONRAD  said, "They  may decide  this legislation  is easier  to                                                            
work in and, again, that would be their choice.                                                                                 
CHAIRMAN TORGERSON  said he wanted  to revisit the antitrust  issue.                                                            
"ANGTA is not authorizing an owner of the project? Correct?"                                                                    
MR. MARUSHACK answered that was correct.                                                                                        
CHAIRMAN TORGERSON said  in '82 there was an amendment that said you                                                            
could own "some" - not all, but "some."                                                                                         
They acknowledge that was true.                                                                                                 
CHAIRMAN TORGERSON said:                                                                                                        
     Now you're talking about  owning all. And your legislation                                                                 
     doesn't  mention  the  fact  that  you  have  a  test  for                                                                 
     antitrust  and I want to make sure of your comments,  Joe,                                                                 
     that anybody has to go through  antitrust and I believe it                                                                 
     affects any  company, takeovers or anything when  they try                                                                 
     to make  a project. So, you would  probably have to  stand                                                                 
     some  sort   of  antitrust  test,  whether  or  not   this                                                                 
     legislation  was there.  So, the question  again is,  does                                                                 
     your legislation  make you go through the same  provisions                                                                 
     and  actually make you  have a separate  ruling from  FERC                                                                 
     that this does not violate antitrust?"                                                                                     
MR. MARUSHACK  said he  could only  say that the  intent was  not to                                                            
circumvent any antitrust issues.                                                                                                
CHAIRMAN  TORGERSON  asked  how  to  get  from  "some"  in  the  '82                                                            
amendment to owning "all" today.                                                                                                
MR.  MARUSHACK  replied: "Senator,  the  only  reason  we have  come                                                            
together  is to try to  make the most economic  project we  possibly                                                            
He said there  are a lot of different  interests and it's  not easy,                                                            
but they  are trying. The  major resource owners  at the end  of the                                                            
day are  going to make  the shipping  commitments  and a lot  of the                                                            
risk is going to be on  them. "At the end of the day, if someone can                                                            
do a better  project and we're part  of it or we're not part  of it,                                                            
we're willing to talk to them about it."                                                                                        
CHAIRMAN TORGERSON said:                                                                                                        
     I don't  think that  answers my question.  How do you  get                                                                 
     from "some" to "all" ownership  in the pipeline? Does this                                                                 
     legislation  change the '82 intent provisions  saying that                                                                 
     producers  can own  some of the  project or  does the  '82                                                                 
     amendment to ANGTA mean you can own all of it?                                                                             
MR. MARUSHACK  answered:  "What this  language does  is you can  own                                                            
some or none.  It works for anybody;  it doesn't just work  for us."                                                            
CHAIRMAN TORGERSON asked  if the 1982 amendment to ANGTA allows them                                                            
to own all of the project or just some?                                                                                         
MR.  KONRAD  replied  that  he  believed   they  were  allowed  some                                                            
ownership  under the 1982  amendment, but he  could check on  it and                                                            
get back to him.                                                                                                                
CHAIRMAN TORGERSON  said, "So, that  would still be the law  today."                                                            
MR. KONRAD replied,  "For a project that would proceed  under ANGTA,                                                            
that would still be the case."                                                                                                  
CHAIRMAN  TORGERSON asked,  "But you don't  know what 'some'  means,                                                            
how much of that project."                                                                                                      
MR. KONRAD said they would check on it and get back to him.                                                                     
CHAIRMAN TORGERSON asked if they could do that before 2:00.                                                                     
They said they would give it a try.                                                                                             
CHAIRMAN TORGERSON said  they hadn't mentioned anything about taxes.                                                            
He  asked   if  they  were  seeking   tax  exemptions,  accelerated                                                             
depreciation,   investment  tax  credits  or  anything   in  federal                                                            
MR. KONRAD replied that this was regulatory legislation.                                                                        
CHAIRMAN  TORGERSON   asked:  "Would   you  like  that  in   federal                                                            
legislation  that this  committee  could consider  this afternoon  -                                                            
whether or not you are asking Congress for any tax exemptions?"                                                                 
MR.  KONRAD   replied,  "The  Joint   Team  has  said  it   supports                                                            
accelerated  depreciation for  gas pipelines,  both in the  U.S. and                                                            
CHAIRMAN   TORGERSON  asked   if  they  were   satisfied  with   the                                                            
accelerated depreciation  provisions that were in the House version.                                                            
MR. MARUSHACK  said they would have to check, but  he thought it was                                                            
seven years, which is what  they have been talking about. That makes                                                            
it consistent with gas gathering lines.                                                                                         
CHAIRMAN TORGERSON said  he thought it was seven years on one and 10                                                            
years on another one.                                                                                                           
Both men said they want seven years.                                                                                            
CHAIRMAN TORGERSON asked about other tax issues.                                                                                
MR. MARUSHACK  replied, "The joint team's position  is that they are                                                            
not jointly looking for  tax incentives, but you know that different                                                            
companies have different views."                                                                                                
CHAIRMAN TORGERSON responded:                                                                                                   
     I understand,  but I also clarified that. In this  federal                                                                 
     legislation  that I'm talking about - and I'm  not talking                                                                 
     about  what some  companies  are doing  - in  the broader                                                                  
     sense,  investment tax credits  or other things, that  may                                                                 
     have  been talked about.  Are you seeking  any of that  in                                                                 
     this legislation? Yes or no?                                                                                               
MR. KONRAD  replied that  they said  those issues  were not  in this                                                            
bill and they have said that to the folks on the hill.                                                                          
CHAIRMAN TORGERSON said:                                                                                                        
     We are  going to recommend  to Congress  to adopt certain                                                                  
     provisions  in  federal  law…One  of our  recommendations                                                                  
     could  be  no  tax  incentives,  period,  no  accelerated                                                                  
     depreciation  or anything  -  or it could  be accelerated                                                                  
     depreciation,  investment  tax  credits or  other things.                                                                  
     It's a pretty simple question.  Do you want any of that? I                                                                 
     heard yes on accelerated  depreciation. So, I'm asking you                                                                 
     if you  can give us what you  want by 2:00 this afternoon                                                                  
     so  we can talk  about including  that in  our package  of                                                                 
MR. KONRAD  said they  support seven-year  depreciation for  natural                                                            
gas pipelines.                                                                                                                  
CHAIRMAN TORGERSON  asked what they thought about  a provision using                                                            
United States Steel.                                                                                                            
MR. KONRAD  replied, "We would love  to use U.S. Steel [Company]  if                                                            
the mills have the capability  to supply it competitively…As always,                                                            
mandates  tend  to not  create  competitive  pricing,  but we'll  be                                                            
working  very  closely  with  U.S.,  Canadian...The  scale  of  this                                                            
project is such that it's  going to need steel from a lot of places.                                                            
So, we'll actively be encouraging  everyone to come up with the best                                                            
product they can.                                                                                                               
MR. MARUSHACK  clarified  that they  do not  support mandates.  They                                                            
support the  free market system and  they want to use U.S.  Steel to                                                            
the extent they can.                                                                                                            
CHAIRMAN TORGERSON  said his last  question was about project  labor                                                            
MR. MARUSHACK  answered that they  were going to use unions  on this                                                            
project,  given  the labor  situation.  They think  that  is a  good                                                            
thing, but  they do not  want mandates on  that, because they  would                                                            
like to  be able  to negotiate  with all  parties in  order to  have                                                            
costs as low as possible.                                                                                                       
REPRESENTATIVE  GREEN asked if it  was imperative that this  federal                                                            
legislation be passed in order for them to continue.                                                                            
MR. MARUSHACK  answered, "Yes sir,…. We're all for  improvement, but                                                            
we think there needs to be a regulatory process."                                                                               
REPRESENTATIVE  GREEN asked  if they would  continue under  existing                                                            
law if their proposed legislation was defeated.                                                                                 
MR. KONRAD said that would raise the risks considerably.                                                                        
MR. MARUSHACK  replied that  the Joint Team  would not continue.  He                                                            
didn't know what individual companies would do at that point.                                                                   
10:46:04 a.m.                                                                                                                 
MR.  JOHN ELLWOOD,  Vice  President,  Foothills  Pipe  Lines,  Ltd.,                                                            
introduced  Mr. Curt Moffatt  from the firm  of VanNess Feldman  who                                                            
would  respond  to questions  about  the  legislation  and he  would                                                            
respond to business matters  and corporate policy. Mr. Ellwood said:                                                            
     We  feel  very  strongly  at  Foothills  that  no federal                                                                  
     legislation  is required in order to expedite,  modernize,                                                                 
     construct    and   operate   the   Alaska   Natural    Gas                                                                 
     Transportation System. We  believe that ANGTA is more than                                                                 
     sufficient  and is superior to  any alternative pieces  of                                                                 
     legislation of which we are aware.                                                                                         
     We  would also  point  out that  the  Canadian regulatory                                                                  
     regime is  in place and will expedite the construction  of                                                                 
     the   necessary   Canadian   facilities.   This  Canadian                                                                  
     expedition  is tied  directly to  ANGTA and  would not  be                                                                 
     available  to a project  that was  proceeding under  other                                                                 
     U.S. legislation.                                                                                                          
     We  would request that,  if parties  believe that federal                                                                  
     legislation is necessary,  that that legislation should be                                                                 
     drafted  so that it does no harm  to the ANGTA regime.  We                                                                 
     believe that the legislation that the producer group…                                                                      
TAPE 01-18, SIDE A                                                                                                            
MR. ELLWOOD continued:                                                                                                          
     …put forward  would violate that  principle of do no  harm                                                                 
     to  ANGTA.  We  believe  it  will  delay  the  commercial                                                                  
     negotiations  that  are under  way  now by  confusing  the                                                                 
     regulatory  and commercial situation and raising  new, and                                                                 
     perhaps unforeseen, legal  questions, which will take time                                                                 
     to resolve.                                                                                                                
     The Foothills and the Alaska  partnership are committed to                                                                 
     work within the ANGTA framework  and to construct a modern                                                                 
     ANGTS   and   to  construct   it   to  the   full  modern                                                                  
     environmental   standards.   We   believe  that   can   be                                                                 
     accomplished  under the  current law  and lastly, I  would                                                                 
     just say  again that Foothills  is ready to work with  all                                                                 
     stakeholders  to  consider  development  of  constructive                                                                  
     legislation  which  confirms   and clarifies   ANGTA,  its                                                                 
     flexibility, and we believe  that that would assist in the                                                                 
     expedited  construction  of the  Alaska  Highway project.                                                                  
     That's my opening remarks, Mr. Chairman.                                                                                   
MR. MOFFATT said he didn't have anything to add, but would answer                                                               
CHAIRMAN TORGERSON asked if he wanted to take a different position                                                              
on any of the testimony from the producers.                                                                                     
MR. ELLWOOD said he would need a few minutes to think that one                                                                  
CHAIRMAN TORGERSON asked if he thought ANGTA gave them an absolute                                                              
franchise or an exclusive right to be the only operator in                                                                      
construction and operation on the line.                                                                                         
MR. ELLWOOD answered:                                                                                                           
     We  believe  that  it  was  the  intent  of  Congress  and                                                                 
     likewise  in Canada,  the intent of  our parliament  here,                                                                 
     that  we would  be the operator  of the  first project  to                                                                 
     move Alaska  gas. There is no perpetual franchise  granted                                                                 
     by  either ANGTA  or  the Northern  Pipeline  Act here  in                                                                 
CHAIRMAN TORGERSON  asked how close  they are to making a  deal with                                                            
their withdrawn  partners and  how close are  they to making  a deal                                                            
with the producers to exercise their franchise right.                                                                           
MR. ELLWOOD responded:                                                                                                          
     I think  as you and  other members of  the committee  have                                                                 
     probably heard,  we are in the process of discussing  with                                                                 
     all  the   withdrawn  partners   whether  they  would   be                                                                 
     interested   in   reenlisting   in  the   project.   Those                                                                 
     discussions   are  progressing   very  well  and  we   are                                                                 
     expecting  in the very near future  to have this issue  of                                                                 
     the withdrawn partners completely off the table.                                                                           
CHAIRMAN  TORGERSON  asked  what  their  position  would be  on  his                                                            
proposed  amendment for federal  legislation  to do away with  their                                                            
withdrawn partner liability taking $4 billion off the table.                                                                    
MR. ELLWOOD said he would  have to get advice from his legal team as                                                            
to  whether  or  not  he could  legislate   these  large  commercial                                                            
matters. "This  is really an arrangement  between ourselves  and our                                                            
withdrawn partners.  We are about to change that and  we're about to                                                            
change it in a positive and constructive way."                                                                                  
CHAIRMAN TORGERSON said:                                                                                                        
     We're  dealing with federal legislation  today that  we're                                                                 
     going to testify  and have a position on your  position by                                                                 
     October 2.  We don't have time to wait for you  to do this                                                                 
     stuff  and continue on with this  stuff and us not take  a                                                                 
     position  on  whether  or not  you have  a  legitimate  $4                                                                 
     billion claim  on your route, which if you do,  I can tell                                                                 
     you what's  not going to happen. We're not going  to start                                                                 
     the  race off with $4  billion in the  hole. I don't  know                                                                 
     anybody who would do that.                                                                                                 
     This is  a major stumbling block  for finding support  for                                                                 
     your position.  Until this is taken care of or  legislated                                                                 
     out,  I'm  going  to have  a  hard  time  supporting  your                                                                 
MR. ELLWOOD replied  that they understand that, but  they are moving                                                            
expeditiously to clarify that.                                                                                                  
     I should make  it clear at this point that there  is no $4                                                                 
     billion  number that  people are seeking  to recover  from                                                                 
     the  producers  or the state  or anyone  else.  No one  is                                                                 
     asking for or seeking an  additional $4 billion here. That                                                                 
     won't  happen; it  can't happen;  it would  just never  be                                                                 
     commercially   viable.  I  understand   that  people   are                                                                 
     concerned about that number.  I just ask for your patience                                                                 
     for a few more days while  we sort this matter out amongst                                                                 
     ourselves  and bring  forward a new  position, but at  the                                                                 
     same   time,  I  think   it's  important   that  everyone                                                                  
     understands  that even if we  were to proceed without  any                                                                 
     other  matter  right now,  there would  be no  $4 billion                                                                  
     charge to anybody.                                                                                                         
CHAIRMAN TORGERSON  responded that  they aren't trying to  legislate                                                            
that this go  away, but we can sure  recommend that to Congress  and                                                            
they can  figure  out whether  or not it  works. We  could have  our                                                            
support  contingent  upon that  going away  by a  certain period  of                                                            
time,  which is  what I  think I  tend more  to favor  than a  carte                                                            
blanche you're  in the right position, that we're  going to wait for                                                            
you some day to  get this figured out. It's a major  stumbling block                                                            
MR. MOFFATT interrupted to say:                                                                                                 
     First of all  with respect to any contingent liability  to                                                                 
     any  of the withdrawn  partners, it  is highly contingent                                                                  
     under  the partnership agreement  first and foremost  none                                                                 
     of the  very sophisticated companies  who hold the status                                                                  
     of withdrawn  partners and those  include Enron, El  Paso,                                                                 
     Duke,  Williams, PGT,  an affiliate of  PG&E, and Semper,                                                                  
     the parent  of Southern California  Gas Company. They  are                                                                 
     all very sophisticated participants  in the energy markets                                                                 
     today.   They  understand   fully   that   they  have   no                                                                 
     opportunity  whatsoever to recover  any dollars under  the                                                                 
     partnership  agreement if the  project is not built  under                                                                 
     ANGTA and  pursuant to that partnership agreement.  You'll                                                                 
     also understand that that  partnership agreement provision                                                                 
     was  written in  a way that  it should  never inhibit  the                                                                 
     completion  and  initial operation  of  the ANGTS  and  is                                                                 
     contingent upon that completion  and operation. The border                                                                 
     partners, which is comprised  solely of the current active                                                                 
     partners,  which  are TransCanada  and Foothills  and  any                                                                 
     other   partners  that   they  invite   back  in  to   the                                                                 
     partnership, which could  be any of the producers or other                                                                 
     interests  in Alaska, will have the right to vote  on when                                                                 
     and  if any of  the withdrawn  partners ever  see a  penny                                                                 
      under that provision. It is highly, highly contingent.                                                                    
     I think  the other point  Mr. Ellwood  was making is  that                                                                 
     even if  there is private contractual  obligation that  at                                                                 
     some point  down the road is  due and we determine we  can                                                                 
     make such  payment under the partnership agreement,  it is                                                                 
     not  going  to be  recovered  in the  rates that  will  be                                                                 
     charged  either to the state  for their royalty gas  or to                                                                 
     the producers  on the Slope or  any of your explorers  who                                                                 
     are  out there bringing  gas on  the line  10 or 15  years                                                                 
     from now. That is a private  contractual matter. The rates                                                                 
     for transportation  on any system, whether it's  the ANGTS                                                                 
     or  a greenfield pipeline  developed  by the producers  or                                                                 
     any other group of people,  those transportation rates are                                                                 
     going to be  determined by the market. The market  is very                                                                 
     competitive  today and this project that did go  through a                                                                 
     very  detailed and long  competitive  process at the  FERC                                                                 
     and  FTC, all it  does is authorize  a group  to hold  the                                                                 
     certificate to build the  project and selected a route and                                                                 
     the terms  and conditions can be modernized and  they will                                                                 
     reflect current  market conditions. So, all of  the issues                                                                 
     that  have been raised  about the need  to modernize,  the                                                                 
     need  to be efficient,  the need to be  able to develop  a                                                                 
     project  that's economic - absolutely.  That's what  we've                                                                 
     been  facing for  25 years -  waiting for  demand and  the                                                                 
     price  to get  to where  we can,  through  technology  and                                                                 
     lowering costs,  get this project finally built  and bring                                                                 
     your  Alaskan   gas  to  the  North  American  market   at                                                                 
     competitive prices.                                                                                                        
CHAIRMAN TORGERSON asked if he said the withdrawn partner amount                                                                
would not be built into a tariff. Therefore, the $4 billion is not                                                              
an issue?                                                                                                                       
MR. MOFFATT answered:                                                                                                           
     Yes, sir.  In our view, it is not going to be  an issue in                                                                 
     the  tariff. The market  forces, whether  it's an Alberta                                                                  
     Hub or  Fairbanks Hub, [indisc.]  or Chicago. The pricing                                                                  
     rules  are very clear. This gas  has to be laid into  that                                                                 
     market  at competitive prices.  The capital costs and  the                                                                 
     operating  and  maintenance  costs  that are  required  to                                                                 
     build  this line that  is still not in  the ground, as  we                                                                 
     all  know, are  going to  be enough  to take  up what  the                                                                 
     transportation  costs  can be  to lay  that  gas into  the                                                                 
10:58:47 a.m.                                                                                                                 
     Our shareholders  have never  approached this with a  view                                                                 
     that any  of those dollars are  going to be recovered.  We                                                                 
     just believe  they won't exist,  because our partners  are                                                                 
     good,  strong, economic,  savvy  companies  and they  know                                                                 
     they cannot exist.                                                                                                         
MR. ELLWOOD said:                                                                                                               
     We're not  here in this project, nor are our shareholders                                                                  
     in this  project to  recover historic  costs. We are  here                                                                 
     for the investment  opportunity going forward.  We believe                                                                 
     this  will  unfold under  a  negotiated  toll arrangement                                                                  
     whereby  we will negotiate with  those parties wishing  to                                                                 
     ship  gas  to determine  what  the charges  would  be.  Of                                                                 
     course, it would be based  in some way on the capital cost                                                                 
     of building this project.                                                                                                  
     All  projects have  development  costs. If  the new  party                                                                 
     were  to  come  forward  and  try now  to  develop  a  new                                                                 
     project,  they will  have development  costs. Those  costs                                                                 
     normally get  recovered in some fashion by the  developing                                                                 
     company.  We believe going forward  here that we will,  in                                                                 
     that negotiation,  be seeking  to recover some good  will,                                                                 
     because  we believe  we bring  value to  this process.  We                                                                 
     already have permits in  hand and shippers working with us                                                                 
     will  not have  to go  through  the expense  of acquiring                                                                  
     those. We have rights of  way; we have current engineering                                                                 
     data and other information  that would be useful and would                                                                 
     be costly  for anybody going  forward and we will seek  to                                                                 
     negotiate  some fair value for  those assets. And to  that                                                                 
     extent,  these costs might be  incurred in the [indisc.],                                                                  
     but there is nobody seeking  to recover all prior expenses                                                                 
     with interest.                                                                                                             
     MR. MOFFATT added:                                                                                                         
     Also, to the  extent those costs are being reflected  in a                                                                 
     toll,  they will  only be  reflected as  people attribute                                                                  
     value  to  those that  are  avoided  costs of  some  other                                                                 
     developer  who's going to incur  those costs currently  to                                                                 
     start  over. So, we just don't  believe that a $4 billion                                                                  
     issue is ever going to hit the toll.                                                                                       
MR. ELLWOOD said, "We would never ask for it and it would never be                                                              
permitted by FERC in any toll that they might approve."                                                                         
MR. MOFFATT underscored their basic point which is:                                                                             
     We  find  the   proposed  legislation  by  the  producers                                                                  
     absolutely   and  totally  unnecessary.   It  calls   into                                                                 
     jeopardy the viability of  the ANGTA regime, including the                                                                 
     president's  decision,   the congressional   actions,  the                                                                 
     agreement  on principle,  the statutory  framework of  the                                                                 
     Northern  Pipeline Act  in Canada - all  of that would  be                                                                 
     called  into question.  There is just  no question in  our                                                                 
     mind  that passage  of this  legislation  adds absolutely                                                                  
     nothing to the debate. If  anything, it adds confusion and                                                                 
     delay.  We're committed  to building  a highway route  and                                                                 
     getting  on  with FERC  and Congress  determined  after  a                                                                 
     healthy  competitive  analysis  of fuel  alternatives  are                                                                 
     reflected  in today's  debate,  one which would  be to  go                                                                 
     over  and  connect  with Mackenzie,  albeit  on  shore  as                                                                 
     opposed to  off shore, the other taking it on  a LNG basis                                                                 
     to the west  coast and the third being the highway  route.                                                                 
     Those  are  the  same  three primary  alternatives   being                                                                 
     considered  today.  Nothing   has changed.   The national                                                                  
     debate  at that time, with the  approval of the president                                                                  
     and  the Congress, chose  the highway  route and we  still                                                                 
     think that's  the right decision and we will also  be able                                                                 
     to, as the President said  in 1977, add facilities off the                                                                 
     highway route  when and as necessary to serve  other parts                                                                 
     of  the State  of  Alaska including  Southcentral  and  we                                                                 
     believe,  as you know, by our  support and involvement  in                                                                 
     the  ANS  [Arctic   North  Slope]  study  group   that  if                                                                 
     economics  permit and  if the gas supply  permits and  the                                                                 
     markets develop, this can  be the backbone of a Y route to                                                                 
     support  an LNG project, as well.  We've been saying  that                                                                 
     for  years and we've  invested in the  ANS study group  to                                                                 
     look at those efficiencies.                                                                                                
11:03 a.m.                                                                                                                    
REPRESENTATIVE DAVIES asked what the status was of their                                                                        
discussions and when can they expect a decision that they are going                                                             
to go forward with a request to the producers to buy their gas.                                                                 
MR. ELLWOOD responded:                                                                                                          
     We  wouldn't see  ourselves buying  the gas  of the  North                                                                 
     Slope  producers, particularly.  We are  a transportation                                                                  
     company.  We  would see  that the  North  Slope producers                                                                  
     might  contract with  us to  transport the  gas. So,  they                                                                 
     would sell it, if you wish,  in the market place. We would                                                                 
     also  see that other  energy companies,  some of whom  may                                                                 
     become  our partners in this,  perhaps would buy gas  from                                                                 
     the  North Slope  producers  on the  North Slope  or as  a                                                                 
     stake on the  North Slope and would then contract  with us                                                                 
     to transport  it. And,  again, they would  sell it in  the                                                                 
     market. It  is not a role that we seek for ourselves  as a                                                                 
     pipeline  company. There are  other shareholder companies                                                                  
     and other  North American marketing companies  who do that                                                                 
     commodity transaction.                                                                                                     
CHAIRMAN TORGERSON  thanked them for  their testimony and  announced                                                            
that Mr. Mark Hanley from Anadarko would testify next.                                                                          
MR. MARK  HANLEY, Anadarko  Petroleum, apologized  that a number  of                                                            
people who planned  to be with him from Alberta Energy  and Anadarko                                                            
were not present today. He said:                                                                                                
     You  asked how  this  legislation affects  us.  And to  be                                                                 
     honest with you, specifically,  it doesn't. It does create                                                                 
     the expedited  process. You've been through the  testimony                                                                 
     of where  it supercedes  different things,  but for us  as                                                                 
     explorers,  we have  a large acreage  position in Alaska,                                                                  
     largely  in  the  Foothills.  We're  in partnership   with                                                                 
     Alberta Energy, as well  as BP and it is gas prone. We are                                                                 
     actually looking  for gas. We've done seismic  last winter                                                                 
     and this winter potentially  we're not going to drill this                                                                 
     year, but the following  year for gas. The lease sale that                                                                 
     happened  earlier this year in  the Foothills, I think  it                                                                 
     was  the most acreage  ever leased at  one lease sale  for                                                                 
     the state. There were a  number of companies participating                                                                 
     from  Burlington Resources,  PetroCanada,  UCAL, Chevron,                                                                  
     Phillips,  ourselves without  partnership. So, there  is a                                                                 
     lot of interest in this gas.                                                                                               
     As explorers who do not  have identified reserves, I guess                                                                 
     I  would say  our interest  is getting  fair  access to  a                                                                 
     pipeline at a reasonable  price. The issues that we raised                                                                 
     in  our  paper   go  through  those.  And  where   we  see                                                                 
     potential,   not  that  it  will  happen  that  way,   but                                                                 
     potential  for problems, we have  shared this information                                                                  
     with  the producers  group and  we have shared  it with  a                                                                 
     number   of  other   companies,  some   of  the  pipeline                                                                  
     companies.  So,  this is  not something  that  they  don't                                                                 
MR. HANLEY  said in the proposed legislation  the definition  of the                                                            
availability of Alaska  natural gas is gas that comes from that area                                                            
generally  known as the North  Slope of Alaska.  They did not  think                                                            
that was a  concern from their discussions  with the producers,  but                                                            
their area  is generally  known as  the Foothills  and areas  around                                                            
Fairbanks  are not generally  known as North  Slope. "So, if  people                                                            
did find gas, that piece  of legislation seems like it might exclude                                                            
that. That was not the intent, we were told…."                                                                                  
He  said that  other  areas of  the legislation  were  more  process                                                            
oriented. FERC  has testified that they don't have  the authority to                                                            
force expansion  of a pipeline and  their legal research  shows that                                                            
to be  true. So,  a company  that finds  gas after  the pipeline  is                                                            
built, comes  forward willing to pay  the cost of expansion,  if the                                                            
producers or someone else  come to a pipeline with a bunch of gas to                                                            
expand it that  might even lower the tariff. Normally  that would be                                                            
a good situation, but if  they are competing with the producers, for                                                            
instance,  for exploration  rights,  they  may not  choose to  allow                                                            
Anadarko  into the  pipeline.  They  would use  that  leverage as  a                                                            
negotiation tool.                                                                                                               
The producers  have suggested that  they may have an open  season as                                                            
early as  January of  next year.  Typically, FERC  likes to  have an                                                            
open season to demonstrate  that there's the ability to have gas and                                                            
people can  show there  is a market  out there,  but the process  is                                                            
really unregulated  by them  when the application  comes in  for the                                                            
tariffs  - to show  and demonstrate  that there  is that ability  to                                                            
produce that  gas. But at that point,  for companies like  Anadarko,                                                            
they might  be interested  in bidding  at the  open season,  even if                                                            
they don't have identified gas reserves.                                                                                        
     We would  be on the  hook at that point  for whatever  the                                                                 
     charges are  to transport that gas whether we  had them at                                                                 
     that time or not. That's  a huge risk and whether we would                                                                 
     take  that or not,  I don't  know. But, we  would need  to                                                                 
     know the terms  and conditions during that open  season so                                                                 
     we  could make  a fair  bid and  that is  not a disclosed                                                                  
     Typically,  what will  happen  is after  the open season,                                                                  
     normally  what  would   happen  as  Mr.  Ellwood  said,  a                                                                 
     pipeline company  who is like the trucking company  - they                                                                 
     don't  actually own  the things  they are  shipping.  They                                                                 
     will charge you for the  transportation. They would go out                                                                 
     and see a  need and develop this and ask for producers  to                                                                 
     submit  nominations for  capacity on a  line they want  to                                                                 
     build.  In this  case, because  it could  be unique  where                                                                 
     both  the producers are  partly the  owners, it creates  a                                                                 
     little  different situation.  I guess we want to know  the                                                                 
     terms  up front before the open  season, have an adequate                                                                  
     time to look  at those so we can decide whether  or not we                                                                 
     want to bid.                                                                                                               
MR. HANLEY said  that some issues within FERC get  fairly technical,                                                            
like  the ability  of  producers to  withhold  capacity  at an  open                                                            
season. It  seemed that a large part  could be withheld so  it would                                                            
not be available for other  companies to bid on. "It has happened in                                                            
other cases. FERC does allow that."                                                                                             
He said they  have concerns about  setting BTU minimums or  maximums                                                            
for  the gas  quality  that goes  into  a pipeline  as  part of  the                                                            
application  process. Gas in  the Foothills  might not have  as many                                                            
liquids in it [BTU content].                                                                                                    
     The company  that is going to build the pipeline  is going                                                                 
     to submit  an application to FERC with these tariffs  with                                                                 
     these conditions in it and  we may not know what those are                                                                 
     ahead  of time  and we  think there  are some  issues  the                                                                 
     state  should look at  and determine  whether or not  they                                                                 
     want to support mandating  or suggesting that FERC go in a                                                                 
     particular  direction.   A lot  of  the  cases,  FERC  has                                                                 
     precedence  and policies, but we have found they  are just                                                                 
     that -  policies and you're going  to find that this  is a                                                                 
     unique  pipeline.   It  definitely  is  likely   the  only                                                                 
     pipeline  going to be built out  of Alaska. It is, unlike                                                                  
     the  Lower 48  states, whether  your  cost of  going in  a                                                                 
     different   route  or  building   your  own  pipeline   is                                                                 
     significant,  but  the market  forces down  there prevent                                                                  
     someone from charging too  much of a rate, because you can                                                                 
     go somewhere  else. You  have other  options. That is  not                                                                 
     going to be the case here.                                                                                                 
     One  of the issues  you heard about  earlier, accelerated                                                                  
     depreciation.  We don't particularly  have a problem,  but                                                                 
     one of the issues we would  raise is - is it structured in                                                                 
     such  a way  that it  increases the  tariff?  If it  does,                                                                 
     obviously  the wellhead value for everyone, including  the                                                                 
     producers  and  the state,  will be  higher  and a higher                                                                  
     tariff is not good for us.                                                                                                 
     If  someone  can recover  that  accelerated  depreciation                                                                  
     through  a different mechanism,  through ownership of  the                                                                 
     pipeline and  not have it affect their individual  assets,                                                                 
     it may not  be a problem for them to have a higher  tariff                                                                 
     rate  if  they  are  recovering  it  somewhere  else,  but                                                                 
     companies  that do  not own  the pipeline,  the state  for                                                                 
     example, may be disadvantaged  by that. So, that is one of                                                                 
     the issues.  I am not suggesting that is what  is going to                                                                 
     happen,  but it is an issue that  you need to be aware  of                                                                 
     and it could happen.                                                                                                       
MR.  HANLEY said  their  remedy in  many  of these  cases  will                                                                 
happen particularly  after  an open season,  at which point  it                                                                 
gets very difficult  to go back and  change things. He thought                                                                  
the state should consider that.                                                                                                 
CHAIRMAN TORGERSON asked  him to give the committee a short overview                                                            
of the reaction of the producers to the propositions.                                                                           
MR. HANLEY  said they  had presented  the propositions  to them  and                                                            
generally speaking they said the same thing:                                                                                    
     One,  we haven't  decided  on a lot  of these  issues.  We                                                                 
     asked them, 'What do you  think the tariff is going to be?                                                                 
     Are you  going to bundle the  costs, for instance the  gas                                                                 
     conditioning  plant, which is allowed under… and  we don't                                                                 
     have  a problem  with  the gas  conditioning  plant  costs                                                                 
     being  included  in the tariff.  FERC's  typical policies                                                                  
     [are]  unbundled. So, if we bring  gas in, load it on  the                                                                 
     pipeline and they're paying  50 cents per MCF to condition                                                                 
     that  gas, I guess  we would  be concerned  that we  would                                                                 
     have to pay the cost for  them to condition their gas - as                                                                 
     well  as the cost, if  there was any  for us to condition                                                                  
     ours - if we're not going through their facility.                                                                          
     Back to  your point, I guess.  They said, 'We're going  to                                                                 
     be fair. We  don't have a reason not to be fair.  This  is                                                                 
     going to be an open process.'                                                                                              
     Some of  the things they did  not list specifically.  They                                                                 
     didn't   have  concerns  with,   for  instance,  the   gas                                                                 
     definition  issue that we raised  earlier. They said  that                                                                 
     was  not their intent  and not a problem  making it  clear                                                                 
     that   all   gas  could   get   into  this   under   their                                                                 
11:17 a.m.                                                                                                                    
REPRESENTATIVE DAVIES asked  if another option for including the gas                                                            
conditioning plant  in the tariff was to include it  in their price.                                                            
MR. HANLEY  explained that the tariff  would be less and  they would                                                            
get  more for  their  gas.  "I assume  just  like  other  processing                                                            
facilities on the North  Slope. Those are included in the developing                                                            
He emphasized that he is  not saying that they should not be allowed                                                            
to include that necessarily.                                                                                                    
     What we are  saying is that if we don't use the  facility,                                                                 
     and  that's generally  what we understand  FERC's process                                                                  
     is,  that they  be unbundled,  that there  basically be  a                                                                 
     separate tariff  without that gas conditioning  cost in it                                                                 
     whether  people brought  it in  from Fairbanks  or if  you                                                                 
     found gas somewhere else.                                                                                                  
REPRESENTATIVE DAVIES asked what other options were available to                                                                
meet his concern about assurances that a pipeline would be expanded                                                             
later if reasonable conditions were met.                                                                                        
MR. HANLEY replied:                                                                                                             
     We're   actually    working   on   specific   ideas    for                                                                 
     legislation….I  guess  the only  general idea  is to  give                                                                 
     FERC the  authority to expand  the pipeline. I don't  know                                                                 
     what  kind   of  guidelines,  and  frankly,  it's  always                                                                  
     dangerous from a company  perspective to force things that                                                                 
     may  not happen, but  they don't have  the ability now.  I                                                                 
     don't know whether they would want it….                                                                                    
REPRESENTATIVE DAVIES asked if that would be in the context of                                                                  
future open seasons.                                                                                                            
MR. HANLEY replied yes:                                                                                                         
     There's all  kinds of discussion and I'm getting  close to                                                                 
     where  I'd better  be careful  about what I  say… I  don't                                                                 
     believe  you necessarily  have  to have  open seasons  for                                                                 
     future expansions  particularly if the initial  nominators                                                                 
     of capacity are the ones doing it.                                                                                         
11:20:03 a.m.                                                                                                                 
REPRESENTATIVE GREEN said he had alluded to several concerns with                                                               
capacity, BTU content, and how much it's depreciated, and asked                                                                 
where he saw their proposed legislation getting "sticky."                                                                       
     You're  going toward  the fact that  some agencies should                                                                  
     have  some sort of  regulatory authority  and say, 'Well,                                                                  
     okay,  here's your  sliding scale  for BTUs  or if,  let's                                                                 
     say,  Anadarko  were  to have  a major  discovery  in  the                                                                 
     Foothills,  but it's  possibly five years  down the  road.                                                                 
     We've   heard  the   operators  talk   about  accelerated                                                                  
     depreciation. Would you  come in, then, at the depreciated                                                                 
     rate and  buy in, would you buy  a compressor plant  to go                                                                 
     from  say $4  billion to $5  billion? We're  getting  some                                                                 
     details  that could  get sticky.  Do you  anticipate  that                                                                 
     future  suppliers would  be involved in,  I mean not  just                                                                 
     Anadarko,  as  you say,  Unocal is  involved  and some  of                                                                 
     these other  people, or leases that haven't been  let yet.                                                                 
     Do you  see that there's going  to be a master type  thing                                                                 
     proposed  by, say, Anadarko  or somebody  that will  cover                                                                 
     all these creative possibilities?                                                                                          
MR. HANLEY said  they are working on some of the issues  and haven't                                                            
come up  with an  exact answer  on how  to solve  all the  problems.                                                            
There is a hearing  coming up and they are trying  to be reasonable.                                                            
     We look  at it internally as  to what issues could affect                                                                  
     us and  our ability to develop  gas and really what  we're                                                                 
     going  to have to do  is potentially,  if the open season                                                                  
     happens  in January of next year,  an application follows                                                                  
     in March  or April, as they said  it might, we'll have  to                                                                 
     make a decision as to whether  we think we can get access.                                                                 
     If we  think there's not a very  good chance for whatever                                                                  
     reason, we're not going  to spend a lot of money going and                                                                 
     finding  gas. Other  companies  are going to  do the  same                                                                 
     thing.  So, future Foothills  lease sales  or activity  on                                                                 
     the  current  lease   sales  -  these  are  the  kinds  of                                                                 
     decisions we have to make  long in advance of the pipeline                                                                 
     starting  as  well  as  potentially   at  an open  season                                                                  
     nomination process before  the application has been turned                                                                 
     in with a lot of the specifics.  So, it becomes a concern.                                                                 
CHAIRMAN TORGERSON  asked when his  legislation would be  available.                                                            
"Our point  is that these  are issues that  we think may need  to be                                                            
addressed  in  any  legislation…It  won't  be an  amendment  to  any                                                            
particular piece."                                                                                                              
MR. HANLEY said he hoped by the end of the week.                                                                                
11:24:10 a.m.                                                                                                                 
REPRESENTATIVE  OGAN said he thought that access issues  were second                                                            
only to the route  issues. "This leads us to make  sure to encourage                                                            
companies  like yours and  others to lease,  explore and be  able to                                                            
have access to that pipeline…."                                                                                                 
MR. HANLEY  responded  that there  had been talk  about reserving  a                                                            
certain  amount  of  space  for things  and  as  a  company,  that's                                                            
difficult to  argue, because they  wouldn't like it if other  people                                                            
did that.                                                                                                                       
     We would like  the ability, if we choose to take  the risk                                                                 
     of the  open season,  to be able to  understand the  terms                                                                 
     and conditions  so we could bid.  We would be on the  hook                                                                 
     for  the money whether  we had the gas  or not and,  also,                                                                 
     during an  expansion process, if we find a fair  amount of                                                                 
     gas,  we make a proposal  and there's  an open season  for                                                                 
     other people to propose,  we are able to compete on a fair                                                                 
     basis for that. That's really what we're looking for.                                                                      
     So,  it is  a balancing  act  for us  in what  we ask  for                                                                 
     specifically,  because  some  of  these  things  get  into                                                                 
     details  and it's very  difficult to  regulate or dictate                                                                  
     the specifics or a project.                                                                                                
REPRESENTATIVE  GREEN asked  if he thought  their proposal  would be                                                            
available this week.                                                                                                            
MR. HANLEY  said that as soon as they  got some of their  specifics,                                                            
they would  be sharing  it with  multiple individuals  from  Senator                                                            
Torgerson and this committee to the state to Senator Murkowski.                                                                 
11:26:40 a.m.                                                                                                                 
CHAIRMAN TORGERSON  thanked him for his testimony  and announced the                                                            
Alaska Port Authority would give their update.                                                                                  
MR. BILL  WALKER, General  Counsel, Alaska  Port Authority,  thanked                                                            
the legislature  for all the work  that they're doing. He  said that                                                            
he would like to answer  the questions a little bit differently than                                                            
others. He said:                                                                                                                
     We have reviewed the proposed  legislation as requested on                                                                 
     the  federal  side and  it appears  to  us that  the  only                                                                 
     benefit  is  on  the  over-the-top  option.  It  does  not                                                                 
     clearly say over-the-top,  but the other permitted routes,                                                                 
     the Alcan  route and the LNG  and YPC would not need  such                                                                 
     legislation.   By  default,  it  appears  that   the  only                                                                 
     [indisc.]  that  would benefit  would be  an over-the-top                                                                  
     option, because if it wasn't  that, there wouldn't be much                                                                 
     reason for this legislation.                                                                                               
     The existing  approvals of permits  of the two routes  and                                                                 
     the fact that  they are following existing corridors  also                                                                 
     substantially  reduce the odds of a judicial challenge  to                                                                 
     the project  that follows either  or both routes. You  had                                                                 
     some discussion  about whether there would be  litigation.                                                                 
     Based  on what  I heard today  and certainly  any time  we                                                                 
     have  legislation that  impacts another  permitted route,                                                                  
     our concern is that it would  bring delay. It would invite                                                                 
     litigation from those that  already have permitted routes.                                                                 
     The biggest  enemy to a gas project  in Alaska, we think,                                                                  
     is  delay. You  heard  from CERA  testimony  at your  last                                                                 
     meeting in  Anchorage, I believe it was, is that  there is                                                                 
     a market  window. And  as we continue  to look at federal                                                                  
     legislation  and studies,  and hopefully  not litigation,                                                                  
     the  market doesn't  wait for  that. The  market needs  to                                                                 
     fill  those  orders. So,  anything  that's going  to  have                                                                 
     anything to do with delay we're very concerned about.                                                                      
     It  appears  to  us  that  the legislation   is primarily                                                                  
     designed  to help the over-the-top  route catch up and  at                                                                 
     the  same time  eliminate the  type of  analysis that  has                                                                 
     traditionally   been  performed  on  such  infrastructure                                                                  
     decisions  which  can  so  substantially  affect  or  even                                                                 
     eliminate  access of significant  areas of the country  to                                                                 
     the use of essential highways for commerce.                                                                                
     It is  disingenuous to  imply that a  number of pipelines                                                                  
     may be built in Alaska.  Clearly, the decision to build an                                                                 
     over-the-top  line  does affect  the  odds of  a pipeline                                                                  
     being built through Alaska.  It is doubtful that two lines                                                                 
     will be built from Alaska to the Lower 48.                                                                                 
     This  bill would effectively  repeal  the treaty, federal                                                                  
     legislation  and presidential  findings  that lead to  the                                                                 
     Alaska  Natural Gas Pipeline  Act of 1976 and the Highway                                                                  
     Route selection. It is the  job of government to determine                                                                 
     things  like   the  route  for  essential  infrastructure                                                                  
     services  especially  where the significant  construction                                                                  
     cost essentially  guarantees  that one line will be  built                                                                 
     in a generation.                                                                                                           
     The  proposed  bill  and accompanying  explanation   could                                                                 
     leave one with the impression  that the reason the highway                                                                 
     pipeline  has not been built  is due to the fact that  the                                                                 
     U.S. and Canadian  governments made the wrong  choice when                                                                 
     they  selected   the  highway  route.  The  fact   is  gas                                                                 
     economics,   technology,  and  cheaper  alternatives   for                                                                 
     supplying   gas  from   within  the   Lower  48  led   the                                                                 
     leaseholders  of  the gas  to not  build the  line.  Those                                                                 
     factors have  changed especially over the last  two years.                                                                 
     The highway route is economically  viable today and may be                                                                 
     demonstrated   to be  just  as  profitable  as  alternate                                                                  
     routes, such  as over-the-top and clearly would  have more                                                                 
     long-term  benefits for the long-term  development of  the                                                                 
     State of Alaska.  This bill would go way beyond  repealing                                                                 
     ANGTA,  but would also prevent  the FERC from determining                                                                  
     which  route would best  serve the  economic interests  of                                                                 
     both producers, transporters,  end users and the people of                                                                 
     the State of Alaska.                                                                                                       
     I  should add to  that, as  you know,  the Port Authority                                                                  
     concept  is a Y-line. It is the  highway route and an  LNG                                                                 
     option.  Economic analysis has  demonstrated that a  large                                                                 
     volume  pipeline is  cheaper per unit  of gas transported                                                                  
     than a  smaller line. This bill  would preclude analysis,                                                                  
     for example, whether a line  to the Lower 48 that would go                                                                 
     the highway  route might get significant economic  benefit                                                                 
     from a branch line to tidewater,  which we have heard very                                                                 
     little  discussion  of today  other than  from yourselves                                                                  
     that would double the carrying  capacity of the main trunk                                                                 
     line. It might  be in the producers interest to  make sure                                                                 
     that alternative was not  available so they could charge a                                                                 
     higher price or even guarantee  a market for the LNG going                                                                 
     to  the west coast  of Mexico  or the  United States  from                                                                 
     Indonesia or Australia.                                                                                                    
     We   don't  think   there's   anything  in   the  federal                                                                  
     legislation  that helps Alaska. You heard testimony  today                                                                 
     that   this   federal   legislation   trumps   the   state                                                                 
     legislation,  which eliminates the over-the-top.  That's a                                                                 
     very big  concern. Someone asked  the question. It's  nice                                                                 
     to  hear these  statements being  made by  individuals  at                                                                 
     this table,  but what happens  if another group comes  in?                                                                 
     If  there's a  merger? If  there's  a sale?  If there's  a                                                                 
     replacement   of  individuals   who  have  given  various                                                                  
     assurances?  I mean the  law is the law.  Once the law  is                                                                 
     passed,  the  law takes  precedent  over what  Alaska  has                                                                 
     done. That's of great concern to us.                                                                                       
     We were very concerned about  discussion of tax incentives                                                                 
     and that there  needs to be a tax package - not  as far as                                                                 
     this legislation,  but there  is a proposal in the Energy                                                                  
     Committee  for tax incentives.  What concerned us when  we                                                                 
     first  heard that is  that we are also  aware that,  Karen                                                                 
     Knudson,  the  Deputy Director  of  the White  House  Task                                                                 
     Force   on  August  16,  stated   that  President  Bush's                                                                  
     administration  supports  construction  of a  pipeline  to                                                                 
     carry  Alaska  North Slope  natural gas  to  the Lower  48                                                                 
     states, but  it is important that it does not  include tax                                                                 
     incentives  for any state the  gas pipeline project  would                                                                 
     have to work without tax incentives.                                                                                       
     We  were surprised  that  in the face  of those  kinds  of                                                                 
     statements  that there is now being proposed a  package of                                                                 
     tax incentives. The Port  Authority addressed that earlier                                                                 
     on. We  heard Pedro Van Meurs  '96 or '97 presentation  of                                                                 
     what it would take for Alaska's  gas to be commercialized.                                                                 
     He gave  a shopping list of seven  or eight items and  one                                                                 
     of them was accelerated  depreciation. I think he may have                                                                 
     used seven years versus the fifteen years.                                                                                 
MR. WALKER said that after the Port Authority was formed and                                                                    
received their IRS exemption, he met with Pedro Van Meurs in                                                                    
Bangkok and presented him with the IRS ruling.                                                                                  
TAPE 01-18, SIDE B                                                                                                            
He was  astounded  saying it  was far  better than  anything he  had                                                            
envisioned  as far  as accelerated  depreciation.  He estimated  the                                                            
economic  benefit  of a  Port  Authority  concept to  be  $10 -  $20                                                            
billion over  the life of the project  (stated in his memo  of March                                                            
30). That is substantial,  because at the time the  price of oil was                                                            
$10 a barrel.                                                                                                                   
MR. WALKER  said they  are not concerned  whether  they get  the tax                                                            
benefits or  not, but their concern  is the delay factor.  "We don't                                                            
feel  there needs  to  be any  federal  legislation  for an  Alaskan                                                            
project  to go  through. Our  economic  model shows  that there's  a                                                            
fantastically economic project available using the Y-line…"                                                                     
Foothills permits  are very valuable; YPC has permits  also. Federal                                                            
legislation would make everything start from scratch again.                                                                     
     We think the federal legislation  attempts to catch-up the                                                                 
     over-the-top route with  those that are already permitted.                                                                 
     I think  the message to Congress  is that Alaska wants  to                                                                 
     commercialize  their  gas now.  I think as  you will  hear                                                                 
     soon, if you haven't already,  that Alaskans predominantly                                                                 
     prefer an LNG project.                                                                                                     
CHAIRMAN  TORGERSON  asked if  they had  been talking  to  Foothills                                                            
about the incentives  the Port Authority  might have to offer,  like                                                            
being tax exempt up to a certain point.                                                                                         
MR.  WALKER said  they had  and that  they  were tax  exempt to  the                                                            
Canadian border.                                                                                                                
CHAIRMAN TORGERSON  asked if he thought that exemption  needed to be                                                            
reinforced  in federal  legislation.  He said  that the legislature                                                             
technically has  no position until their studies are  done. He asked                                                            
if there were  any amendments to ANGTA  or the Producers'  bill that                                                            
would make their position more solid.                                                                                           
MR. WALKER said:                                                                                                                
     If  the federal  legislation  gets  involved,  there's  no                                                                 
     upside to  us at all and there's all potential  downside….                                                                 
     It's not like  we feel they're going to get an  additional                                                                 
     advantage.  It's  that  I  think we're  going  to  get  an                                                                 
     additional  disadvantage of additional litigation,  delay,                                                                 
      additional studies. That's what we're concerned about.                                                                    
11:40 a.m.                                                                                                                    
REPRESENTATIVE  GREEN asked  if he  was aware  of a  5 - 20  percent                                                            
differential  in pipeline  cost and  operation  for an over-the-top                                                             
versus a pipeline that  comes down into the state, which would allow                                                            
access to additional  discoveries  and asked if any comparisons  had                                                            
been made of the benefits to the state.                                                                                         
MR.  WALKER replied  that  they hadn't  looked at  the over-the-top                                                             
option. "Our  economic model  shows a return  to the producers  of a                                                            
little over  $2 billion  per year,  with a netback  of 75 cents  per                                                            
MCF.  We show  a return  to  the state  of Alaska  in  excess of  $1                                                            
billion per year…"                                                                                                              
He said they would have  their updated model of 4 BCF down the Alcan                                                            
Highway  this afternoon  and that  the work  was being  done by  the                                                            
financial house  of Taylor DeYoung  in Washington D.C. He  explained                                                            
that when the  numbers in their model  change, it doesn't  mean they                                                            
have changed their mind;  it means that they are using updated data.                                                            
"We are very  anxious to make that  available to anybody  that would                                                            
like to see it. It shows  that it's extremely financially beneficial                                                            
to the State of Alaska."                                                                                                        
MR. WALKER added:                                                                                                               
     The  statements that there  is no market  for LNG is  just                                                                 
     not all what we have found.  We've been in Houston four or                                                                 
     five  times and met  with those that  make their money  on                                                                 
     the marketing  of natural gas  from LNG and they are  very                                                                 
     anxious for Alaska gas to come down in LNG form.                                                                           
He said  there is some  question that El  Paso's Texas project  with                                                            
Phillips  out of  Australia  would go  through. "Bringing  LNG  from                                                            
Australia versus  from Alaska - it just doesn't make  sense. There's                                                            
a tremendous market  out there and the way we found  out about it is                                                            
we went to the market…."                                                                                                        
CHAIRMAN  TORGERSON thanked  Mr. Walker  for his  comments and  said                                                            
they  would be  discussing  that tomorrow  with tax  incentives  and                                                            
disincentives.  He announced that  they would take public  testimony                                                            
and start with Scott Heyworth.                                                                                                  
11:45 a.m.                                                                                                                    
MR. SCOTT HEYWORTH,  Chairman, Citizens Petition for  the All Alaska                                                            
Gasline  to Valdez, testified  that Lieutenant  Governor Fran  Ulmer                                                            
certified the petition  and it is 'being met with incredible welcome                                                            
by the Alaskan people.'                                                                                                         
     None  of these other  projects say anything  about gas  to                                                                 
     Southcentral.  Nothing is proposed.  Nothing is on paper.                                                                  
     The  LNG to  Valdez has  a spur  line from  Glennallen  to                                                                 
     Southcentral  to  bring  gas  to our  existing  gas  grid,                                                                 
     hooking  it  up near  Sutton  to  the North  Star.  It  is                                                                 
     integral to  our project. LNG to Valdez has the  most jobs                                                                 
     and  the most revenues  to the  state and  I'd be glad  to                                                                 
     debate   any  person,   any  citizen,   any  oil  company                                                                  
     executive,   any   governor  at   any  time   about   that                                                                 
     We  believe  the oil  producers  won't talk  about liquid                                                                  
     natural  gas to Valdez because  it directly competes  with                                                                 
     all  their other  LNG projects  around the  world, as  Mr.                                                                 
     Walker just  pointed out, which as you know, they  are now                                                                 
     racing to bring their gas  on line as soon as possible and                                                                 
     kill  the LNG viability.  That is a fact;  it is not  made                                                                 
     I'm  not opposed  to  the Y-line  through Canada  at  some                                                                 
     time.  The state gas  authority that  we are proposing  in                                                                 
     our initiative  will make that possibility available,  but                                                                 
     that is after we build the  line to Valdez first and after                                                                 
     everyone settles the huge  food fight in Canada, mitigates                                                                 
     the  crossing of  some 10,000  parcels of  land, settling                                                                  
     claims like the Foothills  $4 billion problem and allowing                                                                 
     the  Indian and tribal  claims of Canada  to get settled,                                                                  
     which  is going to take  many, many,  many years. The  oil                                                                 
     companies  are now fighting the governor over  which route                                                                 
     and they are  also fighting each other over which  federal                                                                 
     legislation  they should pass to give the most  tax breaks                                                                 
     to the already incredibly rich oil companies.                                                                              
     How much more money do they need, gentlemen?                                                                               
     While Alaskans suffer in  education, roads, potholes, lack                                                                 
     of  sewers. The all-Alaskan,  all-American  route doesn't                                                                  
     need,  nor is it asking for,  any of this special federal                                                                  
     legislation.  It works  on its  own economics,  no matter                                                                  
     what  the oil  producers keep  spewing out  with no  proof                                                                 
     whatsoever that LNG development  is uneconomical. It's not                                                                 
He said  Alaska can  reach Asian  markets that  are stable and  U.S.                                                            
markets through  the new facilities  and terminals that El  Paso has                                                            
announced they  are building on the west coast (three  in Mexico and                                                            
two  in California).  The  Pedro  van  Meurs  letter says  that  LNG                                                            
development is economical no matter what the oil companies say.                                                                 
MR. HEYWORTH  pointed  out that after  the tragedy  of September  11                                                            
that this is an all-American  route. LNG to Valdez through Alaska is                                                            
not going  through  a foreign  country. He  added, "We  do not  need                                                            
federal legislation.  We do not need a federal energy  czar. We just                                                            
need  to do  what the  people of  Alaska want  to do,  not what  the                                                            
governor wants  to do and not what the oil companies  want you to do                                                            
for them."                                                                                                                      
MR. HEYWORTH read  a portion of Governor Knowles'  letter to Senator                                                            
Bingaman that said:                                                                                                             
     Early this  year, I formed the Alaska Highway  Natural Gas                                                                 
     Policy  Committee, which  held hearings  across Alaska  in                                                                 
     order  to  solicit  the  views of  Alaskans  on  the  many                                                                 
     complicated    issues   surrounding   North   Slope    gas                                                                 
     development  transportation.  This Council  received  many                                                                 
     useful and thoughtful suggestions  from various interested                                                                 
     parties.  It  is fair  to  say a  consensus  exists  among                                                                 
     Alaskan  businesses,  Alaska  Natives,  organized  labor,                                                                  
     environment  and civil groups  and the Alaska Legislature                                                                  
      that the following principles should be embodied, etc.                                                                    
MR. HEYWORTH  disagreed with  the Governor's  letter. He thought  he                                                            
was totally out of touch with what the Alaskan people want.                                                                     
REPRESENTATIVE  OGAN said that is what his constituents  tell him on                                                            
the street.                                                                                                                     
MR. HAROLD  HEINZE, Special Assistant  to the Legislative  Majority,                                                            
said he hadn't  heard anything that  was in the state's interest  in                                                            
this legislation.  He offered the  perspective that the state  needs                                                            
to focus  on expanding  its role  in whatever  happens at a  federal                                                            
level in this legislation. He said:                                                                                             
     The  original  ANGTA legislation  we've  talked  about  is                                                                 
     several  decades old. Frankly,  at that time the State  of                                                                 
     Alaska was  not overly sophisticated in the executive  and                                                                 
     administrative  branch  and probably  in  the legislative                                                                  
     branch. Since then, we have  a Joint Pipeline Office and a                                                                 
     Regulatory  Commission. I went through and read  the acts,                                                                 
     the  Right-of-Way Leasing  Act, on and  on. There's  about                                                                 
     seven or eight pieces of  legislation that you have passed                                                                 
     in the  last decade and a half  very specifically dealing                                                                  
     with the  gas issue. So, the  state is very sophisticated                                                                  
     now.  I think  we  should have  an  expanded seat  at  the                                                                 
     table. And I think any federal  legislation should provide                                                                 
     for  that. I think it  should be almost  a litmus test  of                                                                 
     whether  anybody who  asks you  for support  whether  they                                                                 
     will support the state in that role.                                                                                       
He said  he was concerned  that  our treaty with  Canada provides  a                                                            
number of things  that are important  to Alaska, like guarantees  of                                                            
allocation of throughput  capacity and not inflating the cost, vis a                                                            
vis the tariff, which would  affect our wellhead. "If we end up in a                                                            
situation  where some different  route is  selected, that treaty  is                                                            
out the window…"                                                                                                                
MR. HEINZE said that it  also seems to him that in the end in Alaska                                                            
we have  to come to grips  with what is best  for Alaska and  it may                                                            
not even be a  project that is on the table today.  That needs to be                                                            
another reason  why Alaska needs to be at the table.  He has heard a                                                            
lot of  conversation from  the producers  this morning about  lowest                                                            
cost and that's not the  state's motive. "There is a revenue benefit                                                            
to the state, which is  affected by cost, but there is a non-revenue                                                            
benefit that's also very important to many people…."                                                                            
He urged  the committee  to  focus on  what's best  for Alaska  when                                                            
reviewing  legislation  this afternoon.  If the  producers want  our                                                            
support, "I think you should  put the price tag on it of being their                                                            
support   of  improving   Alaska's  standing   before  the   federal                                                            
government on this issue."                                                                                                      
CHAIRMAN TORGERSON thanked him and announced a break for lunch.                                                                 
11:58 a.m. - 1:35 p.m.  - LUNCH BREAK                                                                                         
TAPE 01-19, SIDE A                                                                                                            
MS. NAN  THOMPSON,  Chairperson,  Regulatory Commission  of  Alaska,                                                            
said that  the last time  she testified before  this committee,  she                                                            
highlighted  some  of  the  issues  that  related  to  her  agency's                                                            
jurisdiction  relative to the FERC.  She was asked to comment  today                                                            
on the topic generally of what federal legislation should include                                                               
to resolve some of the uncertainties.                                                                                           
     I   think  it's   generally   a   good  idea   to  reduce                                                                  
     uncertainties.  I would agree with the producers.  I would                                                                 
     probably  call them uncertainties  rather than risks,  but                                                                 
     the  process   will  go  much   more  smoothly  if   those                                                                 
     uncertainties are resolved.  There would be less delay and                                                                 
     less costs associated with it.                                                                                             
     The focus  of my comments today is suggestions  about what                                                                 
     should  be included in federal  legislation to clarify  my                                                                 
     agency's   role.  I  wanted  to  talk  first  about   what                                                                 
     generally  our  regulator  would  have  to do  or  what  a                                                                 
     regulator should have to do with this pipeline.                                                                            
     In  administrative   law,  we're  the  equivalent  of  the                                                                 
     police. We  make sure the pipeline is operated  fairly and                                                                 
     consistently with the public  interest. I would argue that                                                                 
     our role is  especially important in a pipeline  like this                                                                 
     because  some of the state's  gas is going to be taken  to                                                                 
     market  through this  line. As  a state agency  we have  a                                                                 
     very   unique   responsibility   with  respect   to   this                                                                 
     particular  proposed pipeline.  Also, the role of both  my                                                                 
     agency  and FERC might  be different  with regard to  this                                                                 
     gas  pipeline than  other gas  pipelines in  the Lower  48                                                                 
     because  this  is  the  only  route  for the  foreseeable                                                                  
     future.  In the  Lower  48 there's  a complex  network  of                                                                 
     pipelines   and  there's  many   different  markets.   So,                                                                 
     producers have options for  shipment that don't exist here                                                                 
     where  there's  only  one option.  That's  an  area  where                                                                 
     regulators traditionally  have a stronger role. When there                                                                 
     is  a  commercial  interest that  has  an  opportunity  to                                                                 
     exercise   monopoly  power  to   control  an  asset,   the                                                                 
     traditional  role  of a regulator  would be  to make  sure                                                                 
     they  use that  power  fairly and  consistently  with  the                                                                 
     public interest.                                                                                                           
     In  this particular  case there  are two  areas where  the                                                                 
     state's interest  could be better protected by  having the                                                                 
     regulatory roles of FERC  and my agency clarified. The two                                                                 
     areas  are the rates  to be charged  for shipments within                                                                  
     the State  of Alaska and also the interconnection  points.                                                                 
     Section 13(b)  of ANGTA does talk about how the  state has                                                                 
     a right  to sell its  gas instate and  requires that  FERC                                                                 
     allow that  to happen. Its language says FERC  has to sign                                                                 
     all the  necessary permits to  make that happen, but  it's                                                                 
     silent on the issue of where  those interconnection points                                                                 
     are and how  the placement of those points is  going to be                                                                 
     determined   and  what  happens  if  after  the   line  is                                                                 
     originally   built   another  interconnection   point   is                                                                 
     requested.  That is something where additional  input from                                                                 
     the state would be real important.                                                                                         
     My  recommendation  for the  best  model about  how  state                                                                 
     regulatory input could be  a part of the process is rather                                                                 
     than creating  a separate process,  to have it formalized                                                                  
     by  the  creation  of a  joint  board. A  joint  board  is                                                                 
     something  that there's some  reference to in Section  209                                                                 
     of the  Natural Gas Act to input  from a state agency  and                                                                 
     review by FERC, but the  model I'm thinking of is one that                                                                 
     I'm  familiar with  in the context  of telecommunications                                                                  
     regulation.  There it's one where on issues where  the FTC                                                                 
     needs  to work  with the state,  there is  by statute,  in                                                                 
     Section  410 of the Telecommunications  Act, the creation                                                                  
     of  a  joint   board.  The  board  in  that  statute   has                                                                 
     commissioners   from  different  states  and  a  consumer                                                                  
     advocate   and  some  of  the   FTC  commissioners.   That                                                                 
     particular  joint board only  adjudicates issues that  are                                                                 
     referred  to it by the  FCC. So, it  would be issues  that                                                                 
     the FERC, in this case,  wanted input from the joint board                                                                 
     on and  then that joint board  makes recommendations  back                                                                 
     to the  FERC, which decides to  adopt or reject them.  But                                                                 
     it's  a process  that exists  now  in federal  law and  in                                                                 
     other  areas that are helpful  to provide state input  and                                                                 
     it's a process  that I know this particular FERC  would be                                                                 
     familiar  with, because  Pat Wood, who  is the new chair,                                                                  
     was on  the Federal Universal  Service Joint Board in  the                                                                 
     telephone  context.  It's a  process that  has functioned                                                                  
     very  well  and  I don't  know  why  we  couldn't  have  a                                                                 
     specific  reference  in  federal  legislation  creating  a                                                                 
     similar joint  board. Again, all the issues that  the FERC                                                                 
     needs to adjudicate with  respect to this pipeline are not                                                                 
     ones that  are important to the state. But with  regard at                                                                 
     least  to instate  rates and  the interconnection  points                                                                  
     instate, it would be useful  to have those issues referred                                                                 
     to a joint  board so that we'd  have some opportunity  for                                                                 
     I think  in terms of other important  provisions, Section                                                                  
     13 that  I talked about  the last time  I was before  this                                                                 
     committee,  I still think is important. It's that  section                                                                 
     of  ANGTA that  gives  the state  - insures  that there's                                                                  
     nondiscriminatory  access to the line that says  you don't                                                                 
     have to be  a pipeline owner in order to ship  gas on that                                                                 
     line,  which would  be  important if  the state  wants  to                                                                 
     continue  to  encourage development  of  its oil  and  gas                                                                 
     resources.  It also  insures  under Section  (b) that  the                                                                 
     state  can use its  royalty gas instate  and requires  the                                                                 
     FERC to make  sure that happens. Those are my  suggestions                                                                 
     for  what  should  be in  federal  legislation  that  goes                                                                 
CHAIRMAN TORGERSON  said they had  language about the joint  boards,                                                            
but they didn't  give it any powers  and her suggestion was  that it                                                            
would  only  have the  power  to  recommend  back  to FERC  to  make                                                            
decisions. He asked if it would be advisory in nature.                                                                          
MS. THOMPSON replied that  it is and that's the model that is now in                                                            
federal law that she is familiar with and that works.                                                                           
     When you  say only advisory,  the purpose of, at least  in                                                                 
     the  FCC context,  of giving  issues to  the joint board,                                                                  
     it's  ones where  we, as  state commissioners,  have  more                                                                 
     expertise  and  knowledge.   The  FCC  doesn't  always  do                                                                 
     exactly  as recommended,  but  the reason  [joint boards]                                                                  
     were created  was to provide more input for them  and it's                                                                 
     well taken.                                                                                                                
CHAIRMAN TORGERSON asked  her to think about how large the board may                                                            
REPRESENTATIVE  GREEN  asked  if  she had  heard  the  testimony  of                                                            
Anadarko. She  indicated she hadn't.  Representative Green  asked if                                                            
she thought  they should advise on  the myriad of problems  that are                                                            
involved in  trying to regulate the  quality of the gas and  windows                                                            
later on.                                                                                                                       
MS. THOMPSON responded:                                                                                                         
     If it would be helpful to  the FERC, yes. Again, the model                                                                 
     I've  seen for a joint  board of this  kind is when  there                                                                 
     are issues  that the federal agency needs local  input on,                                                                 
     it's  a  good  way  to  get  it.  We are  sometimes   less                                                                 
     encumbered by some of the rules and we're here.                                                                            
REPRESENTATIVE  GREEN said that some of this is covering  new ground                                                            
and he wanted to know if  they wanted to be an observer or an active                                                            
MS. THOMPSON responded  that they don't need to be involved in every                                                            
     In  some  instances,   expansion  is  a  tough  one;   the                                                                 
     application  process is an easier  one. I think under  the                                                                 
     existing statute, there's  already an adequate opportunity                                                                 
     for considerations in the  state's interest and that's not                                                                 
     something,  if in the  existing statute  and legal scheme                                                                  
     there's  already opportunity  for the state's interest  to                                                                 
     be considered,  there isn't a need to run it through  this                                                                 
     other  process. It's  only in  areas where  we as a  state                                                                 
     have  unique interests  that  aren't  otherwise protected                                                                  
     under the  legal scheme that regulates gas pipelines.  For                                                                 
     example,  the instate  rates - there  isn't another  state                                                                 
     that  I'm familiar  with  that has  the same  issues  with                                                                 
     regards  to instate rates that  we do. And the same  thing                                                                 
     with  access.  Those  are  issues  that  are  unique  that                                                                 
     existing  regulatory   schemes  for gas  pipelines   don't                                                                 
     account  for - the type of issues  we're going to face  on                                                                 
     this pipeline.                                                                                                             
REPRESENTATIVE  GREEN said  he was concerned  about new discoveries                                                             
and new gas  royalties on other than  just state land. "That  starts                                                            
to get  pretty roiled  then, especially  if it's  after the  initial                                                            
MS. THOMPSON  responded that  expansion would  be a different  issue                                                            
than interconnection  and she  would have to  think more about  what                                                            
their role would have to be.                                                                                                    
REPRESENTATIVE  DAVIES  said  they  are concerned  about  gas  being                                                            
discovered  in  the  Yukon  Basin,  for  instance,  and  the  unique                                                            
circumstances that would present.                                                                                               
MS. THOMPSON replied:                                                                                                           
     In that case,  a provision like the one that's  in Section                                                                 
     13 that  allows nondiscriminatory  access to a line  would                                                                 
     be important. So that if  there is gas discovered later by                                                                 
     someone  who does  not own  an interest  in the pipeline,                                                                  
     they  can get it  on. And then  I imagine  the same  rules                                                                 
     would apply  to expansion in any FERC pipeline…The  way it                                                                 
     works generally in the Lower  48 with gas pipelines is the                                                                 
     pipeline  owners,  if it's a  tradition  down there,  it's                                                                 
     pipeline  companies  after a while  that own  it and  they                                                                 
     want  to  make   money,  so  they  have  an  interest   in                                                                 
     expansion.  If there's gas and it needs to get  to market,                                                                 
     they  can make  money  taking it  to market.  So, usually                                                                  
     expansion  isn't  an issue  that's contested  under  those                                                                 
     circumstances. That's not usually the problem.                                                                             
REPRESENTATIVE  DAVIES asked if she  was proposing changes  to ANGTA                                                            
or to the proposed Producers' legislation.                                                                                      
MS. THOMPSON answered that  the big confusion she sees is the status                                                            
of the existing  ANGTA permit and  the Natural Gas Act application.                                                             
She could see that it could  potentially be a problem if the goal is                                                            
to get a project built.                                                                                                         
     Anywhere where  there's a lot of unresolved legal  issues,                                                                 
     clarification  might help the  whole process go smoother.                                                                  
     It's in regard  to the relationship of those two  statutes                                                                 
     where  clarification   would  be  most  helpful.  If  not,                                                                 
     opining  on whether or  not I think ANGTA  is a good  law,                                                                 
     you could argue about it either way.                                                                                       
REPRESENTATIVE  DAVIES asked in the  ANGTA if are the provisions  of                                                            
the state's interest are advisory or mandatory.                                                                                 
MS. THOMPSON  replied that  is a hard question  to answer.  "Section                                                            
13(b)  talks about  the rates and  that's probably  advisory  rather                                                            
than mandatory  at least  in terms  of the state's  role in  setting                                                            
intrastate  rates  now,  but  it  is a  statute  that  can  be  read                                                            
different  ways, which is  part of the reason  she thought  it would                                                            
help to clarify it.                                                                                                             
REPRESENTATIVE DAVIES asked about the access.                                                                                   
MS. THOMPSON answered  that there wasn't a very clear  provision for                                                            
access in there now.                                                                                                            
     Under  state law we have a joint  use and interconnection                                                                  
     authority  and that would satisfy  us to pipelines in  the                                                                 
     states,  but it wouldn't  apply to this  one clearly  now.                                                                 
     That  has standards  for joint  use  and interconnections                                                                  
     that  I think might  be a useful guide.  It's in AS  42.06                                                                 
     now,  but there isn't  a clear provision  now under  ANGTA                                                                 
     for   interconnection   within   the  state   with   other                                                                 
CHAIRMAN  TORGERSON asked instead  of a joint  committee made  up of                                                            
FERC and RCA,  would it be better  to put language saying  that FERC                                                            
must seek their  position on access issues or other  issues prior to                                                            
making their decision.                                                                                                          
MS. THOMPSON answered  that from her experience the  decision making                                                            
process  goes better  if  the people  who were  supposed  to make  a                                                            
decision were looking at the same record.                                                                                       
CHAIRMAN TORGERSON  thanked Ms. Thompson for her testimony  and said                                                            
they would hear from Mr. John Katz next.                                                                                        
1:51 p.m.                                                                                                                     
MR. JOHN  KATZ, Director,  State and Federal  Relations and  Special                                                            
Counsel to  the Governor, said his  testimony would be divided  into                                                            
three parts:  first, the congressional  situation as he understands                                                             
it; two, where we are heading  in drafting legislation; and three, a                                                            
review  and consultative  process  of  where we  go  from here.  The                                                            
committee will  hold a hearing devoted  specifically to the  natural                                                            
gas pipeline on  October 2. He said that it is no  longer clear that                                                            
it will be an energy package  per se and the timing of that package.                                                            
The  committee   wants   to  either  report   comprehensive   energy                                                            
legislation  to the full Senate or  to participate in deliberations                                                             
of the full Senate on economic  stimulus packages and other vehicles                                                            
that might carry some portions of the national energy package.                                                                  
The chairman wants  the hearing on October 2 so he  will be prepared                                                            
for any  eventuality in the  Senate. If he  has the time to  produce                                                            
comprehensive  legislation, that would be his preference,  but if he                                                            
doesn't he would  like to be in a position to propose  amendments to                                                            
a fast moving  vehicle such as an  economic stimulus package.  There                                                            
has been some  talk about dealing  with exigent issues in  an energy                                                            
bill and perhaps picking others up later on.                                                                                    
MR. KATZ said  there were some things that were emerging  out of the                                                            
committee's early deliberations that are worth mentioning.                                                                      
     The first  is that among some members of the Senate  there                                                                 
     clearly  is a  dynamic between  ANWR and  the natural  gas                                                                 
     pipeline. Some members are  in opposition to ANWR and feel                                                                 
     that the natural gas pipeline  is a weighty substitute. We                                                                 
     have   taken  the   position   that  both   projects   are                                                                 
     essentially  in  the national  interest  and  neither  one                                                                 
     should  have  preference over  the  other. They  both  now                                                                 
     present  jobs in bad  economic times  and national energy                                                                  
     security.  Another thing that is of concern to  us is that                                                                 
     it may  be that some  variant of the  Producers' enabling                                                                  
     legislation  that  ends up  in  the markup  vehicle  being                                                                 
     considered  by  the  committee.  That,  of  course,  is  a                                                                 
     concern  to most  of  us on this  teleconference  if  that                                                                 
     occurs. We  and others have been making arguments  on that                                                                 
MR. KATZ continued:                                                                                                             
     A  few weeks  ago  the  Governor asked  me  to head  up  a                                                                 
     legislative drafting group  that included officials in the                                                                 
     state  administration  in  an effort  to  come up  with  a                                                                 
     comprehensive   legislative   approach  to  the  pipeline                                                                  
     project.  This is not something  that we often do or  feel                                                                 
     the need to  do in connection with federal policy,  but it                                                                 
     seemed  useful  and appropriate  in  this  context.  Since                                                                 
     then,  the  committee  has met  on  several  occasions  to                                                                 
     consider  successive drafts  of legislation.  In the  last                                                                 
     couple  of days  we have finalized  a draft  which we  are                                                                 
     internally comfortable with  and I'll describe in a minute                                                                 
     how we proposed to proceed from there.                                                                                     
MR. KATZ said  he wanted to talk about the draft legislation.  It is                                                            
premised  on amending the  ANGTA of 1976 as  they felt that  was the                                                            
best way to accomplish  the Alaskan goal of constructing  a pipeline                                                            
in  an expeditious  way.  It was  the cleanest  approach.  ANGTA  is                                                            
existing federal  law and making amendments  would modernize  it and                                                            
reflect certain preeminent national or state interests.                                                                         
     So, one major  purpose of the legislation is to  modernize                                                                 
     an  expedited process  for executive  branch review of  an                                                                 
     application for construction.                                                                                              
     A second major principle  is that everything we've done is                                                                 
     tied  to construction  of the  Alcan route.  We have  tied                                                                 
     everything, then, to the  southern route. So, for example,                                                                 
     we do propose in there various  tax benefits some of which                                                                 
     have  been broached  by Phillips  Petroleum,  tied to  the                                                                 
     southern  route.  They include  accelerated  depreciation                                                                  
     from  15 years to  seven years, investment  tax credit  on                                                                 
     construction  of 10 percent and  a provision, which  deals                                                                 
     with  the question  of commodity  risk  - that  is if  the                                                                 
     price  of natural gas  goes below  a certain unacceptable                                                                  
     floor,  our research,  particularly by  the Department  of                                                                 
     Revenue,  indicates   that those  provisions   could  have                                                                 
     significant  beneficial impact  on the rate of return  and                                                                 
     we hope would, therefore, benefit the southern route.                                                                      
     As  all of you  know, the  Governor has  proposed certain                                                                  
     principles,  which we  have sought to  draft into federal                                                                  
     legislative  language. Briefly,  they include the concept                                                                  
     of a project labor agreement,  the idea of buying Canadian                                                                 
     and  U.S. steel if that  steel is available  and if it  is                                                                 
     available at reasonable  prices. Also, provisions relating                                                                 
     to  local hire  of Alaskans,  Native hire and  the use  of                                                                 
     Alaskan  contractors   wherever  possible.  We  also  have                                                                 
     provisions  that deal  with other issues  that I know  the                                                                 
     committee  has heard testimony on such as access  to [the]                                                                 
     pipeline  by  nonproducers.  We  recognize  that  this  is                                                                 
     federal  legislation  and that  it is  inevitably dealing                                                                  
     with  federal  interests,  but  we also  think  that  it's                                                                 
     important that that legislation  reflect and be protective                                                                 
     of certain  state interests and  while there is a line  to                                                                 
     draw  between going  too far  in federal  legislation,  we                                                                 
     don't think we've crossed that line.                                                                                       
     Moving on,  then, to the consultative and review  process,                                                                 
     everything   that  we  have  contemplated  has   now  been                                                                 
     telescoped by virtue of  this hearing on October 2. We had                                                                 
     originally advocated to  the committee that the hearing be                                                                 
     on October  8, which would have  given us more time  to do                                                                 
     the things I'm about to  describe. We do want to cooperate                                                                 
     with the committee  and with the Alaska legislature  and I                                                                 
     want to be  careful here, because I don't want  to stumble                                                                 
     into  the dynamic that  I know has  been discussed today.                                                                  
     The  perspective on  my testimony here  is the Washington                                                                  
     D.C.  perspective of  affectuating Alaska's  interests  in                                                                 
     Washington and our collective  interests as best we can do                                                                 
     On  August 5, Pat  Pourchot, the Commissioner  of Natural                                                                  
     Resources,  wrote  Chairman  Torgerson  offering  certain                                                                  
     information and volunteering  to provide other information                                                                 
     and to cooperate  as best we can. That is an approach  and                                                                 
     an attitude  that we  continue to adhere  to. Our current                                                                  
     thinking  with respect  to the  process is  to discuss  on                                                                 
     Tuesday  of  next  week with  the  Governor's  Alaska  Gas                                                                 
     Policy  Council the general direction  that we have  taken                                                                 
     in  the  legislation  and  generally   the provisions   to                                                                 
     implement  that direction  to determine  whether they  are                                                                 
     generally  comfortable  with that.  We hope  in that  same                                                                 
     timeframe  to involve the producers  and the gas pipeline                                                                  
     companies  in that same conversation.  And then, we  would                                                                 
     want  to bring this  to the formal  attention of Chairman                                                                  
     Torgerson and your committee.                                                                                              
     As yet, the  Governor has not been intimately  involved in                                                                 
     the  legislative drafting.  He knows  the direction  we're                                                                 
     headed in,  but we want to conclude some of these  initial                                                                 
     steps  that I've described so  that he's in a position  to                                                                 
     know not only  what we recommended, but to hear  from some                                                                 
     of  the   other  groups.  Then   we  are  hoping  for   an                                                                 
     interaction with the committee.                                                                                            
     The  next step in our  process would  be to bring this  to                                                                 
     Senator  Murkowski. He  is our Alaskan  ranking member  of                                                                 
     the  committee and  it's important  in terms  of protocol                                                                  
     that  we  work  with  him  and  through  him  as  much  as                                                                 
     possible.  We will  then talk  to the chairman  about  our                                                                 
     legislation. We have been  advocates with the chairman and                                                                 
     the  ranking  member  and with  their  staffs  on general                                                                  
     principles   that   we  think   are  important   in   this                                                                 
     legislation  and  have  expressed our  concern  about  the                                                                 
     Producers' enabling legislation,  but we have not provided                                                                 
     legislative language and  until we complete the process we                                                                 
     just described,  we will not  provide the language to  the                                                                 
     committee,  although I  very much alternately  want to  do                                                                 
     that,  because  I  think  there's   a vacuum   there  that                                                                 
     Alaskans should seek to fill.                                                                                              
     In closing I want to offer  one personal observation based                                                                 
     on my own  experience back here. I was here on  and off in                                                                 
     the  early  days of  congressional  consideration  of  the                                                                 
     Alaska National Interest  Lands Conservation Act in 1978 -                                                                 
     79 and  at that point there was  not much consensus  among                                                                 
     Alaskans  and  we  suffer from  that.  When,  however,  we                                                                 
     talked among  ourselves and reached a consensus  on how to                                                                 
     approach the  federal government, we became much  stronger                                                                 
     and our advocacy  registered much more in the  process. To                                                                 
     the limit  and extent this office and I can contribute  to                                                                 
     building  that in the  case of the gas  pipeline, we  will                                                                 
     and  we want to work  with other Alaskans  who accomplish                                                                  
     that.  With that, Mr. Chairman,  I'll stop and see if  the                                                                 
     committee might have any questions.                                                                                        
2:06 a.m.                                                                                                                     
REPRESENTATIVE GREEN said  he mentioned three possible concessions -                                                            
accelerated  depreciation, construction  tax incentives and  a floor                                                            
on  the gas  value -  and asked  if  he is  concerned  if those  are                                                            
granted federally,  that it's  almost a given  that the state  might                                                            
also do the same thing.                                                                                                         
MR. KATZ answered that he didn't have specific concerns about                                                                   
translating that exactly into the three provisions of state law,                                                                
but that's a very good question.                                                                                                
     Yesterday,   I  was  forewarned  by  one  member   of  the                                                                 
     committee  that as we  come back here  to present what  we                                                                 
     are  expecting from  the federal  government  in terms  of                                                                 
     legislation,  some  members of  the committee  may ask  us                                                                 
     what we are thinking about  in terms of changing the state                                                                 
     fiscal  regime or  other issues  that might  expedite  the                                                                 
     construction of the pipeline.                                                                                              
REPRESENTATIVE  GREEN said  he thought  that was  a pretty  delicate                                                            
line, "…to  offer carrots to help  get the line in the direction  we                                                            
want it, but we may also then be almost showing our hole card."                                                                 
MR. KATZ replied:                                                                                                               
     Representative Green, I  think we need to be careful about                                                                 
     that, but I didn't get the  sense, and it may change, that                                                                 
     there's  a specific  quid  pro quo,  that is  if you  guys                                                                 
     recommend  X, you'd better  make sure  you include X in  a                                                                 
     state law, but I do think  there will be a general inquiry                                                                 
     about what  Alaska is thinking in terms of things  that we                                                                 
     can  contribute  that would  expedite the  pipeline.  That                                                                 
     might be modifications  in the fiscal regime,  it might be                                                                 
     some  form  of participation   or other  things  that  the                                                                 
     committee would be aware of.                                                                                               
CHAIRMAN TORGERSON thanked  Mr. Katz for his testimony and said they                                                            
would go back to Joe Marushack and Ken Konrad.                                                                                  
MR. MARUSHACK  said that  the first written  question the  committee                                                            
asked them  was how the ownership  of the pipeline by the  producers                                                            
corresponded to  ownership provisions in ANGTA. His  answer was that                                                            
they think this is a good  example of why ANGTA is inconsistent with                                                            
state requirements and new legislation is needed.                                                                               
     At  the time  of the  waiver  for the  package permitting                                                                  
     producers  to participate,  there was  a provision for  30                                                                 
     percent  equity, we  believe, for the  producers and  that                                                                 
     waiver  could be approved and  exceeded if it was subject                                                                  
     to  approval by  FERC and  the Department  of Justice.  At                                                                 
     that time,  as you are aware,  the pipeline and the  whole                                                                 
     gas system  was bundled and pipelines bought and  sold gas                                                                 
     at  the wellhead  and that's  not the case  any more.  So,                                                                 
     that's an example of what's changed.                                                                                       
CHAIRMAN TORGERSON  asked if under ANGTA they could  own 100 percent                                                            
of the line if they met the antitrust test.                                                                                     
MR. KONRAD said  that was right. He said that in today's  regulatory                                                            
environment, it's open  access and the point becomes much more moot.                                                            
MR. MARUSHACK  said  they are very  comfortable  with all  antitrust                                                            
tests and their legislation  was not intended to bypass any of that.                                                            
CHAIRMAN TORGERSON  said,  "Under  ANGTA, you're not precluded  from                                                            
owning all  the line. You just have  to pass an antitrust  test. The                                                            
other question  was, does  your legislation  do away with that  same                                                            
antitrust test?"                                                                                                                
MR. MARUSHACK  replied that he didn't believe that  it did, but they                                                            
are open to changes to  that if it makes the process better. "We are                                                            
not  concerned about  any  antitrust issues.  We  will address  them                                                            
MR. KONRAD added that back then it wasn't open access.                                                                          
CHAIRMAN TORGERSON  asked if they supported seven  years accelerated                                                            
depreciation and they indicated they did support it.                                                                            
2:12 p.m. - 2:16 p.m. BREAK                                                                                                   
CHAIRMAN TORGERSON said  he was going back to Washington on Saturday                                                            
and he wanted  to formulate the committee's position  today. He said                                                            
when the committee  was formed, it  was charged with coming  up with                                                            
policies  and  to   represent  the  legislature.   He  said  he  had                                                            
amendments that are suggested  legislative fixes and are broken down                                                            
into three or  four major categories. The first one  is ANGTA 1 with                                                            
access issues  1 - 6, taxation  issues 1 -2.  Most of what  he heard                                                            
today  was covered  in these  amendments.  He said this  is a  broad                                                            
brush approach, so if they  are totally missing the point, they want                                                            
to get it.                                                                                                                      
REPRESENTATIVE PORTER moved to adopt proposal 1 (ANGTA 1).                                                                      
CHAIRMAN TORGERSON explained that the proposal:                                                                                 
     …Asks the  committee to ask Congress to reaffirm  that the                                                                 
     Alaska  Natural Gas Transportation  Act is the prevailing                                                                  
     law  with  respect   to  the  transportation  system   for                                                                 
     delivery of natural gas  to the Lower 48. It also requests                                                                 
     that Congress  allow amendments to that law as  long as it                                                                 
     doesn't   change  the  basic  nature  and  general   route                                                                 
     approved  by the transportation  system  that was already                                                                  
The justification is as follows:                                                                                                
                Justification for Proposal ANGTA 1                                                                            
Before  the  enactment   of  ANGTA  there  were  three  competitive                                                             
proposals   for  an  Alaska  Natural   Gas  Transportation   System.                                                            
Specifically those proposals were:                                                                                              
     1)   The Arctic Gas Project, which proposed an overland                                                                  
          pipeline  extending  from Prudhoe  Bay,  across the  North                                                            
          Slope  of  Alaska  to the  Canadian  Mackenzie  Delta  and                                                            
          thence  southerly through Canada to the  lower forty-eight                                                            
     2)   The El Paso LNG Project, which proposed an overland                                                                 
          pipeline  extending from  Prudhoe Bay to Southern  Alaska,                                                            
          where  the gas would have  been liquefied and transported                                                             
          by tankers  to terminals in the western United States; and                                                            
     3)   The Alcan Pipeline Project, referred to in Canada as the                                                            
          Alaska   Highway  Pipeline  Project,  which   proposed  an                                                          
          overland   pipeline   extending   from   Prudhoe  Bay   to                                                            
          Fairbanks,   Alaska,  and  thence  southeasterly   through                                                            
          western Canada to the lower forty-eight states.                                                                       
All  of these  proposals  were  filed  under  the Natural  Gas  Act,                                                            
debated by  FERC, and Congress  passed ANGTA,  which authorized  the                                                            
President to select a route.   The President then approved the ALCAN                                                            
route  and  entered into  a  treaty  with Canada,  which  was  later                                                            
confirmed  by Congress.  The  Canadian  Parliament  also passed  the                                                            
Northern  Pipeline Act, the  equivalent of  ANGTA.  ANGTA was  never                                                            
repealed.  In  fact, in 1992 the federal inspector  recommended that                                                            
ANGTA be abolished, but Congress rejected that notion.                                                                          
CHAIRMAN TORGERSON recommended that they adopt ANGTA 1.                                                                         
REPRESENTATIVE  DAVIES  said he  was concerned  about  the focus  on                                                            
delivery  to the  contiguous  states and  wondered if  it should  be                                                            
broader  and include  Alaska  specifically  and the  possibility  of                                                            
other markets.                                                                                                                  
CHAIRMAN TORGERSON said  that language was in the purpose section of                                                            
ANGTA. "We  could chop it  off anywhere you  want as long as  we are                                                            
saying  that ANGTA  is the  prevailing law  and there  was only  one                                                            
route under that law and that's the direction."                                                                                 
REPRESENTATIVE DAVIES said:                                                                                                     
     Mr.  Chairman,  I  believe that  within  ANGTA  there  are                                                                 
     provisions  that refer  to the delivery  from that system                                                                  
     into   Alaska,  specifically,   and  also  the  off   take                                                                 
     provisions could allow,  essentially, for the Y-line to be                                                                 
     constructed….  I  think  the  interests  of the  State  of                                                                 
     Alaska  are clearly  broader than just  delivering gas  to                                                                 
     the contiguous Lower 48….                                                                                                  
CHAIRMAN  TORGERSON said you  could put in  language saying  "to the                                                            
contiguous states  or as directed under ANGTA," but  that is already                                                            
in Section 13(b).                                                                                                               
REPRESENTATIVE  DAVIES proposed an  amendment to insert "to  Alaska,                                                            
the contiguous  states and other markets" on line  4 after "to the".                                                            
It would then  read, "for delivery of Alaska natural  gas to Alaska,                                                            
the contiguous  states, and other  markets and the construction  and                                                            
initial operation of that system."                                                                                              
CHAIRMAN  TORGERSON asked  if that  would allow  for the Y-line  and                                                            
Representative  Davies  indicated  that  it  would.  There  were  no                                                            
objections to Amendment 1 and it was adopted.                                                                                 
TAPE 01-19, SIDE B                                                                                                            
CHAIRMAN TORGERSON asked  if there were objections to ANGTA 1. There                                                            
were no objections and it was adopted as follows:                                                                               
     The Joint Committee on Natural  Gas Pipelines respectfully                                                                 
     requests  that Congress reaffirm  that the Alaska Natural                                                                  
     Gas Transportation Act (ANGTA)  is the prevailing law with                                                                 
     respect to a transportation  system for delivery of Alaska                                                                 
     natural  gas to Alaska, the contiguous  states, and  other                                                                 
     markets,  and the construction  and  initial operation  of                                                                 
     that system.                                                                                                               
     The  Joint   Committee  on  Natural  Gas  Pipelines   also                                                                 
     respectfully   requests   that  Congress   allow  certain                                                                  
     amendments to ANGTA to modernize  the act without changing                                                                 
     the  basic  nature  and  general  route  of  the approved                                                                  
     transportation   system   or   otherwise   preventing   or                                                                 
     impairing  in  any  significant  respect  the expeditious                                                                  
     construction  and initial operation of the transportation                                                                  
2:24 - 2:26:41 p.m. - BREAK                                                                                                   
CHAIRMAN TORGERSON announced  that ANGTA 2 was up for consideration.                                                            
REPRESENTATIVE GREEN moved to adopt ANGTA 2.                                                                                    
CHAIRMAN TORGERSON  explained that it says: "The Joint  Committee on                                                            
Natural Gas Pipelines respectfully  requests that Congress adopt the                                                            
provisions  that   prohibit  the  over-the-top  route   through  the                                                            
Beaufort Sea as a pipeline route."                                                                                              
He said it would  be consistent with what passed the  House and they                                                            
have heard the justification  many times. It would ask the Senate to                                                            
adopt the same provisions that passed the House.                                                                                
The justification is as follows:                                                                                                
·  The Alaska Legislature has banned  this route in Senate Bill 164.                                                            
·  The  House  of  Representatives   in  Congress  has   adopted  an                                                            
   amendment in the Energy Bill to ban this route.                                                                              
·  This  route seriously   decreases  the  benefits  Alaskans'  will                                                            
   receive from the development of natural gas.                                                                                 
·  The North Slope  Borough and the Alaska  Eskimo Whaling  Captains                                                            
   oppose this route.                                                                                                           
REPRESENTATIVE   DAVIES   moved   to  delete   "the"   from   before                                                            
"provisions". There were no objections and it was so adopted.                                                                   
REPRESENTATIVE  OGAN  asked if  the justification  was  part of  the                                                            
language. It wasn't.                                                                                                            
SENATOR  OLSON  said   that  adding  the  Eskimo  Whaling   Captains                                                            
opposition would give it a little more clout.                                                                                   
CHAIRMAN TORGERSON responded  that the reason he didn't add them was                                                            
because he hadn't  seen an official document from  the International                                                            
Whaling Commission opposing  the over-the-top route, although he had                                                            
heard a number  of them testifying  against it. If there  was such a                                                            
letter,  he would be  glad to use  it in his  presentation.  Senator                                                            
Olson said he would try to get one.                                                                                             
CHAIRMAN  TORGERSON asked  if there  was any  objection to  adopting                                                            
ANGTA 2.                                                                                                                        
REPRESENTATIVE OGAN objected,  pointing out that the route seriously                                                            
decreases the benefit to  Alaska and that they have a constitutional                                                            
obligation to develop the resources to the maximum benefit.                                                                     
CHAIRMAN  TORGERSON  said he  wished that  Congress  would pay  more                                                            
attention  to  our  constitution,  but  he understood  what  he  was                                                            
REPRESENTATIVE DAVIES added  that previous testimony had pointed out                                                            
that low cost does not equal maximum benefit necessarily.                                                                       
REPRESENTATIVE  OGAN said  this was an  important amendment  because                                                            
they said  if Congress  does prohibit the  over-the-top route,  they                                                            
are going  to pull the plug  on the project.  He reminded them  that                                                            
they had  been assured  that  at the end  of the  day the  producers                                                            
weren't going  to build  something Alaskans  didn't support  or sell                                                            
gas to someone that would  build a pipeline over-the-top. He thought                                                            
that  maybe  the strategy  of  the  producers  was  to get  all  the                                                            
information  in, then  make a presentation  to  the legislature  and                                                            
that might  be the proper time to  say yeah or nay. "This  amendment                                                            
may be the  trigger that gets people  prepared to draw lines  in the                                                            
sand and we've got another 25 years of stranded gas."                                                                           
CHAIRMAN  TORGERSON responded,  "We're not  going to allow  an over-                                                            
the-top route  to be built.  So if they're  going to pull the  plug,                                                            
let's do it today and get it over with."                                                                                        
REPRESENTATIVE GREEN said  he had the same concerns at first, but we                                                            
have since found  out that other people and organizations  have come                                                            
forward  saying  they  would  consider  it and  the  producers  have                                                            
testified that  they wouldn't object  to selling the gas  to someone                                                            
REPRESENTATIVE OGAN added  that they had said that about LNG and the                                                            
question  is, "At what price  - a price that  will make the  project                                                            
economic or price that  would kill the project? The guy with the gas                                                            
makes the rule…"                                                                                                                
REPRESENTATIVE PORTER said  he intended to support the proposal, but                                                            
     After  the  work  is  done  by  the  producers   and  they                                                                 
     determine  that that route can be done with environmental                                                                  
     safety  and all the other concerns  that we have, I  would                                                                 
     probably  not be opposed to reconsidering  after our  line                                                                 
     is already constructed to  do what was suggested by one of                                                                 
     the testifiers to bring  Delta gas over to Prudhoe Bay and                                                                 
     down our pipeline.                                                                                                         
CHAIRMAN TORGERSON  asked for the roll call. SENATORS  OLSON, ELLIS,                                                            
and  TORGERSON;  REPRESENTATIVES   DAVIES,  CHENAULT,   FATE,  OGAN,                                                            
PORTER, and GREEN voted  yes and the ANGTA 2 as amended was adopted.                                                            
CHAIRMAN TORGERSON announced ANGTA 3 to be up for consideration.                                                                
This is an attempt to handle Anadarko's problems and reads:                                                                     
     The Joint Committee on Natural  Gas Pipelines respectfully                                                                 
     requests  that Congress  create a mechanism  for allowing                                                                  
     the fair distribution of  the costs allowed to be included                                                                 
     in the  tariffs associated with  a conditioning plant(s).                                                                  
The justification is:                                                                                                           
     Other producers  will likely discover gas downstream  from                                                                 
     access  to a conditioning plant  in Prudhoe Bay that  will                                                                 
     require  them  to  construct  an additional  conditioning                                                                  
     plant.   These producers  will need  to be treated fairly                                                                  
     with  regard  to  tariffs  to encourage  development   and                                                                 
     exploration of all North Slope gas resources.                                                                              
REPRESENTATIVE OGAN moved to adopt Amendment 3.                                                                                 
REPRESENTATIVE  DAVIES asked if he  seriously considered  discussing                                                            
unbundling the costs.                                                                                                           
CHAIRMAN TORGERSON  said he didn't discuss it with  anybody. He just                                                            
asked for a  fair mechanism; he didn't  know what language  would be                                                            
used. "All  that has to work here  is that we create something  that                                                            
if the  conditioning  plant is  built in  one location  and  someone                                                            
builds  one  downstream,  that  we  don't pay  the  tariff  for  the                                                            
upstream one…."                                                                                                                 
REPRESENTATIVE   DAVIES  moved   to  amend   line  2  by   inserting                                                            
"unbundling  or otherwise"  after "a  mechanism for".  So, it  would                                                            
     The Joint Committee on Natural  Gas Pipelines respectfully                                                                 
     requests that  Congress create a mechanism for  unbundling                                                                 
     or otherwise  allowing the fair distribution of  the costs                                                                 
     allowed  to be included in the  tariffs associated with  a                                                                 
     conditioning plant(s).                                                                                                     
CHAIRMAN TORGERSON said he didn't have a problem with that.                                                                     
SENATOR OLSON asked who  was going to make the determination of what                                                            
a fair distribution of costs would be.                                                                                          
CHAIRMAN TORGERSON replied that the FERC would.                                                                                 
     We  want Congress to  consider creating  a mechanism  that                                                                 
     tells  FERC to look out for these  kinds of things and  to                                                                 
     treat  people  fairly  that have  different  conditioning                                                                  
     plants. According the FERC,  that's a given, but according                                                                 
     to what we hear from other people, it's not.                                                                               
REPRESENTATIVE DAVIES added:                                                                                                    
     I completely  concur with your  last comment in that  when                                                                 
     we  listen to FERC,  they seem  to be  saying that market                                                                  
     forces  will determine  those things  and this  is such  a                                                                 
     unique situation, essentially  almost a monopoly position,                                                                 
     that  most people  think that  only one  pipeline will  be                                                                 
     built.  I think we need to send  a message to Congress  to                                                                 
     send  a message to  FERC that  they need  to look at  that                                                                 
     issue a lot  more carefully than they apparently  normally                                                                 
REPRESENTATIVE  OGAN said that maybe  the language could  be broader                                                            
than  just  conditioning  plants   and maybe   add  "and  associated                                                            
CHAIRMAN  TORGERSON  suggested keeping  that  in mind  when they  go                                                            
through  the access  sections.  He thought  they  had covered  those                                                            
points,  but they  need  to make  sure. He  also didn't  think  they                                                            
needed to be that detailed.                                                                                                     
CHAIRMAN  TORGERSON   asked  if  there  was  any  objection  to  the                                                            
amendment to ANGTA 3.                                                                                                           
REPRESENTATIVE  FATE  asked since  "unbundling"  is  such a  general                                                            
term, if  it might cause  some unintended  consequences. He  said he                                                            
was uncomfortable with that language.                                                                                           
REPRESENTATIVE DAVIES explained,  "In my mind, the unbundling speaks                                                            
having  transparency with  respect to  the way the  tariffs are  put                                                            
together and that's why I offered the amendment."                                                                               
REPRESENTATIVE  FATE replied that his explanation  explained it more                                                            
clearly than his amendment.                                                                                                     
REPRESENTATIVE DAVIES withdrew  his amendment and stated Amendment 2                                                            
which inserted  "transparent and"  after "allowing the".  There were                                                            
no objections to adopting Amendment 2.                                                                                          
CHAIRMAN  TORGERSON asked  if there  was any  further discussion  of                                                            
ANGTA 3 as amended. There  were no objections and ANGTA 3 as amended                                                            
was adopted.                                                                                                                    
CHAIRMAN TORGERSON announced ANGTA 4 to be up for consideration.                                                                
REPRESENTATIVE GREEN moved to adopt ANGTA 4.                                                                                    
CHAIRMAN TORGERSON  said they hear  about some of the provisions  of                                                            
ANGTA that  are dated and  the Dempster Lateral  is one of  them. He                                                            
thought it might go away  automatically, but he thought it should be                                                            
discussed.  It says, "The Joint Committee  on Natural Gas  Pipelines                                                            
respectfully  requests Congress  to eliminate  the Dempster-Lateral                                                             
route from provisions in ANGTA."                                                                                                
The justification  is  that the  Northwest Territories  has  another                                                            
route that  they are considering and  the Dempster Lateral  plan has                                                            
been gone for some time.                                                                                                        
REPRESENTATIVE  DAVIES said he wondered  what Alaska's interest  was                                                            
in  doing that,  although  he  wouldn't  object to  using  it as  an                                                            
example after 1, which talks in terms of modernization.                                                                         
REPRESENTATIVE GREEN suggested adding, "if necessary".                                                                          
REPRESENTATIVE  DAVIES again suggested using it as  an example under                                                            
ANGTA 1 and removed his objection.                                                                                              
REPRESENTATIVE  GREEN moved to add ", if necessary."  after "ANGTA".                                                            
There were no objections and it was adopted.                                                                                    
CHAIRMAN TORGERSON asked  if there were any objections to ANGTA 4 as                                                            
amended. There were no  objections and it was adopted and reads: The                                                            
Joint  Committee  on Natural  Gas  Pipelines  respectfully  requests                                                            
Congress to eliminate the  Dempster-Lateral route from provisions in                                                            
ANGTA, if necessary.                                                                                                            
CHAIRMAN TORGERSON announced ANGTA 5 to be up for consideration.                                                                
REPRESENTATIVE GREEN moved to adopt ANGTA 5.                                                                                    
CHAIRMAN  TORGERSON  explained   that  this  proposal  goes  to  the                                                            
withdrawn  partners issue  with Foothills Pipe  Lines, Ltd.  that is                                                            
the other issue  that is often raised as a block.  It basically says                                                            
that  the  Committee   respectfully  requests  that   Congress  pass                                                            
legislation  that  limits  funds   the withdrawn   partners  of  the                                                            
approved transmission system can collect in a tariff.                                                                           
The justification  is that  the current owner  of the authorization                                                             
under ANGTA  is Foothills Pipe Line  Ltd. Previously, Foothills  had                                                            
several  partners,   which  over   time  have  withdrawn   from  the                                                            
partnership.  The withdrawn partners  spent funds in support  of the                                                            
ANGTA  route and  have  filed documents  with  the FERC  to  include                                                            
recovery of those  costs in any tariff for transportation  of Alaska                                                            
natural  gas. Foothills  has  been negotiating  with  the  withdrawn                                                            
partner  to  resolve  this  outstanding  liability.  However,  those                                                            
negotiations have not been successful to date.                                                                                  
Foothills and  its partners should be compensated  for the work done                                                            
in  furtherance  of  the ANGTA  system  that  does  not need  to  be                                                            
duplicated.  If the  work needs  to be  redone or  modernized,  they                                                            
should  not  be  entitled  to  collect  for  the  funds   previously                                                            
expended.  Accordingly,  the  Joint Committee  should  support  this                                                            
2:48 p.m.                                                                                                                     
CHAIRMAN  TORGERSON explained  in other  words this  means that  the                                                            
only thing  they can  claim in a  tariff is  reimbursement for  work                                                            
that would  not have  to be duplicated  under  the regime of  ANGTA.                                                            
This, in his mind, would do away with the amounts in question.                                                                  
REPRESENTATIVE FATE said:                                                                                                       
     The  limiting factor  of the collection  of those tariffs                                                                  
     was  something   that  was  a   tangible  asset  and   the                                                                 
     withdrawing   of  a  partnership   is  usually  something                                                                  
     conducted  outside of  the parameters  of this ANGST as  a                                                                 
     controlling  factor,  but  is something  that  is usually                                                                  
     within   either   corporate   structure  or   a  business                                                                  
     enterprise.  I am not sure that  however this came about,                                                                  
     that a withdrawn  partner should be entitled to  anything.                                                                 
CHAIRMAN TORGERSON said he didn't disagree and maybe he had poor                                                                
language. But they have heard the claims out there.                                                                             
     The withdrawn partners is  probably a business arrangement                                                                 
     between two  grown-up corporations that can make  any kind                                                                 
     of deal  that they want  to. My concern  is that there  is                                                                 
     not  a  contingent  liability  for adding  to  the tariff                                                                  
     expenses that are not justifiable.                                                                                         
REPRESENTATIVE GREEN said he could see where Representative Fate                                                                
was coming from,                                                                                                                
     …but if you gain something  from what has been done in the                                                                 
     past, whether it's $4 billion  or several hundred million,                                                                 
     if that's a benefit towards  getting this thing done, then                                                                 
     there probably should be some ability to recoup them.                                                                      
CHAIRMAN TORGERSON said they had heard from the producers that                                                                  
there may be a liability out there and:                                                                                         
     I'm just  trying to make that  go away. I think it's  fair                                                                 
     that  they  ask  -  and  it's  not  our  bailiwick;   it's                                                                 
     Congress's,  but if we're  going to  use the framework  of                                                                 
     ANGTA, we  don't want to hang it up with an extraordinary                                                                  
     expense for things that aren't Foothills'.                                                                                 
2:54 p.m.                                                                                                                     
REPRESENTATIVE  DAVIES said  he was a little  concerned, but  agreed                                                            
with  the intent.  He asked  if withdrawn  partners  could  actually                                                            
collect from  a tariff. He wondered  if it shouldn't read  more like                                                            
legislation that limits  tariff charges that are intended to pay the                                                            
withdrawn partners.                                                                                                             
CHAIRMAN  TORGERSON said that  it could actually  say, "any  carried                                                            
forward costs from prior dates".                                                                                                
REPRESENTATIVE  DAVIES said he thought  the way the verbs  should go                                                            
together should limit the tariff charges to legitimate expenses.                                                                
CHAIRMAN TORGERSON agreed.                                                                                                      
REPRESENTATIVE  FATE  said, "Limiting  tariff charges,  even  though                                                            
it's  certainly better  to cut  them out,  still opens  the door  to                                                            
tariff charges."                                                                                                                
CHAIRMAN TORGERSON said they could add, "if appropriate."                                                                       
REPRESENTATIVE   FATE  said  his  concern  was  if   that  was  even                                                            
CHAIRMAN  TORGERSON said  that according  to  Foothills, they  don't                                                            
have any carried  forward charges. He thought they  were writing off                                                            
all of their expenses up to this time.                                                                                          
REPRESENTATIVE  FATE said  if there  were a  window of opportunity,                                                             
they would find it.                                                                                                             
REPRESENTATIVE  PORTER wondered if getting into this  issue was more                                                            
confusing than staying  out of it. It seemed if all the work done by                                                            
the withdrawn  partners had been done  by Foothills under  contract,                                                            
there  wouldn't  be any  discussion.  All the  costs  that had  been                                                            
amassed  to this point  by continuing  partners,  it's all on  their                                                            
ledger  and they  either try  to get  it back  or not  get it  back,                                                            
depending on  how successful they  are with this whole project.  "It                                                            
seems  like discussions  with withdrawn  partners  and the still  in                                                            
partners is their deal, not ours."                                                                                              
CHAIRMAN  TORGERSON said  he didn't  disagree, but  they have  heard                                                            
testimony from  different sources  that come up with the  $4 billion                                                            
number and he is trying to give the committee's position on it.                                                                 
     As I was  going from office to  office back in Washington                                                                  
     D.C.,  somebody  has  done  a damn  good  job  of telling                                                                  
     everybody  that there's  a $4  billion bill  hanging  over                                                                 
     Foothills'  head and  they're very familiar  with that.  I                                                                 
     advised  Foothills  of that and  they're doing  kind of  a                                                                 
     lousy job of telling people  back in D.C. that this is not                                                                 
     true. They tell us it's  not true, but the people that are                                                                 
     pushing the  buttons think it is true. I think  we need to                                                                 
     make a position  on this that since we've already  adopted                                                                 
     the framework  of ANGTA, this  is one of the problems  and                                                                 
     we need to recommend that it go away.                                                                                      
3:00 p.m. - 3:04 p.m. BREAK                                                                                                   
REPRESENTATIVE  DAVIES moved  to amend ANGTA  5 to read the  same up                                                            
through  "legislation that  limits" and insert  "tariff charges  for                                                            
prior work  to compensation for work  done that does not  have to be                                                            
duplicated   and  which  is  deemed   appropriate  to  the   current                                                            
transportation system."                                                                                                         
CHAIRMAN  TORGERSON  said the  intent  is to  allow  expenses to  be                                                            
carried forward  that are fair and do not have to  be duplicated. He                                                            
used the example of an  EIS statement that was already half done. If                                                            
money was spent on it,  that would be a legitimate expense to add to                                                            
the tariff.                                                                                                                     
CHAIRMAN TORGERSON asked  if there was any further discussion on the                                                            
amendment to ANGTA  5. There were no objections and  it was adopted.                                                            
3:07 p.m.                                                                                                                     
CHAIRMAN TORGERSON asked  if there was further discussion on ANGTA 5                                                            
as amended. There was no  further objection or discussion and it was                                                            
CHAIRMAN  TORGERSON  said  that access  issues  1 -  4  were up  for                                                            
consideration. They were all called "A" for access.                                                                             
REPRESENTATIVE GREEN moved to adopt A1.                                                                                         
CHAIRMAN  TORGERSON   explained  it  requests  that   Congress  pass                                                            
legislation to assure that  Alaska has fair and reasonable access to                                                            
gas produced from  the state and to create a joint  board consisting                                                            
of  the  Federal  Energy   Regulatory  Commission   (FERC)  and  the                                                            
Regulatory  Commission of Alaska (RCA)  to determine instate  access                                                            
and tariffs under the Natural Gas Act.                                                                                          
He said the justification  was given to them by Ms.  Thompson of the                                                            
RCA and says unlike the  Trans-Alaska Transportation System for oil,                                                            
the Natural Gas  Act does not provide for the Regulatory  Commission                                                            
of Alaska  to set rates for  gas used in  Alaska.  Although  Section                                                            
13(b) of  ANGTA provides  that the state is  authorized to  ship its                                                            
royalty  gas on the  approved system  for use  within Alaska  and to                                                            
withdraw such gas from  the interstate market for use within Alaska,                                                            
it does not deal specifically  with how Alaska delivery points along                                                            
the line will  be approved.  Access  to gas is necessary  for social                                                            
and  economic  development   of  Alaska.    The  Alaska   Regulatory                                                            
Commission should be part  of a team that determines how intra-state                                                            
access and rates are determined.                                                                                                
CHAIRMAN  TORGERSON  said Ms.  Thompson  recommended  that the  team                                                            
could  make recommendations   back to  FERC. He  was  not sure  they                                                            
needed that in the language.                                                                                                    
REPRESENTATIVE DAVIES moved  to add "to make recommendations back to                                                            
FERC." So it would read:                                                                                                        
     …requests  that Congress pass  legislation to assure  that                                                                 
     Alaska  has fair  and reasonable  access  to gas produced                                                                  
     from the state  and to create a joint board consisting  of                                                                 
     Federal  Energy  Regulatory   Commission  (FERC)  and  the                                                                 
     Regulatory   Commission  of  Alaska  (RCA)  to  determine                                                                  
     instate access  and tariffs under the Natural  Gas Act, to                                                                 
     make recommendations back to FERC.                                                                                         
REPRESENTATIVE PORTER commented,  "When you say create a joint board                                                            
consisting  of  FERC and  the  Regulatory  Commission  of Alaska  to                                                            
determine instate  access, would you want to then  say 'to recommend                                                            
instate access'?                                                                                                                
CHAIRMAN  TORGERSON  said that  was right.  So they  have to  delete                                                            
"determine" and insert "recommend".                                                                                             
REPRESENTATIVE GREEN withdrew Amendment 1.                                                                                      
REPRESENTATIVE  PORTER  moved Amendment  2 to  A1, which  on line  3                                                            
deletes  "from"   and  inserts  "within"  and  on   line  5,  delete                                                            
"determine" and insert  "recommend". There were no objections and it                                                            
was adopted.                                                                                                                    
REPRESENTATIVE  DAVIES  said  he didn't  think  it was  the  Chair's                                                            
intent on line  4 to have the board  consist of the entire  FERC and                                                            
RCA.  He moved  to  delete "consisting  of"  and  insert  "appointed                                                            
from". So,  it would read, "members  appointed from". There  were no                                                            
objections and Amendment 3 to A1 was adopted.                                                                                   
REPRESENTATIVE GREEN asked  if our RCA wanted FERC to be involved in                                                            
establishing instate tariffs.                                                                                                   
REPRESENTATIVE  PORTER  suggested  "access  and  tariffs  under  the                                                            
Natural Gas Act that affect the State of Alaska."                                                                               
CHAIRMAN  TORGERSON said  he thought  that was  very broad  language                                                            
that might "get us a seat at the table."                                                                                        
REPRESENTATIVE  PORTER  moved to insert  "that affect  the State  of                                                            
Alaska."  after "access and  tariffs". There  were no objections  to                                                            
Amendment 4 to A1 and it was adopted.                                                                                           
REPRESENTATIVE  PORTER moved to adopt  A1 as amended. There  were no                                                            
objections and it was so ordered.                                                                                               
It read:                                                                                                                        
     The Joint Committee on Natural  Gas Pipelines respectfully                                                                 
     requests  that Congress  pass legislation  to assure  that                                                                 
     Alaska  have fair and  reasonable access  to gas produced                                                                  
     within  the State and to create  a joint board consisting                                                                  
     of  members   appointed  from   the  Federal  Energy   and                                                                 
     Regulatory  Commission  and the Regulatory  Commission  of                                                                 
     Alaska  to recommend  access and tariffs  that affect  the                                                                 
     state of Alaska.                                                                                                           
TAPE 01-20, SIDE A                                                                                                            
3:16 p.m.                                                                                                                     
CHAIRMAN TORGERSON  said they had  decided not to offer A2  and that                                                            
A3 was up for consideration.                                                                                                    
REPRESENTATIVE GREEN moved to adopt A3.                                                                                         
CHAIRMAN TORGERSON  explained that  A3 requests that the  formula be                                                            
developed  that would  allow  for the  setting of  different  tariff                                                            
rates for natural  gas distribution  points along the route  (Hubs).                                                            
He explained  that  the justification  is Alaska  studied  different                                                            
proposals  for the use  of natural  gas within  the state  including                                                            
several  proposals  for LNG  facilities  and  petrochemcial  plants,                                                            
several  GTL  plants  and  instate   usage  by  communities.  It  is                                                            
important  to be able  to set tariffs  at different  rates to  allow                                                            
these take  off points. "This is what  I was thinking came  close to                                                            
our discussion  before about  whether we  allow compressor  stations                                                            
and everything else. I  don't know if we need to get into that level                                                            
of detail, but  certainly we need to if we take off  from Fairbanks,                                                            
we  want  to have  a  price  in  Fairbanks  and if  there's  one  in                                                            
Glennallen  or Big  Delta,  maybe there  should be  a corresponding                                                             
CHAIRMAN TORGERSON  asked if there  were any objections to  adopting                                                            
A3. There were no objections and A3 was adopted.                                                                                
CHAIRMAN TORGERSON announced A4 to be up for consideration.                                                                     
REPRESENTATIVE GREEN moved to adopt A4.                                                                                         
CHAIRMAN TORGERSON  explained that  this is a request that  Congress                                                            
pass  legislation  to insure  that  producers  who  do not  have  an                                                            
ownership interest  in the pipeline have fair and  reasonable access                                                            
to space on the pipeline  and the ability to obtain expansion of the                                                            
The justification  is ANGTA originally precluded the  Producers from                                                            
participating  in the  ownership of  the gas pipeline.   In  1981, a                                                            
waiver was  sought and obtained  by President  Reagan to permit  the                                                            
Producers  to  have  an  ownership  share  in  the  pipeline.  Their                                                            
participation, however,  had to be approved by the FERC and could be                                                            
approved only  after consideration  of the advice from the  Attorney                                                            
General and upon a finding  by FERC that the participation would not                                                            
(a) be inconsistent with  the antitrust laws or (b) in and of itself                                                            
create restrictions on  access to the transportation system for non-                                                            
owner shippers or restrictions on capacity expansion.                                                                           
Alaska  has much  more  gas than  that  contained in  known  fields.                                                            
Currently, companies  are considering exploring for  such gas and if                                                            
discoveries  are made,  that gas  will need  to have  access to  the                                                            
pipeline on  fair and reasonable terms.  If significant discoveries                                                             
are made  after the initial  capacity is  filled, the pipeline  will                                                            
need  to  be  expanded  and  any  expansion   request  needs  to  be                                                            
determined on fair and  reasonable terms.  Accordingly, the law must                                                            
be  clear   that  the   FERC  has   the  authority   to  make   such                                                            
3:20 p.m.                                                                                                                     
REPRESENTATIVE  DAVIES  moved on  line 4  after "obtain"  to  insert                                                            
"capacity".  There were no objections  and Amendment 1 was  adopted.                                                            
CHAIRMAN TORGERSON  asked if there  were any objections to  adopting                                                            
A4 as amended. There were  no objections and A4 amended was adopted.                                                            
CHAIRMAN TORGERSON  explained that the next two amendments  involved                                                            
local hire, AH1 and AH2.  He explained that they request Alaska hire                                                            
and use of Alaska businesses.                                                                                                   
3:26:44 p.m.                                                                                                                  
REPRESENTATIVE  DAVIES  said the  only way  to meet  the  interstate                                                            
commerce  test and to  provide for  Alaska hire  is through  project                                                            
labor agreements.                                                                                                               
CHAIRMAN TORGERSON said this is a constitutional question.                                                                      
REPRESENTATIVE  DAVIES said  he thought  it was  important to  go on                                                            
record in support of that  and moved to delete "for Alaska hire" and                                                            
insert "project labor agreements."                                                                                              
CHAIRMAN TORGERSON  said the producers  testified this morning  that                                                            
they were going  to have labor agreements anyhow.  He asked if there                                                            
was any further discussion on AH1.                                                                                              
REPRESENTATIVE   OGAN  objected  saying  that  the  legislature   is                                                            
mandating a route and they  should keep other mandates at a minimum.                                                            
The producers  said  they were  going to  hire union  people and  he                                                            
thought  that, "every  able  bodied  Alaskan who  was  sober in  the                                                            
morning could get work." He didn't think this was necessary.                                                                    
REPRESENTATIVE DAVIES offered  the amendment with the "project labor                                                            
agreements" language.                                                                                                           
CHAIRMAN TORGERSON asked  for a roll call. SENATORS OLSON, KELLY AND                                                            
TORGERSON   and  REPRESENTATIVES    DAVIES,  PORTER,   voted   yeah;                                                            
REPRESENTATIVES  CHENAULT, FATE, OGAN,  GREEN voted nay;  and AH1 as                                                            
amended was adopted as follows:                                                                                                 
     The Joint Committee on Natural Gas Pipelines respectfully                                                                  
       requests Congress to approve a provision for project                                                                     
     labor agreements.                                                                                                          
CHAIRMAN  TORGERSON announced  AH2 to  be up  for consideration.  It                                                            
requests  Congress to approve  a preference  for Alaskan  businesses                                                            
for the construction  and maintenance of a natural  gas pipeline. He                                                            
said there  was discussion  on  whether it was  constitutional,  but                                                            
they want to  see Alaskan businesses  have first crack at  supplying                                                            
whatever is needed.                                                                                                             
REPRESENTATIVE GREEN moved to adopt AH2.                                                                                        
REPRESENTATIVE   PORTER  suggested   inserting  "qualified"   before                                                            
"Alaskan businesses".  There were  no objections and Amendment  1 to                                                            
AH2 was adopted.                                                                                                                
REPRESENTATIVE  GREEN  said  he  thought  this  amendment  was  more                                                            
palatable,  because  of  using  the  word  "preference"  instead  of                                                            
"provision for".                                                                                                                
REPRESENTATIVE  OGAN said he was wondering  what kind of  preference                                                            
they were talking about.                                                                                                        
CHAIRMAN  TORGERSON responded,  "If you're  asking me, I would  have                                                            
the  steel mills  built  here where  everything  had to  be made  in                                                            
REPRESENTATIVE   FATE  said   if  it  opens   up  a  discussion   on                                                            
constitutional issues, "That opens up Pandora's box."                                                                           
REPRESENTATIVE  OGAN  agreed with  Representative  Fate. He  thought                                                            
there were  ways to deal  with it instate  and they had already  had                                                            
some success negotiating with producers at Northstar and others.                                                                
CHAIRMAN  TORGERSON asked  if there was further  discussion  on AH2.                                                            
There being  none, he asked for a  roll call: SENATORS KELLY,  OLSON                                                            
and TORGERSON and REPRESENTATIVE  DAVIES, CHENAULT, PORTER and GREEN                                                            
voted  yeah; REPRESENTATIVES  FATE,  OGAN;  and AH2  as amended  was                                                            
3:38 - 3:41 p.m. - BREAK                                                                                                      
CHAIRMAN TORGERSON  announced that  they had two taxation  proposals                                                            
before them for consideration, T1 and T2.                                                                                       
REPRESENTATIVE  GREEN moved to insert "from" after  "imports" on T1.                                                            
CHAIRMAN  TORGERSON said  it now read:  "Respectfully requests  that                                                            
Congress  pass legislation  that prohibits  tax  incentives for  LNG                                                            
imports from outside of North America."                                                                                         
He explained the justification was that:                                                                                        
     The President  and Congress have recommended a  variety of                                                                 
     incentives  as part  of a national  energy policy. Alaska                                                                  
     natural  gas  is in  competition  with LNG  imported  from                                                                 
     foreign sources  to supply gas to the Lower 48  states. It                                                                 
     is the  policy of the United  States to reduce dependence                                                                  
     on foreign  energy sources. Accordingly,  Congress should                                                                  
     not pass any  law that gives tax incentives to  facilitate                                                                 
     importing LNG from sources  outside North America. Rather,                                                                 
     Congress should  enact incentives that benefit  production                                                                 
     from the  frontier areas of the  United States, including                                                                  
     Alaska.  Otherwise, United  States gas  in frontier  areas                                                                 
     may be stranded.                                                                                                           
He  said  that  right   now  the  committee  is  only  recommending                                                             
accelerated  depreciation;   that would  not  apply  to  LNG  import                                                            
facilities  that are built  to bring in gas  that competes  with gas                                                            
sources  within North  America.  "We  kept that  particularly  broad                                                            
because we didn't  want it to apply to Canada which  supplies us now                                                            
with about 20 percent of  our natural gas or something like that - a                                                            
large volume. Possibly, Mexico may come on line.                                                                                
He didn't think  it was fair to give  incentives to our competition                                                             
that would be equal to product that is available here in Alaska.                                                                
REPRESENTATIVE  PORTER suggested  amending  the amendment.  "Imports                                                            
outside"  leaves  the possibility  for  intermediate  [indisc.].  He                                                            
thought they might replace "imports" with "produced".                                                                           
CHAIRMAN TORGERSON said  that Amendment 1 would delete "imports" and                                                            
insert  "sources"  after  "from".   There  were  no  objections  and                                                            
Amendment 1 was adopted. It now read:                                                                                           
     The Joint Committee on Natural  Gas Pipelines respectfully                                                                 
     requests  that Congress  pass legislation  that prohibits                                                                  
     tax  incentives  fro LNG  from  sources outside  of  North                                                                 
CHAIRMAN TORGERSON  asked if there  was any discussion on  Amendment                                                            
REPRESENTATIVE  OGAN asked if there  was any kind of North  American                                                            
free trade agreement.                                                                                                           
CHAIRMAN  TORGERSON responded  that this  was more  of a policy  and                                                            
     The  same  people who  are  producing  our gas  are  going                                                                 
     around  the  world  finding  other  sources   cheaper  and                                                                 
     producing  that first and we're giving them incentives  to                                                                 
     beat our own gas out of  the market and I don't think it's                                                                 
There was no further  discussion and without objection  Amendment T1                                                            
as amended was adopted.                                                                                                         
CHAIRMAN TORGERSON announced T2 to be up for consideration.                                                                     
REPRESENTATIVE GREEN moved to adopt T2.                                                                                         
CHAIRMAN  TORGERSON  said that  T2,  "…requests that  Congress  pass                                                            
legislation   providing  a   tax  incentive   that  allows   for  an                                                            
accelerated depreciation  schedule of seven years for Alaska natural                                                            
gas brought to United State markets."                                                                                           
REPRESENTATIVE DAVIES asked  what impact that would have on tariffs.                                                            
CHAIRMAN TORGERSON  said it would let them write it  off quicker and                                                            
that it  was consistent with  what had already  passed the  House of                                                            
MR. MICHAEL HURLEY, Alaska  Gas Producers' Pipeline Team, explained:                                                            
     The  way that T2  is worded  - if you're  going to change                                                                  
     accelerated  depreciation, that  is a federal tax statute                                                                  
     and relates  only to your taxes. If you wanted  to clarify                                                                 
     it,  because normally  what happens,  just as background,                                                                  
     you  always end up  with several  depreciation schedules;                                                                  
     one you use for your SEC  books, because they have certain                                                                 
     requirements;   one you  use  for  the  federal  tax  man,                                                                 
     because  he has different requirements,  which may or  may                                                                 
     not  be accelerated.  The FERC actually  makes you keep  a                                                                 
     separate  set of books that are  tariff books that have  a                                                                 
     different  set of  depreciation  schedules.  So, the  FERC                                                                 
     role as part of their oversight  of tariffs, works through                                                                 
     a depreciation  schedule that  they will allow. You  could                                                                 
     clarify this  by simply saying, "accelerated depreciation                                                                  
     schedule  for tax purposes" and  that would alleviate  any                                                                 
     concern that  it would change the tariff in any  way shape                                                                 
     or form.                                                                                                                   
CHAIRMAN  TORGERSON said  there was  an amendment  for T2 to  insert                                                            
"for tax purposes" after "schedule".                                                                                            
CHAIRMAN TORGERSON  asked if there were any objections  to Amendment                                                            
1. There were no objections and it was adopted.                                                                                 
REPRESENTATIVE DAVIES asked why they were adopting seven years.                                                                 
CHAIRMAN TORGERSON  replied, "They asked for it and  it's already in                                                            
the energy bill."                                                                                                               
REPRESENTATIVE  OGAN asked  how this would  affect local  government                                                            
taxing them. This  is an issue in Valdez where they're  getting less                                                            
and less local revenues.                                                                                                        
REPRESENTATIVE  DAVIES moved  to insert "federal"  in front  of "tax                                                            
purposes".  There  were no  objections  and Amendment  2  to T2  was                                                            
CHAIRMAN TORGERSON  asked if there  were any objections to  adopting                                                            
T2  as amended.  There  were no  objections  and T2  was adopted  as                                                            
CHAIRMAN  TORGERSON  said  that  was  all  the  legislation  he  had                                                            
prepared to consider.                                                                                                           
REPRESENTATIVE  OGAN said, "For the  record, my vote on Alaska  hire                                                            
in no way reflected my  desire that Alaskans not be hired. I think I                                                            
made it  pretty clear  that I thought  the state  would be a  little                                                            
more effective without it."                                                                                                     
CHAIRMAN TORGERSON  announced the committee would  go into executive                                                            
session  for  purposes  of discussing  strategies  in  dealing  with                                                            
legislation from the governor and the federal legislation.                                                                      
4:00 p.m.                                                                                                                     
REPRESENTATIVE  GREEN moved for the  committee to go into  executive                                                            
session. There were no objections and they recessed.                                                                            
CHAIRMAN TORGERSON called the meeting back to order at 4:43 p.m.                                                                
REPRESENTATIVE GREEN moved  to end the executive session. There were                                                            
no objections and it was so ordered.                                                                                            
CHAIRMAN TORGERSON adjourned the meeting at 4:45 p.m.                                                                           

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