Legislature(2009 - 2010)BUTROVICH 205

02/20/2009 03:30 PM Senate RESOURCES


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03:36:00 PM Start
03:36:46 PM Overview: Securing a New Supply of Natural Gas for Southcentral and Interior Alaska (bullet Line and Spur Line)
05:01:54 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: TELECONFERENCED
Securing a New Supply of Natural Gas for
Southcentral and Interior Alaska
(Bullet Line, Spur Line)
Palin Administration
Harold Heinz, ANGDA
Enstar Natural Gas Company
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 20, 2009                                                                                        
                           3:36 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Bill Wielechowski, Co-Chair                                                                                             
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Hollis French                                                                                                           
Senator Thomas Wagoner - via teleconference                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Lesil McGuire, Co-Chair                                                                                                 
Senator Bert Stedman                                                                                                            
Senator Gary Stevens                                                                                                            
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Joe Thomas                                                                                                              
Senator Gene Therriault                                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Overview: Securing a new supply of natural gas for Southcentral                                                                 
and Interior Alaska (bullet line and spur line)                                                                                 
 Palin Administration, Joe Balash                                                                                               
 Enstar Natural Gas Company, John Lau                                                                                           
 Alaska Natural Gas Development Authority (ANGDA), Harold Heinze                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to consider                                                                                                  
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE BALASH                                                                                                                      
Special assistant to the Governor                                                                                               
POSITION STATEMENT: Commented on Southcentral natural gas                                                                     
issues.                                                                                                                         
                                                                                                                                
JOHN LAU                                                                                                                        
Enstar Natural Gas Company                                                                                                      
POSITION STATEMENT: Commented on Southcentral natural gas                                                                     
issues.                                                                                                                         
                                                                                                                                
HAROLD HEINZE                                                                                                                   
Alaska Natural Gas Development Authority (ANGDA)                                                                                
POSITION  STATEMENT:   Commented   on  Southcentral  natural   gas                                                            
issues.                                                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:36:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR BILL  WIELECHOWSKI called  the Senate Resources  Standing                                                            
Committee meeting  to order  at 3:36 p.m.  Present at the  call to                                                              
order were Senators Huggins, French, and Wielechowski.                                                                          
                                                                                                                                
^Overview: Securing  a new supply of natural  gas for Southcentral                                                              
and Interior Alaska (bullet line and spur line)                                                                                 
                                                                                                                                
3:36:46 PM                                                                                                                    
JOE BALASH,  special assistant to  the Governor, said he  works on                                                              
energy  and   resource  issues   and  would  talk   about  instate                                                              
pipelines.                                                                                                                      
                                                                                                                                
He referenced  a letter  sent by  the Deputy  Commissioner  of the                                                              
Department  of Natural  Resources (DNR)  to Representative  Ramras                                                              
dated  April 1,  2008 about  a pipeline  from the  North Slope  to                                                              
Cook Inlet. He  summarized that the Palin  administration's policy                                                              
has been to  pursue commercialization of Alaska  North Slope (ANS)                                                              
gas through  the largest possible  pipeline and to carry  that gas                                                              
to market while insuring that Alaskans have access to it.                                                                       
                                                                                                                                
The  question  as to  the  timing  of a  large  diameter  pipeline                                                              
moving  to market  and how  it relates  to  the needs  for gas  in                                                              
parts  of   the  state  that   haven't  enjoyed  access   to  gas,                                                              
particularly  in the Cook  Inlet basin,  brings into question  the                                                              
need  to deliver  a  smaller volume  of  gas  to the  Southcentral                                                              
region as  well as other  regions. He said  the state  would first                                                              
look to the private  sector to allow that to happen  under current                                                              
laws  and if  necessary,  lend some  support  to  that. However  a                                                              
number of  questions would  come into play  if the state  did lend                                                              
support.  The foremost  is whether  or not a  public entity  would                                                              
construct,  own  and  operate  a  pipeline  or  any  other  energy                                                              
project  or whether  private  entity would  receive  some form  of                                                              
assistance.  Ultimately, the  biggest  question is  if support  is                                                              
needed for  one project,  is that  the best  project or  are there                                                              
other  choices to satisfy  the energy  demands  of the state  that                                                              
may  not  necessarily be  a  pipe  line.  This goes  to  questions                                                              
surrounding  exploration  and development  costs,  importation  or                                                              
alternatives for generating electricity.                                                                                        
                                                                                                                                
MR. BALASH  said at  this point,  there is  interest from  private                                                              
sector  parties,  Enstar  as  a  potential  pipeline  builder  and                                                              
Anadarko as  a potential  supplier, for a  bullet line.  The state                                                              
has  been  in  talks  with  them   to  find  out  what  regulatory                                                              
structures would be needed to facilitate a project like that.                                                                   
                                                                                                                                
Also he  said the  state has  been pursuing  collaboration  on the                                                              
part  of the  regional  utilities  in the  Railbelt  region for  a                                                              
couple  of  years  and legislation  will  be  introduced  soon  to                                                              
enable that collaboration.  As part of this effort,  the state has                                                              
begun the process  of putting a contractor into  place through the                                                              
Alaska  Energy  Authority  (AEA)  that  will  conduct  a  regional                                                              
integrated resource  plan. It will take all the  various potential                                                              
energy supply  components and  find which ones  are going  to best                                                              
serve the  needs of the region.  Initial drafts of the  plan would                                                              
be  available in  the third  quarter of  this year  and that  work                                                              
would then  be turned  over to this  regional electric  company to                                                              
pick up and move on with the decisions that need to be made.                                                                    
                                                                                                                                
3:42:37 PM                                                                                                                    
SENATOR FRENCH asked for the name of the plan.                                                                                  
                                                                                                                                
MR. BALASH replied  the title of the organization  they are hoping                                                              
to   enable  this   year  is   the   "Greater  Railbelt   Electric                                                              
Transmission   Corporation"  and   the  second   is  a   "Regional                                                              
Integrated Resource Plan."                                                                                                      
                                                                                                                                
3:43:49 PM                                                                                                                    
SENATOR  FRENCH  asked  if  the  organizations  would  be  "lashed                                                              
together" or independent.                                                                                                       
                                                                                                                                
MR. BALASH  answered the  Regional Integrated  Resource Plan  will                                                              
have  a contractor  who is  selected and  paid by  AEA; that  work                                                              
will  be completed.  The question  then is  who will  pick up  the                                                              
ball and  do something  with it.  If the  enabling legislation  to                                                              
establish the  Regional Electric  Corporation is secured,  then it                                                              
would pick  up that work product  and begin the process  of making                                                              
the necessary  arrangements and  securing progress  on a  given or                                                              
multiple project fronts.                                                                                                        
                                                                                                                                
SENATOR  FRENCH  said  he  thought  this  was  a  good  idea,  but                                                              
questioned the extent  of a regional company's ability  to build a                                                              
bullet line  or a hydro project  or drill for new gas  reserves in                                                              
Cook Inlet.  "Trying to force  the producers  to drill for  gas in                                                              
Cook Inlet, I think, is impossible," he said.                                                                                   
                                                                                                                                
MR.  BALASH  said he  suspected  you  could  get  a whole  lot  of                                                              
producers  to  drill  in  Cook  Inlet  by  offering  them  $20/mcf                                                              
guaranteed for  20 years to  drill there.  The question is  how to                                                              
figure  out what  the right  price  is and  if the  market can  be                                                              
structured to make that happen.                                                                                                 
                                                                                                                                
3:47:31 PM                                                                                                                    
The price is an  important consideration in the Plan.  You have to                                                              
come up  with the capital  to build the  project and then  ask how                                                              
much the  energy will  cost delivered and  the Plan  would outline                                                              
that vision.                                                                                                                    
                                                                                                                                
3:49:03 PM                                                                                                                    
SENATOR HUGGINS  asked Mr. Balash  to share that vision  with them                                                              
and  to "fill  in  the blank"  around  the contractor  piece.  And                                                              
second, he  wanted the thoughts  of some  of the key  players from                                                              
the Railbelt on this matter.                                                                                                    
                                                                                                                                
MR. BALASH  said he didn't  have any of  the documents  related to                                                              
the solicitation  for the contractors  on the Integrated  Resource                                                              
Plan, but he would get and deliver them to his office.                                                                          
                                                                                                                                
3:50:30 PM                                                                                                                    
He said  the solicitation  has been developed  in building  off of                                                              
the work that  was done by the Railbelt Electrical  Grid Authority                                                              
Study  Group (REGA)  that was funded  by an  appropriation  out of                                                              
the Railbelt Energy  Fund in 2006. The study was  conducted by the                                                              
AEA;  their lead  contractor was  Black  and Vetch.  A very  large                                                              
advisory group  was assembled  consisting of  each of  the utility                                                              
cooperatives,  the  municipal  utilities  and many  of  the  other                                                              
stakeholders  that rely  on electricity  in  the Railbelt  region.                                                              
They looked  at the  options for moving  forward and  planning the                                                              
next  generation of  electricity  generation  and transmission  on                                                              
the   Railbelt    where   much   of   the    existing   generation                                                              
infrastructure needs  to be replaced.  At the end of the  day, the                                                              
mission  is  to provide  reliable  power  at the  lowest  possible                                                              
price to all consumers on the Railbelt grid.                                                                                    
                                                                                                                                
3:53:54 PM                                                                                                                    
SENATOR  HUGGINS  said he  still  hadn't  put  this concept  in  a                                                              
timeline  for "first  energy" or  indicated  where the  milestones                                                              
are and  he wanted  to know if  the contractor  had used  the REGA                                                              
study  elements as  a point of  departure or  were they  collating                                                              
and integrating it into a plan.                                                                                                 
                                                                                                                                
3:54:47 PM                                                                                                                    
MR. BALASH  replied that  the nature of  the discussion  since the                                                              
completion of  the REGA report has  centered on how  to transition                                                              
and he stated:                                                                                                                  
                                                                                                                                
     There  is no easy  way to  snap your  fingers and  bring                                                                   
     the assets  of each utility  into some separate  entity,                                                                   
     particularly when  you have municipal  entities involved                                                                   
     and particular  covenants on  the debt instruments  that                                                                   
     they have used  to acquire facilities in the  past. Some                                                                   
     of the  efforts that  Chugach and  ML&P have  undertaken                                                                   
     to  consider a  merger -  they have  discovered quite  a                                                                   
     lot  of   intricacy  and  difficulty  that   that  would                                                                   
     require. So  what we have  been working with,  a working                                                                   
     assumption as  it were, is that the  unified corporation                                                                   
     would  be  enabled   this  year  and  then   pursue  the                                                                   
     necessary  transition agreements  and  commitments in  a                                                                   
     shorter  period of time.  But the  actual transition  to                                                                   
     participating  in the corporation  and being availed  of                                                                   
     the benefits  of the  corporation would not  necessarily                                                                   
     be  completed for  as long  as 10 years.  In some  cases                                                                   
     there  are assets  that need  to live  out their  useful                                                                   
     life; and so  there needs to be enough time  for that to                                                                   
     occur before the complete transition would take place.                                                                     
                                                                                                                                
3:57:00 PM                                                                                                                    
SENATOR HUGGINS said  the other part is what  the contractor would                                                              
do with the  REGA study product  in shaping it for  the Integrated                                                              
Resource Plan.                                                                                                                  
                                                                                                                                
MR.  BALASH replied  that  the final  REGA  report identified  the                                                              
various options:  maintaining  the status  quo where six  separate                                                              
entities  continue  to transmit  and  distribute  power; and  then                                                              
looked  at various  ways to  consolidate  and otherwise  aggregate                                                              
the loads and delivery  of service.  It didn't come  out with "you                                                              
should do  X." It came  out with "here  are the benefits  of doing                                                              
W,Y and Z." From  that, the AEA has been conducting  meetings with                                                              
the  general managers  of  the six  utilities  and  chairs of  the                                                              
boards of  directors of the utilities  to develop a  "white paper"                                                              
and getting  as much consensus as  possible. From there,  going to                                                              
a drafting stage;  from drafting, meeting with the  utilities on a                                                              
very regular  basis and discussing what  it needs now and  what it                                                              
needs later.                                                                                                                    
                                                                                                                                
At this  point in  the discussion,  he said,  they need  to enable                                                              
the formation  of a corporation that  would consist of  a board of                                                              
directors that  is representative  of each  of the utilities  that                                                              
is   participating.  That   corporation  would   hire  the   staff                                                              
necessary to  start doing  the transition  agreements for  each of                                                              
the individual electric  utilities, and identify  which assets can                                                              
be  transferred most  quickly and  which  ones need  time to  just                                                              
live out their useful life. He stated:                                                                                          
                                                                                                                                
     That  process   would  take  place  if  we're   able  to                                                                   
     convince  the  legislature   that  that  legislation  is                                                                   
     worthy.  If that were  to pass  this session, the  ideal                                                                   
     would be  that those  transition agreements would  start                                                                   
     to be  negotiated out  - worked out  - and available  to                                                                   
     understand in time for the next legislative session.                                                                       
                                                                                                                                
     Other  issues that need  to be  specified to the  degree                                                                   
     they  can be  are  the  ones surrounding  financing,  in                                                                   
     particular.  This  history   of  state  corporations  in                                                                   
     Alaska is that  some are pure start ups that  go out and                                                                   
     enter into a  business arrangement all on  their own and                                                                   
     there are  some like AHFC  that were capitalized  on the                                                                   
     front  end.  And  exactly  how  this  organization  will                                                                   
     start  out is  going to be  dependent in  large part  on                                                                   
     the   commitment  and   willingness  of   each  of   the                                                                   
     respective utilities to get with the program.                                                                              
                                                                                                                                
4:01:13 PM                                                                                                                    
     The policy,  as it  were, from  Governor Palin has  been                                                                   
     that  it's not  appropriate  to spend  additional  state                                                                   
     dollars on  the utilities for  their benefit  until they                                                                   
     start  working together.  We all know  we're all  better                                                                   
     off working  together as  opposed to  at ends, and  that                                                                   
     if we  want to  achieve the  efficiencies of scale  that                                                                   
     are available  to all  of the rate  payers on the  grid,                                                                   
     that that kind  of collaboration and joint  planning and                                                                   
     paying needs to take place.                                                                                                
                                                                                                                                
CO-CHAIR WIELECHOWSKI  said when he  and Senator McGuire  set this                                                              
meeting up, the  idea was taken from a lot of  other legislators -                                                              
that Southcentral  is running out  of gas. Everyone  has competing                                                              
ideas  about how  to solve  the problem  - a bullet  line, a  spur                                                              
line off the large  diameter line, import gas from  Asia, or drill                                                              
in Nenana Basin  or Cook Inlet for  new gas. They wanted  a public                                                              
discussion to  find out where  the administration stands  on these                                                              
things. He  asked Mr. Balash to  talk a little bit about  what the                                                              
best course  is. How do  they get the  lowest cost,  most abundant                                                              
supply gas to Cook Inlet consumers and the Interior?                                                                            
                                                                                                                                
4:02:55 PM                                                                                                                    
MR. BALASH answered  that there is a role for  government to play,                                                              
but  the administration's  view  is that  the  private sector  can                                                              
best make  those choices.  One of  the impediments to  development                                                              
of  additional  gas resources  in  the  Cook  Inlet Basin  is  the                                                              
ability  to place that  gas into  a market.  In Southcentral,  the                                                              
primary markets  have been  the various  utilities, and  they have                                                              
enjoyed very  long contracts that  provided most of  their service                                                              
for a very long  period of time - at presubscribed  and prescribed                                                              
rates.  Only in  the  last decade  have people  seen  the need  to                                                              
start finding  additional supplies  to supplement those  contracts                                                              
that are beginning to run out.                                                                                                  
                                                                                                                                
One of the first  issues the administration faced in  2007 was the                                                              
question of  whether or not  to support the extension  application                                                              
of  ConocoPhillips and  Marathon  for their  LNG export  facility.                                                              
Initially  the  administration   wanted  to  impose  a  number  of                                                              
conditions  that   surrounded  the  supply  of  gas   to  Alaska's                                                              
domestic  markets  on  that  license.   One  of  the  things  they                                                              
ultimately resolved  with the owners of that facility  was to make                                                              
a portion  of its  capacity available  to third  parties who  have                                                              
gas, the  idea being that  in order to  first encourage  people to                                                              
find gas, they need to be able to count on a place to sell it.                                                                  
                                                                                                                                
The terms  of the settlement  with ConocoPhillips and  Marathon on                                                              
that  point  made  a  segment  of  their  capacity  at  the  plant                                                              
available in the  two-year extension. If they were  going to apply                                                              
for another extension,  it would be for a five-year  extension and                                                              
in that  five-year extension even  more of the plant  would become                                                              
available  to  third-party  access.  The  idea  was  that  looking                                                              
further out, you  create more opportunity in the  market place for                                                              
someone to place gas if they were to go out and find it.                                                                        
                                                                                                                                
4:08:11 PM                                                                                                                    
SENATOR FRENCH  asked if  access to  the LNG  plant for  those who                                                              
drill was added  to the export license or would it  get added next                                                              
time.                                                                                                                           
                                                                                                                                
MR.  BALASH answered  that it  is  a provision  in the  settlement                                                              
agreement between the  state and the owners of  the facility. It's                                                              
not in  the export license,  itself.  It's  in effect now,  and it                                                              
will grow if they apply for another extension.                                                                                  
                                                                                                                                
4:09:01 PM                                                                                                                    
SENATOR FRENCH said  some folks have said it won't  be long before                                                              
we have to import  LNG. He asked if imports would  be subject to a                                                              
different set of jurisdictional authorities than exports.                                                                       
                                                                                                                                
4:09:41 PM                                                                                                                    
MR. BALASH replied  that his understanding is when  it comes to an                                                              
export  facility  you  need  permission  from  the  Department  of                                                              
Energy. If  it's an import facility  it needs permission  from the                                                              
Federal Energy Regulatory Commission (FERC).                                                                                    
                                                                                                                                
SENATOR  FRENCH asked  if the  facility  could export  gas in  the                                                              
summer and import it in the winter.                                                                                             
                                                                                                                                
MR. BALASH replied that it's hard to say.                                                                                       
                                                                                                                                
SENATOR  HUGGINS asked  on a  scale  of one  to ten,  what is  the                                                              
likelihood of Cook  Inlet gas going to Fairbanks in  the next five                                                              
years.                                                                                                                          
                                                                                                                                
MR. BALASH  qualified his answer  for existing proven  reserves to                                                              
be a  one. If,  however, in the  next two  to three years  someone                                                              
"breaks  their bid  off"  on 3  tcf/gas,  then  there's a  greater                                                              
chance that Cook Inlet gas would go to Fairbanks.                                                                               
                                                                                                                                
4:12:33 PM                                                                                                                    
SENATOR HUGGINS  said all but one  person he has talked  to in all                                                              
the  forums  he  has  been  to in  that  area  have  said  it  was                                                              
feasible. He reminded  them that last year the  legislature passed                                                              
a  resolution saying  that  instate  gas is  a  priority. Then  he                                                              
recalled, subsequent  to that,  there was  a news conference  that                                                              
talked about  a public/private  entity. Up  until that  time, they                                                              
heard from Enstar  that it was going to build a  pipeline from the                                                              
north down to  Southcentral for $3.3 billion. The  news conference                                                              
said  that potentially  the prevailing  course was  taking gas  to                                                              
the north  as a spur  off of  the big pipeline.  He asked  if that                                                              
was accurate so far.                                                                                                            
                                                                                                                                
MR. BALASH  responded that  he missed  a step. At  the end  of the                                                              
session,  the  governor's  office  submitted  a  budget  amendment                                                              
request for  $10 million  to go  to the  Office of Management  and                                                              
Budget  (OMB)  for  the purpose  of  "RSAing"  to  the  respective                                                              
agencies that could  do the work necessary to  understand the best                                                              
way  to  deliver gas  instate.  A  particular  scope of  work  was                                                              
associated with  that and  the question was,  should the  folks at                                                              
DNR, the folks  at AEA or should  the folks at ANGDA  do that. The                                                              
administration wanted  the flexibility to  be able to  direct that                                                              
money as  he identified who  had the capacity  to do the  work the                                                              
soonest.                                                                                                                        
                                                                                                                                
At  the end  of  the day,  the  result was  that  $4 million  went                                                              
directly  to  ANGDA.  The  administration   did  not  receive  any                                                              
additional dollars  to conduct any sort of work  along those lines                                                              
beyond  what was  appropriated  for  existing agencies  and  their                                                              
existing responsibilities.  After the $4 million went  to ANGDA in                                                              
April,  discussions were  had  between Enstar  and  ANGDA and  the                                                              
administration  thought there  was  an agreement  in principal  to                                                              
get  everybody  working  together   towards  the  same  ends.  But                                                              
progress has not been what they had hoped.                                                                                      
                                                                                                                                
4:15:49 PM                                                                                                                    
SENATOR HUGGINS  said he  thought there was  one other  step. When                                                              
they were back  here in the summer  time, there was a  $25 million                                                              
line item that was being pushed by the administration for ANGDA.                                                                
                                                                                                                                
MR. BALASH replied  that request was submitted on  December 15 for                                                              
$5 million; he wasn't sure what happened this last week.                                                                        
                                                                                                                                
SENATOR  HUGGINS   said  the  amount  varies  depending   on  what                                                              
document you look at.                                                                                                           
                                                                                                                                
MR. BALASH  agreed  and explained  that the $25  million to  ANGDA                                                              
was a  request that had  been developed  in the course  of seeking                                                              
AGIA  license  approval  in  the  special  sessions.  One  of  the                                                              
fundamental  questions  about  AGIA  was how  Alaskans  would  get                                                              
access to  the gas,  he explained.  They knew  the big  pipe would                                                              
make access  available at the  off-take points required  under the                                                              
terms of  the license,  but the  question was  how that  gas would                                                              
get to the markets in-state. He explained further:                                                                              
                                                                                                                                
     At  the time,  the expectation  was that  for lack of  a                                                                   
     private sector  party stepping up and saying  they would                                                                   
     do  it, that  we  needed to  enable  ANGDA  to take  the                                                                   
     steps  necessary to  go out  and do  the permitting  and                                                                   
     early design  work until such  time that there  would be                                                                   
     a private sector  party to take over. And  so that's why                                                                   
     the $25 million  at that time was requested.  And as the                                                                   
     session   completed,  there   was  not  any   additional                                                                   
     dollars appropriated to ANGDA in the special session.                                                                      
                                                                                                                                
     As  we  approached  the coming  legislative  session  in                                                                   
     putting  together  the FY10  budget,  we really  had  to                                                                   
     scrub numbers  down as best  we could, and  the decision                                                                   
     was  to come in  with a  smaller bite  on ANGDA to  make                                                                   
     sure that  they could still  continue to make  progress,                                                                   
     but  recognizing that  we couldn't  necessarily get  the                                                                   
     full bite  given the state of  the price of oil  at that                                                                   
     time, which deteriorated further over time.                                                                                
                                                                                                                                
4:18:15 PM                                                                                                                    
SENATOR HUGGINS responded:                                                                                                      
                                                                                                                                
     And we're really  getting to what I hope  we can improve                                                                   
     upon because I  think it's important for the  state - is                                                                   
     you're describing  some things which are  important, but                                                                   
     it's  new  news to  me.  And  I mean  I  just  challenge                                                                   
     myself,  you  and the  other  members and  anybody  else                                                                   
     that's  listening  that has  a  party  to this  that  we                                                                   
     start  working  together to  emerge  in these.  And  the                                                                   
     same  thing with developing  the process,  so that  when                                                                   
     you give  us legislation we  can hit the ground  running                                                                   
     and not read  the legislation for the first  time as the                                                                   
     concept. That is hugely important.                                                                                         
                                                                                                                                
     I'll  say  it one  more  time -  that  we need  to  work                                                                   
     together  in the  development, at  least as  information                                                                   
     flow,  so  that   when  we  receive  something   we  are                                                                   
     prepared to  begin the execution  phase of it,  not just                                                                   
     the education phase of it.                                                                                                 
                                                                                                                                
     Now,  but  let  me  get  back  on  point  for  my  final                                                                   
     question  on  this -  is  okay -  so  there was  a  news                                                                   
     conference  in April  or correction,  in July, not  what                                                                   
     ANGDA has  done and not what  Enstar has done,  what has                                                                   
     the  administration  done  on in-state  gas  since  that                                                                   
     news conference?                                                                                                           
                                                                                                                                
MR. BALASH replied:                                                                                                             
                                                                                                                                
     The  administration  has  continued  to  work  with  the                                                                   
     parties  in  understanding  their plans,  how  they  fit                                                                   
     together,   how   they   don't.   And   in   the   fall,                                                                   
     particularly,  there   was  quite  a  bit   of  activity                                                                   
     relating  to the treatment  of unit  agreements in  Cook                                                                   
     Inlet  in  particular leases  -  and  trying to  see  if                                                                   
     there  was something that  could be  done to get  people                                                                   
     in  that part  of the state,  and in  a particular  area                                                                   
     over  on the  west  side of  the  Inlet  there, to  work                                                                   
     together collectively  to make sure  that a jack  up rig                                                                   
     would actually make it to the Cook Inlet.                                                                                  
                                                                                                                                
     It's  been  a  while  since  a  jack  up  rig  has  been                                                                   
     available  there. I  don't remember  off the  top of  my                                                                   
     head exactly  what the timeline is, but with  regards to                                                                   
     exploration in  the Inlet there are some  prospects that                                                                   
     could be  drilled if a jack  up rig were  available. And                                                                   
     there  would probably  be enough  work to  keep it  busy                                                                   
     for a couple  of years. The question is who  is going to                                                                   
     pay to mobilize  it and bring it up, and  then guarantee                                                                   
     that  it will  be returned  to whence it  came. And  the                                                                   
     idea that  ultimately came out  of some of  the disputes                                                                   
     in the  Inlet were to try  and get various  unit holders                                                                   
     and unit operators  to work together so that  they could                                                                   
     coordinate  their activities  and  assets  to make  that                                                                   
     happen.                                                                                                                    
                                                                                                                                
4:21:25 PM                                                                                                                    
SENATOR HUGGINS said:                                                                                                           
                                                                                                                                
     It appears  to me that the  trend in Cook Inlet  is just                                                                   
     the opposite  - that  when you  look at Cosmopolitan  as                                                                   
     an  example and  others, and  you listen  to the  people                                                                   
     that  are the  'producers' there  that they're  reducing                                                                   
     their expenditures  and they're  saying we're not  going                                                                   
     to  do things  because of the  economics.  But I may  be                                                                   
     wrong, but help me out if I am.                                                                                            
                                                                                                                                
MR.  BALASH   said  he  isn't   wrong,  but  the   question  about                                                              
activities  and  expenditures  in   Cook  Inlet  depends  on  what                                                              
resource you're  talking about. If  you're talking about  oil, yes                                                              
reductions  are occurring;  people  are putting  off  work if  not                                                              
cancelling it. Gas has some efforts under way.                                                                                  
                                                                                                                                
4:22:37 PM                                                                                                                    
SENATOR THOMAS said  he gets a lot of questions  in Fairbanks from                                                              
people  along  the  same  lines;  they read  the  paper  and  some                                                              
actually watch "Gavel  to Gavel" so they see  testimony by various                                                              
folks. They  watched the  state geologists  last week  saying that                                                              
in 10 or  11 years the Cook  Inlet supply of gas will  be depleted                                                              
regardless  of what  the reserves  are. So it  seems that  getting                                                              
the plan  evaluated would be  a good idea.  It's important  to get                                                              
that rig in there  and take the six most probable  locations to at                                                              
least  evaluate.   Who's  going  to   pay  for  it   is  something                                                              
different. If  the gas  industry thought it  was likely  that they                                                              
were going  to find a lot of  gas down there, they  would probably                                                              
be  doing   it  and  trying   to  talk  the  administration   into                                                              
supporting  a greater  export license,  because  that's where  the                                                              
market has been.                                                                                                                
                                                                                                                                
Also,  people are  concerned that  the pipeline  won't get  built.                                                              
Senator  Murkowski's  remarks  yesterday  also  caused  people  to                                                              
become  even  more  concerned  that the  potential  for  coal  bed                                                              
methane throughout  the U.S. surrounding the area  that supposedly                                                              
this gas  goes into is  getting is getting  greater all  the time.                                                              
The  question he  gets  mostly is,  "What are  you  guys going  to                                                              
do....are  we going  sit around  and wait another  two years  till                                                              
the  open  season?"   He  asked  what  the  legislature   and  the                                                              
administration is doing  to move forward on supplying  a source of                                                              
gas which is supposed to be the short term fix.                                                                                 
                                                                                                                                
4:26:32 PM                                                                                                                    
MR. BALASH  responded that  with regard  to existing resources  in                                                              
the Cook  Inlet, the RCA kicked  off a series of  conversations in                                                              
January regarding  gas supply planning  for the various  pieces of                                                              
infrastructure.   However,  he   emphasized   that  reserves   and                                                              
deliverability  are very  different issues  and it's important  to                                                              
understand  the  differences.  Reserves   might  not  be  able  to                                                              
deliver  out to  the peaks  needed  on particular  cold days  even                                                              
though they  may last  for many years.  Regulators are  doing what                                                              
they can  to get  all of the  participants in  the system  to talk                                                              
with each  other, but  getting a  reliable supply  of resource  to                                                              
tie  into the  Southcentral  system is  a  "tricky question,"  Mr.                                                              
Balash said.                                                                                                                    
                                                                                                                                
     Let's  imagine that  a bullet  line would  tie into  the                                                                   
     Southcentral  system,  and   it's  going  to  do  so  on                                                                   
     December  31,  2014.  If  it's   going  to  deliver  500                                                                   
     mmcf/day  on that  day, that's  going to  be a shock  to                                                                   
     the  system. There's  not  going to  be  a light  switch                                                                   
     that gets  flicked, and  you're not  just going to  shut                                                                   
     down everything in Cook Inlet on that day either.                                                                          
                                                                                                                                
     So, how  all of  that takes place  is something  that is                                                                   
     no easy  feat, and is one  that, in large  measure, will                                                                   
     be worked  out through and  with the various  commercial                                                                   
     parties involved  - the utilities that consume  the gas,                                                                   
     those who might  export and those who will  deliver. And                                                                   
     all of  those things can  be accommodated in  reasonably                                                                   
     commercial ways  when we get  nearer to that  point, but                                                                   
     that   is  an   issue  that   has  to   be  taken   into                                                                   
     consideration  as the  various  parties  needed to  make                                                                   
     commitments  to  actually  make a  project  happen  sort                                                                   
     through those issues.                                                                                                      
                                                                                                                                
4:30:09 PM                                                                                                                    
SENATOR HUGGINS  said he hit  on an important  point when  he said                                                              
"it gets  closer for  the commercial customers,"  but it  made him                                                              
nervous.  One of  the best things the state could  be doing now is                                                              
enhancing  the commercial  customer base,  and he emphasized,  "We                                                              
can't  wait." He  asked Mr.  Balash to  explain what  he meant  by                                                              
"closer to it" in getting to first gas.                                                                                         
                                                                                                                                
MR. BALASH  replied, if December 31,  2014 is when you  want first                                                              
gas to  be coming from a  North Slope pipeline  into Southcentral,                                                              
the question is  how long it will take to construct  the pipe. The                                                              
people he  has talked with suggest  that it's going to  take three                                                              
seasons; that  would indicate  the year 2011  for what would  be a                                                              
"sanctioned  decision where  people sign  on the  dotted line  and                                                              
everything  gets going." Then  the question  becomes who  needs to                                                              
be involved  in those  discussions and who  are the  parties going                                                              
to be.  "Who will deliver  the gas? Who  will construct  the pipe?                                                              
Who is going to  supply the gas? And who is going  to buy the gas?                                                              
Those are all elements necessary to make a project real."                                                                       
                                                                                                                                
4:32:33 PM                                                                                                                    
SENATOR HUGGINS  remarked, "Precisely;"  and his said  his thought                                                              
is very simple:                                                                                                                 
                                                                                                                                
     The  state should  be facilitating  the commercial  base                                                                   
     that puts the  demand that shines a bright  light on the                                                                   
     economics that  whoever is going to build  the pipeline,                                                                   
     whoever  is  going  to  have the  gas  source  has  some                                                                   
     confidence that  in fact it works - so we  can push. And                                                                   
     until  we do  that, and  start  creating some  certainty                                                                   
     it's  always  going  to  be  uncertain.  It's  the  same                                                                   
     reason we never built a gas pipeline.                                                                                      
                                                                                                                                
     We continue  to have these meetings, but we  never build                                                                   
     one because  we're going to  do it later. Everything  is                                                                   
     going  to  be later.  I  can  tell  you, the  people  in                                                                   
     Fairbanks -  what I heard from  them - and tell  me what                                                                   
     did  the task  force had  to say  - I'll  digress for  a                                                                   
     moment.  What did the  task force  find about  gasifying                                                                   
     Fairbanks?                                                                                                                 
                                                                                                                                
MR.  BALASH  recalled  the  task force  that  FedCo  put  together                                                              
called for support for an in-state bullet line type of project.                                                                 
                                                                                                                                
4:35:35 PM                                                                                                                    
SENATOR HUGGINS asked  what the task force thought  about the line                                                              
coming from south to north.                                                                                                     
                                                                                                                                
MR.  BALASH  answered he  read  an  earlier  draft of  the  report                                                              
briefly,  but the conclusion  was  that it was  unlikely that  gas                                                              
from Cook Inlet would be moving north.                                                                                          
                                                                                                                                
SENATOR HUGGINS  asked when  the study  indicated Fairbanks  would                                                              
get gas.                                                                                                                        
                                                                                                                                
MR.  BALASH  said  he  couldn't  remember  what  the  report  said                                                              
precisely on  that point.  He remembered  they identified  the FNG                                                              
project as a potential  solution to a lot of the  issues that face                                                              
the Interior.  In terms of a project  that has a known  supply, of                                                              
all the  ones they have talked  about today, his  understanding is                                                              
that  they are the  only ones  who do  have a  supply contract  in                                                              
hand.                                                                                                                           
                                                                                                                                
SENATOR HUGGINS  said one of  the things  in Mr. Balash's  memo is                                                              
the  500 mmcf/day  limit on  instate  gas. It's  his thought  they                                                              
grossly  violate  that  number  because  every  statistic  he  has                                                              
heard,  particularly for  commercial  use, will  lower the  tariff                                                              
and make the gas  more economical for his neighbors.  What was his                                                              
perspective on that.                                                                                                            
                                                                                                                                
MR.  BALASH responded  that  the 500  mmcf/day  issue is  imbedded                                                              
within AGIA  to make sure the state  is perfectly free  to do what                                                              
it wants  to deliver natural  gas to residents  of the  state. The                                                              
500  mmcf/day exception  in AGIA  relates to  a competing  project                                                              
meaning one  that is  designed to deliver  more than  500 mmcf/day                                                              
to market,  and the state would  be in violation of  its agreement                                                              
with  TransCanada Alaska  if it  extends  preferential royalty  or                                                              
tax treatment or  grant of state money to another  person. "So, if                                                              
the private sector  wants to put together a project  that is going                                                              
to deliver  more than  500 mmcf/day and  there is no  preferential                                                              
tax or  royalty treatment  or grant  of state  money involved,  no                                                              
problem."                                                                                                                       
                                                                                                                                
4:38:13 PM                                                                                                                    
SENATOR HUGGINS  said it appears to  him that they have  now moved                                                              
through  the  private piece  and  the  center  piece of  the  news                                                              
conference  said   the  marketing   issue  is  a   "public/private                                                              
partnership."  He  asked  Mr.  Balash,  "Didn't  you  go  down  to                                                              
Chicago or someplace with Enstar and talk to them?"                                                                             
                                                                                                                                
4:39:08 PM                                                                                                                    
MR.  BALASH replied  that  he went  down  in  January with  Deputy                                                              
Commissioner   Rutherford   and   met  with   Enstar's   executive                                                              
leadership and their holding company.                                                                                           
                                                                                                                                
SENATOR HUGGINS said  he assumed elements of that  were talk about                                                              
a "public/private partnership."                                                                                                 
                                                                                                                                
MR. BALASH responded  the questions they discussed  there are what                                                              
Enstar saw  as the  barriers to  them pursuing  a project,  and in                                                              
the course  of the  conversation they  described some  things that                                                              
they thought,  after conferring with  their lawyers, needed  to be                                                              
changed in  state law. Enstar was  under the impression  it needed                                                              
a specific  change in  statute to allow  for a conditional  right-                                                              
of-way  from  the DNR.  But  they  didn't  need  to do  that.  For                                                              
instance, Mr.  Heinze obtained  a conditional right-of-way  across                                                              
the Glenn Highway for the ANGDA project.                                                                                        
                                                                                                                                
Enstar  described other  things that  they saw  in state law  that                                                              
did  not necessarily  allow  a project  that  they  would like  to                                                              
pursue happen.  The issues are ones  that appear in  the Right-of-                                                              
way Leasing Act, the Pipeline Act and the Utility Act.                                                                          
                                                                                                                                
4:40:25 PM                                                                                                                    
SENATOR HUGGINS  said he heard in  a news conference that  part of                                                              
the  concept potentially  is using  an  entity that  would have  a                                                              
bonding  authority  with tax  benefits  -  potentially  an arm  of                                                              
state government.  Does that  fall under  the provisions  of state                                                              
participation? Would  that put the state in violation  of the AGIA                                                              
provision?                                                                                                                      
                                                                                                                                
MR. BALASH  responded: "The question  is whether or not  the state                                                              
provides preferential  tax or royalty treatment or  grant of state                                                              
funds. That's what the statute says."                                                                                           
                                                                                                                                
4:41:24 PM                                                                                                                    
SENATOR HUGGINS  agreed and  went on, if  ANGDA did  the financing                                                              
for  the pipeline  and  other aspects  of it,  would  Enstar or  a                                                              
surrogate build the pipeline, and would that be in violation?                                                                   
                                                                                                                                
MR. BALASH said  he was sure some lawyer somewhere  would disagree                                                              
with whatever answer he provided, so he didn't want to answer.                                                                  
                                                                                                                                
SENATOR  HUGGINS said,  "What's  your answer,  though. You're  the                                                              
advisor."                                                                                                                       
                                                                                                                                
MR. BALASH said  he wouldn't give him an answer  to a hypothetical                                                              
question.                                                                                                                       
                                                                                                                                
SENATOR HUGGINS  said the legislature  needs to know if  that is a                                                              
violation.                                                                                                                      
                                                                                                                                
MR. BALASH responded,  "The question I would ask is  what would be                                                              
the purpose  of answering  a hypothetical  question at  this point                                                              
when there's not  a question in front of the  legislature to grant                                                              
bonding authorization  to an  entity to go  build a  pipeline that                                                              
may be  more than  500 mmcf/day  that may  be a competing  project                                                              
under the terms of AGIA?"                                                                                                       
                                                                                                                                
SENATOR HUGGINS asked him to assume that all of those are true.                                                                 
                                                                                                                                
MR.  BALASH said  he  was not  prepared  to make  that  assumption                                                              
today.                                                                                                                          
                                                                                                                                
4:42:58 PM                                                                                                                    
JOHN LAU, Enstar  Natural Gas Company, said he  liked Mr. Balash's                                                              
explanation of  the difference between  deliverability of  gas and                                                              
gas reserves.  He thought  the lines  would intersect  in 2013/14.                                                              
He  commented that  even though  you may  produce as  much as  you                                                              
can, you do  not have total annual  capacity to fit the  needs. At                                                              
that point,  imports will be  needed along with  already-installed                                                              
storage.  These  concepts  marry  well  with  a  pipeline  project                                                              
because  Cook  Inlet needs  as  much  storage as  is  economically                                                              
feasible. As  to the ramp up  issue, it's important  to understand                                                              
that when  the pipeline  is "turned  on" it  runs at  as a  high a                                                              
capacity as it can right away.                                                                                                  
                                                                                                                                
4:44:43 PM                                                                                                                    
SENATOR  THOMAS said  that several  demand studies  for the  state                                                              
had been  done; the  most recent comprehensive  one was  done when                                                              
Agrium  was   still  operating.  The  study   considered  doubling                                                              
Agrium's consumption  over a  period of  time, it didn't  consider                                                              
any more  exports.  It considered  every utility  that has  a coal                                                              
generating  facility would  be converted  to gas,  and that  there                                                              
would be  gas into areas, but  there was no real  consideration of                                                              
how it  would get  there - it  was used as  an expansion.  It also                                                              
included  discussion about  computer-server  warehouses  as a  new                                                              
industry and  a variety  of other  uses - and  at that  point, 500                                                              
mmcf/day would  be the state's need  - in 2020. He asked  what the                                                              
administration  foresees as  the need  and how  that would  impact                                                              
the  economics of  Enstar's gasline  should the  Gubik gas  become                                                              
available in 2016.                                                                                                              
                                                                                                                                
MR. LAU  said that  was an old  study, and  that Enstar,  ML&P and                                                              
Chugach  Electric are  amending their  10-year gas  deliverability                                                              
plan. He  said there has  to be a  change within one  year because                                                              
their current contracts  will no longer be in place  in two years.                                                              
Deliverability can  be hobbled together  for a few more  years and                                                              
then  they will  get  to the  point  of no  longer  being able  to                                                              
provide peak deliverability in the winter on the coldest day.                                                                   
                                                                                                                                
4:49:36 PM                                                                                                                    
HAROLD HEINZE,  Alaska Natural Gas Development  Authority (ANGDA),                                                              
said  Mr.  Balash  had  very  completely,  fairly  and  accurately                                                              
summarized the events that are on the table.                                                                                    
                                                                                                                                
4:51:29 PM                                                                                                                    
SENATOR WAGONER wanted  Mr. Balash to talk about  the RCA's denial                                                              
of two  contracts for  gas supply that  have been negotiated  over                                                              
the last  three year  period and  the negative  impacts those  are                                                              
having on gas exploration throughout Cook Inlet.                                                                                
                                                                                                                                
4:52:35 PM                                                                                                                    
MR. HEINZE  said when he  talks about instate  gas, he  is talking                                                              
about citizen  consumers;  they are the  ones who  pay and  are at                                                              
risk. Their  consideration when they  are the dominant  players of                                                              
public  private  partnership  is  probably  entirely  appropriate.                                                              
When  it's  dominated  by industrial  customers,  they  make  less                                                              
sense. Scott Baliss  is currently doing a study that  looks at the                                                              
very basic  ideas of public/private  partnership as they  apply to                                                              
an instate gas pipeline and he will share those with them.                                                                      
                                                                                                                                
He also reminded  them that the  Denali and AGIA open  seasons are                                                              
scheduled  for the  summer of  2010.  Background information  says                                                              
that the  FERC process that both  will operate under if  the state                                                              
doesn't participate  in the  form of  its utilities seeking  long-                                                              
term   commitments  to   ship  gas,   we  are   at  a   tremendous                                                              
disadvantage beyond  that initial open season. So,  one of ANGDA's                                                              
main  focuses  has  been  on  that   and  that  is  their  highest                                                              
priority.                                                                                                                       
                                                                                                                                
Finally,  he  visualized  three  or  four  months  from  now  that                                                              
somebody  in the  Nenana Basin,  Cook Inlet,  Gubik, or  somewhere                                                              
would find gas.  "All we need is  one success in any  one of those                                                              
places and the dynamics  of all this change instantly."   A lot of                                                              
stuff  is in play  over the  next two  years; the  state needs  to                                                              
keep  its options  open  and he  looks  forward  to the  continued                                                              
guidance  from the  administration on  how to  advance on  as many                                                              
fronts as they can.                                                                                                             
                                                                                                                                
4:55:55 PM                                                                                                                    
CO-CHAIR  WIELECHOWSKI said  he personally  agreed with the  RCA's                                                              
decision and asked  Mr. Balash if he wanted to  comment on Senator                                                              
Wagoner's question.                                                                                                             
                                                                                                                                
MR.  BALASH said  he wanted  to  comment on  something Mr.  Heinze                                                              
just  mentioned  in  terms  of  the  need  for  the  utilities  in                                                              
question to  make commitments  at the initial  open season  on the                                                              
big pipeline projects.  He couldn't speak for Denali,  but for the                                                              
AGIA  licensed  project,  one  of  the  commitments  made  by  the                                                              
licensee  was to solicit  demand  every two years  and to  provide                                                              
service  along  the  pipeline  to  instate  destinations.  If  our                                                              
utilities  aren't   prepared  to  make  a  very   large  financial                                                              
commitment on  the close of  the open season  in July  2010, there                                                              
will be another opportunity just two years later.                                                                               
                                                                                                                                
4:58:16 PM                                                                                                                    
With regard  to the RCA  ruling, he observed  as a person  who had                                                              
once worked  with the  legislature, that  the last contracts  that                                                              
were approved  were in 2002. In  the preceding events  and actions                                                              
that  have  taken place,  the  term  of  the contract,  the  price                                                              
offered  by the producers  in question  and the  range of  service                                                              
offered  by  the producers  in  question  have  all in  some  ways                                                              
deteriorated. The  term has gotten  shorter; the price  has gotten                                                              
higher and  the service  has gone from  all requirements  and full                                                              
service to peak and load pricing.                                                                                               
                                                                                                                                
That's not  to say  these things  are bad  or shouldn't  be taking                                                              
place, he said, but  one of the things he has heard  is a point of                                                              
frustration for  the members  of the Commission  is that  they can                                                              
only  make a  decision  based  on the  record  in  front of  them.                                                              
Perhaps the administration  can do more with regard  to completing                                                              
that record  with options and  other considerations that  might be                                                              
useful as they weigh the given components of a given contract.                                                                  
                                                                                                                                
5:00:58 PM                                                                                                                    
SENATOR WAGONER said  the main point of his question  was to bring                                                              
out the fact that  although people are trying to  explore for gas,                                                              
if  they can't  find a  market to  sell  it into,  they will  take                                                              
their  money and go  elsewhere.  Therefore, if  they can't  find a                                                              
solution  to  the RCA  problem  and  gas producing  problem,  they                                                              
won't have  anybody who wants to  drill in Cook  Inlet. "Actually,                                                              
they want to drill for oil and maybe find gas."                                                                                 
                                                                                                                                
5:01:54 PM                                                                                                                    
CO-CHAIR  WIELECHOWSKI thanked  everyone  for  their comments  and                                                              
adjourned the meeting at 5:01.                                                                                                  

Document Name Date/Time Subjects