Legislature(2009 - 2010)BUTROVICH 205

02/01/2010 03:30 PM Senate RESOURCES


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03:34:54 PM Start
03:35:39 PM Pipeline Progress by Transcanada
05:30:59 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Pipeline Progress by TransCanada: FERC TELECONFERENCED
Filings Update
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                        February 1, 2010                                                                                        
                           3:34 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lesil McGuire, Co-Chair                                                                                                 
Senator Bill Wielechowski, Co-Chair                                                                                             
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Hollis French                                                                                                           
Senator Bert Stedman                                                                                                            
Senator Gary Stevens                                                                                                            
Senator Thomas Wagoner                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator John Coghill                                                                                                            
                                                                                                                              
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Pipeline Progress by TransCanada and FERC Filings Update                                                                        
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
TONY PALMER, Vice President                                                                                                     
Alaska Development                                                                                                              
TransCanada                                                                                                                     
POSITION STATEMENT: Presented overview of TransCanada's progress                                                              
on the AGIA Pipeline.                                                                                                           
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
3:34:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR MCGUIRE called the Senate Resources Standing Committee                                                               
meeting to order at 3:34 p.m. All members were present at the                                                                   
call to order.                                                                                                                  
                                                                                                                                
^Pipeline Progress by TransCanada                                                                                               
     Pipeline Progress by TransCanada: FERC Filings Update                                                                  
                                                                                                                              
3:35:39 PM                                                                                                                    
CO-CHAIR  MCGUIRE said  the committee's  only  order of  business                                                               
today was the report from TransCanada on pipeline progress.                                                                     
                                                                                                                                
3:36:03 PM                                                                                                                    
TONY  PALMER, Vice  President,  Alaska Development,  TransCanada,                                                               
introduced  project partners  and reported  that TransCanada  had                                                               
recently  filed  its  Alaska  Pipeline  Project  (APP)  with  the                                                               
Federal  Energy Regulatory  Commission  (FERC)  to implement  the                                                               
first open season of North Slope (NS) natural gas in history.                                                                   
                                                                                                                                
He said  that FERC has  established a  unique process for  the NS                                                               
gas in that  the filing is not confidential. The  goal of an open                                                               
season is to  seek shippers on the pipeline, a  pipeline that has                                                               
two possible  routes: Lower 48  via Alberta  and US/International                                                               
via Valdez.                                                                                                                     
                                                                                                                                
3:39:41 PM                                                                                                                    
He  emphasized  that no  single  commercial  party can  guarantee                                                               
success  of a  major  pipeline project;  but  rather the  project                                                               
itself must have alignment with  its stakeholders to achieve that                                                               
success.  The  APP  is  no  different  than  any  other  pipeline                                                               
projects  in that  area except  that it  is larger.  He explained                                                               
that large  pipeline projects move through  a lengthy development                                                               
stage (the stage  they are in now), and if  successful, they move                                                               
forward to  construction and ultimately  to operation.  They will                                                               
be in this stage until 2014.                                                                                                    
                                                                                                                                
The  components of  that  development stage  are:  prior to  open                                                               
season  and  that will  continue  through  April 2010,  the  open                                                               
season which is  expected to be conducted from May  to July 2010,                                                               
and  post  open   season  from  August  2010   through  2014.  If                                                               
TransCanada  and  other  stakeholders  have  succeeded  with  the                                                               
regulatory and  commercial breakthroughs that are  required, then                                                               
they will move to the construction phase.                                                                                       
                                                                                                                                
3:41:34 PM                                                                                                                    
MR.  PALMER said  significant achievements  on this  project have                                                               
been  made to  date. Over  the course  of decades,  producers and                                                               
other  potential   shippers  have  explored  and   developed  gas                                                               
reserves. This  project has 35 or  36 tcf of proven  gas reserves                                                               
and  that  is a  significant  advantage  relative to  some  other                                                               
projects.                                                                                                                       
                                                                                                                                
3:44:02 PM                                                                                                                    
He  said   that  producers/shippers  have  also   examined  their                                                               
transportation  alternatives  and  potential gas  markets.  Three                                                               
years  ago  the  state  and the  legislature  came  together  and                                                               
established  their  objectives for  this  project  under AGIA,  a                                                               
significant  accomplishment. He  assured  them  that projects  do                                                               
fail  without  local  approval,  and  they  fail  despite  having                                                               
federal approval  and despite having customers.  For this project                                                               
to  succeed   they  need  customers,  regulatory   approvals  and                                                               
alignment  of  interests.  This  is not  unique  to  Alaska,  but                                                               
without these components this project, any project, will fail.                                                                  
                                                                                                                                
MR.  PALMER  said the  US  government  and FERC  established  the                                                               
regulatory  structure  for  this  project  with  a  single-window                                                               
regulatory  agency  and  a specific  timeframe  once  a  complete                                                               
application is established. This is  an advantage to the project.                                                               
Another  advantage  is  that  a federal  loan  guarantee  of  $18                                                               
billion  has  been established,  something  that  was missing  30                                                               
years ago.                                                                                                                      
                                                                                                                                
3:45:13 PM                                                                                                                    
He  reminded them  that  30  years ago  TransCanada  had all  the                                                               
regulatory  approvals  for this  project  on  both sides  of  the                                                               
border,  but  they   had  no  customers.  Canada   also  has  the                                                               
legislative and  regulatory structure  in place for  this project                                                               
under the Northern Pipeline Act  (NPA) and that is available only                                                               
to TransCanada.  They also  have 25  percent of  the pipe  in the                                                               
ground  and  operational since  1981/2  and  it has  been  moving                                                               
Alberta gas under  this structure. He related  that the Mackenzie                                                               
Project  had customers  in 2003,  but it  didn't have  regulatory                                                               
approvals. In  fact it  made its  filing in  October 2004  and is                                                               
hoping  to receive  regulatory approvals  this fall  - six  years                                                               
after their NEB filing.                                                                                                         
                                                                                                                                
3:46:39 PM                                                                                                                    
MR. PALMER  said TransCanada has  had a right-of-way  through the                                                               
Yukon since  1983 and  that is  a very  significant asset  to the                                                               
project.  He  said  that  TransCanada made  a  filing  and  after                                                               
rigorous review they were granted a  license in the fall of 2008.                                                               
He said last June TransCanada  aligned with ExxonMobil to advance                                                               
the pipeline  project. This is  also significant, but  they still                                                               
want the  other two NS  producers to join  with them. He  said to                                                               
date  they  have offered  equity  participation  to them  and  to                                                               
anyone  who will  make a  large commitment  of their  gas in  the                                                               
initial open season.                                                                                                            
                                                                                                                                
3:48:11 PM                                                                                                                    
SENATOR STEDMAN asked if ExxonMobil is a signer of AGIA.                                                                        
                                                                                                                                
MR. PALMER responded that ExxonMobil  is aligned with TransCanada                                                               
in  advancing  this  project  under   AGIA.  ExxonMobil  has  two                                                               
components of  its corporation that  are looking at  the project.                                                               
One  is  on  one  side  of  the  firewall  and  is  the  pipeline                                                               
representatives; the  other component  is the  production company                                                               
that  is  a potential  shipper  on  the project.  The  production                                                               
company still has some issues with AGIA.                                                                                        
                                                                                                                                
SENATOR STEDMAN  said most of  the public  he talks to  are under                                                               
the impression that ExxonMobil is a signer on AGIA.                                                                             
                                                                                                                                
3:50:00 PM                                                                                                                    
MR.  PALMER  said  he  hoped  he  hasn't  caused  any  confusion.                                                               
ExxonMobil  Development Company  is aligned  with TransCanada  in                                                               
advancing under  AGIA terms;  The ExxonMobil  Production Company,                                                               
as  a  potential shipper,  still  has  some  issues it  wants  to                                                               
resolve.                                                                                                                        
                                                                                                                                
3:50:42 PM                                                                                                                    
SENATOR FRENCH said he understands  that the shippers want equity                                                               
ownership  in the  pipeline commensurate  with their  open season                                                               
commitment,  and  asked   how  likely  it  is   that  the  equity                                                               
participation  will be  worked out  and how  much equity  will be                                                               
offered.                                                                                                                        
                                                                                                                                
MR. PALMER said he couldn't  divulge details of negotiations, but                                                               
TransCanada  reached an  agreement  with ExxonMobil  to move  the                                                               
project  forward  and  they  are very  much  looking  forward  to                                                               
reaching agreement with BP  and ConocoPhillips. TransCanada wants                                                               
to  own   a  significant  share   of  the  project   and  initial                                                               
negotiating  positions  aren't  always   the  case  by  the  time                                                               
construction starts.                                                                                                            
                                                                                                                                
3:53:36 PM                                                                                                                    
CO-CHAIR  WIELECHOWSKI  said  the  producers own  the  rights  to                                                               
extract   100  percent   of  the   gas  and   asked  how   equity                                                               
participation works in general in a pipeline like this one.                                                                     
                                                                                                                                
MR. PALMER  explained that normally  producers or  other shippers                                                               
are  not equity  shareholders; but  he has  heard that  the three                                                               
major producers want to take  an equity position in this project.                                                               
If they do,  they would still be a customer  of the pipeline just                                                               
like ExxonMobil.                                                                                                                
                                                                                                                                
MR. PALMER  explained that ExxonMobil has  established a specific                                                               
firewall  and that  BP and  ConocoPhillips,  as pipeline  owners,                                                               
would have to do the same with their Denali interest.                                                                           
                                                                                                                                
CO-CHAIR  WIELECHOWSKI  asked  if  equity  is  not  the  norm  in                                                               
building a pipeline,  why a company would want to  have an equity                                                               
position in this pipeline.                                                                                                      
                                                                                                                                
MR. PALMER  answered that  he didn't know  the motivation  of all                                                               
the major producers,  but they have said publicly  that they want                                                               
to understand  the structure of  the project and manage  the risk                                                               
by being an equity sponsor, as  well. AGIA would apply to whoever                                                               
owns the pipeline. He speculated  that producers may also wish to                                                               
see  that the  engineering is  done in  a proper  manner, but  he                                                               
hoped that  some of  those issues had  been resolved  by bringing                                                               
ExxonMobil onto the team. He  stated that TransCanada thinks they                                                               
have gotten the expert in gas  treatment plants in the world with                                                               
ExxonMobil.  On the  other  hand they  think  TransCanada is  the                                                               
pipeline expert in North America.                                                                                               
                                                                                                                                
3:58:18 PM                                                                                                                    
CO-CHAIR MCGUIRE  said one criticism  people have of the  TAPS is                                                               
that the  shippers own  the pipe.  The argument  is that  it's to                                                               
control costs and manage risk, but  some Alaskans think that is a                                                               
conflict of  interest and have  said it prevented the  Basin from                                                               
opening up  and kept competition  from coming in. She  asked what                                                               
the lowest  level of equity  position TransCanada is  prepared to                                                               
accept.                                                                                                                         
                                                                                                                                
MR. PALMER  responded that he  is not an  expert in the  TAPS. He                                                               
explained  that under  AGIA  the state  established  a number  of                                                               
requirements that ExxonMobil  has also agreed to.  It limited the                                                               
amount of equity one could  have in the pipeline, stipulated what                                                               
a  ROE will  be,  both of  which limit  the  tolls, and  required                                                               
taking on  certain obligations  with regard  to rolled  in tolls,                                                               
which limits the structure as to how expansions will be done.                                                                   
                                                                                                                                
MR. PALMER said  he is not in a position  to define TransCanada's                                                               
minimum equity  publicly, but he  said they would  look seriously                                                               
at any proposal  that comes forward by those  two major producers                                                               
as to  what structure they  need to be  part of this  project. He                                                               
will not go into negotiations with a preset number.                                                                             
                                                                                                                                
CO-CHAIR MCGUIRE  asked if it's  possible that  TransCanada could                                                               
end up owning less than 1 percent.                                                                                              
                                                                                                                                
MR.   PALMER  answered   no;  that   would  not   be  acceptable.                                                               
TransCanada has pursued this project  vigorously for 30 years and                                                               
expects to  own a significant  share of it; further,  it's really                                                               
too early  to define what the  deal will be and  establish a line                                                               
in the sand.                                                                                                                    
                                                                                                                                
SENATOR  HUGGINS   said  the  federal  coordinator   position  is                                                               
currently  vacant,  and  asked  him  how  important  that  is  to                                                               
TransCanada on a scale from 1 to 10.                                                                                            
                                                                                                                                
MR. PALMER  responded that  at this early  stage of  the project,                                                               
that  position should  be filled  sooner rather  than later.  The                                                               
primary  responsibility  of that  role  comes  from a  regulatory                                                               
standpoint as  they move forward  beyond the open  season. Having                                                               
that position  vacant for  the last 30  days hasn't  affected the                                                               
project.                                                                                                                        
                                                                                                                                
4:04:09 PM                                                                                                                    
SENATOR   HUGGINS  asked   if   TransCanada   might  need   "some                                                               
flexibility" with AGIA at a future date.                                                                                        
                                                                                                                                
MR. PALMER answered no; they  are satisfied that their rights and                                                               
responsibilities  work. TransCanada  has  advanced First  Nations                                                               
negotiations  in Canada  with the  parties  willing to  negotiate                                                               
with them and have had  good interfaces with Alaska Native groups                                                               
and communities along the project.  He also assured them that the                                                               
unresolved claims  from withdrawn partners on  a previous project                                                               
had all been resolved at no cost to TransCanada.                                                                                
                                                                                                                                
4:09:05 PM                                                                                                                    
SENATOR  FRENCH  congratulated him  on  the  resolution of  those                                                               
issues.                                                                                                                         
                                                                                                                                
SENATOR HUGGINS recalled reading  that the Mackenzie pipeline has                                                               
some challenges with  sanctuaries, noise, and birds  and asked if                                                               
he  anticipated that  something like  this  might crop  up as  an                                                               
obstacle along the route.                                                                                                       
                                                                                                                                
MR. PALMER  answered that no industrial  development goes through                                                               
without significant  environmental and other reviews  all through                                                               
the process. He reminded them  that TransCanada has a certificate                                                               
from the National  Energy Board (NEB) to  construct this pipeline                                                               
in  Canada and  they have  a single  window regulatory  agency to                                                               
work  on  issues  of  this  nature. In  his  view,  he  repeated,                                                               
TransCanada is  the best party to  deal with these issues  on the                                                               
pipeline side and ExxonMobil is the  best party to deal with them                                                               
on the gas treatment plant.                                                                                                     
                                                                                                                                
4:09:13 PM                                                                                                                    
He said that TransCanada has  developed comprehensive Alberta and                                                               
LNG  alternatives  and those  are  available  in their  proposal;                                                               
customers will have the opportunity  to select between them. FERC                                                               
also required them  to complete an in-state gas study  for use in                                                               
their application  and that has been  filed; it has been  used to                                                               
define indicative  tolls for in-state  gas as well  as indicative                                                               
off take locations.  Those final locations will  be determined in                                                               
the open season.                                                                                                                
                                                                                                                                
4:09:52 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI  asked if he  had a projection of  what in-                                                               
state tariffs would be.                                                                                                         
                                                                                                                                
MR. PALMER replied  yes. He said the lateral to  Cook Inlet has a                                                               
number  of potential  off  take locations  and  that affects  the                                                               
toll. Whether it's the Alberta  or the Valdez option also affects                                                               
the  toll,  because the  number  of  miles  that the  Cook  Inlet                                                               
volumes  travel  in the  pipeline  affects  the weighted  average                                                               
calculation. He gave them numbers  in 2009 dollars per mmbtu. The                                                               
off take  for Cook Inlet  in the Alberta  option is on  the Parks                                                               
Highway and  that toll  is $1.60-$2.00;  using Delta  Junction as                                                               
the off  take the average  toll is $1.65-$2.05. Using  the Valdez                                                               
option  with an  off  take at  Glen  Allen (significantly  higher                                                               
mileage) the  average toll  is $2.35-$2.95;  the lateral  to Cook                                                               
Inlet (much shorter).  So economies of scale are  obtained on the                                                               
large  pipe to  move  a  longer distance.  They  hadn't done  any                                                               
calculations on  the toll for  the lateral from Parks  Highway to                                                               
Cook Inlet or Delta or Glen Allen.                                                                                              
                                                                                                                                
CO-CHAIR WIELECHOWSKI asked  if the Parks Highway  off take would                                                               
be near Fairbanks.                                                                                                              
                                                                                                                                
MR. PALMER replied just north of that.                                                                                          
                                                                                                                                
SENATOR FRENCH  asked if the first  numbers he gave them  were to                                                               
Cook Inlet off take at Parks and off take at Delta Junction.                                                                    
                                                                                                                                
MR. PALMER answered that they  have taken the average mileage for                                                               
all of the volume in Alaska  to get the weighted average toll. So                                                               
when you  come off  at Parks  Highway, the  Cook Inlet  volume is                                                               
actually is farther up the  line, a shorter mileage. That affects                                                               
the weighted average for all  in-state customers. So, the numbers                                                               
he have  them would be  customers in  Fairbanks or Tok  if you're                                                               
going on  the Alberta option  or customers in  Valdez, Fairbanks,                                                               
or Glen Allen if you're going the Valdez option.                                                                                
                                                                                                                                
He  explained that  under  AGIA  they said  they  would create  a                                                               
single in-state  toll off  the major  pipeline regardless  of the                                                               
off take.                                                                                                                       
                                                                                                                                
SENATOR FRENCH asked if the rates were not distance sensitive.                                                                  
                                                                                                                                
MR. PALMER  replied that  the rates  are distance  sensitive, but                                                               
not  solely. They  have averaged  the distance  and cost  for all                                                               
Alaska volumes  and come up  with a single weighted  average toll                                                               
for all Alaskan instate deliveries.                                                                                             
                                                                                                                                
4:14:53 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI said  the whole line is 1700  miles and the                                                               
tariff is  projected to  be $2.80-$3.50.  The route  from Prudhoe                                                               
Bay to  Fairbanks is 572  miles, roughly one-third  the distance,                                                               
and he  asked why the tariff  to the Parks Highway  isn't a third                                                               
of the total tariff.                                                                                                            
                                                                                                                                
MR. PALMER replied  primarily because of the  large gas treatment                                                               
plant (GTP)  that all of  the facilities would need.  This number                                                               
does  not  change. That  GTP  will  be  needed to  serve  Alaskan                                                               
customers and Alberta or Valdez customers.                                                                                      
                                                                                                                                
CO-CHAIR WIELECHOWSKI asked how much the GTP component costs.                                                                   
                                                                                                                                
MR.  PALMER said  it's about  one-third the  cost of  the Alberta                                                               
option.                                                                                                                         
                                                                                                                                
CO-CHAIR WIELECHOWSKI said a third of a $2.80 tariff is $.95.                                                                   
                                                                                                                                
MR. PALMER replied yes; that is in the ballpark.                                                                                
                                                                                                                                
SENATOR HUGGINS said first gas  is approximately 12-15 years away                                                               
in  an optimistic  scenario  and  asked when  first  gas will  be                                                               
available in-state.                                                                                                             
                                                                                                                                
MR.  PALMER answered  the fall  of  2020. TransCanada  discovered                                                               
that they had to file GTP  information under AGIA and they did so                                                               
on a  conceptual design  basis where  they assumed  two sealifts.                                                               
When ExxonMobil joined  their team, they discovered  that was too                                                               
optimistic  and  that   three  are  needed.  That   is  the  most                                                               
significant  reason  for a  change  in  the schedule  from  their                                                               
original proposal.                                                                                                              
                                                                                                                                
4:18:43 PM                                                                                                                    
MR.  PALMER went  to slide  6,  the timeline.  The Friday  filing                                                               
begins a  60-day FERC  review period.  The public  comment period                                                               
will go  through February.  FERC is not  making a  judgment about                                                               
the  nature  of  their  commercial  terms  or  the  capital  cost                                                               
estimate;  the  filing is  primarily  procedural  and finding  if                                                               
TransCanada has  met the 21  requirements. Their team  has talked                                                               
with FERC  representatives and is  optimistic that they  will get                                                               
approval.  If that  is  the  case, they  would  conduct the  open                                                               
season from  May-July 2010. The  application for FERC is  for the                                                               
US component of the project.  Canada doesn't have the open season                                                               
procedure, but they  will conduct the Canadian  version in Canada                                                               
at the  same time.  If the  pipeline is just  to Valdez,  then it                                                               
will solely be FERC.                                                                                                            
                                                                                                                                
SENATOR FRENCH asked  when he expects the  legislature would know                                                               
what the  conditions of  the bids  are so  it can  begin thinking                                                               
about whether they can be satisfied.                                                                                            
                                                                                                                                
MR. PALMER assured the committee  that their schedule has nothing                                                               
to do  with the  political schedule.  TransCanada said  two years                                                               
ago in their  application that if they  receive conditioned bids,                                                               
they  taking  about 100  business  days  to resolve  them.  Their                                                               
application had a  schedule which would have had  the open season                                                               
concluding in September  of 2009; so five months  from then would                                                               
have  been just  about now.  However, they  were unsuccessful  in                                                               
achieving the initial kick off  date for the project. They didn't                                                               
get the  license on  the date  they had  predicted, which  was in                                                               
April 2008; but  they received it in December  2008. That shifted                                                               
the entire schedule  back. They will most  likely get conditioned                                                               
bids and  it will take  them a few  months to resolve  them. That                                                               
will  be  done  on  a confidential  basis  between  the  pipeline                                                               
company and  the potential  customers. If  they receive  no bids,                                                               
the  legislature  would see  an  early  result. If  they  receive                                                               
unconditioned  bids  for   full  volume  to  one   or  the  other                                                               
alternative,  it would  also see  an  early result.  He said  the                                                               
legislature  and   the  public  would  not   see  the  conditions                                                               
precedent  until  they have  either  resolved  them or  they  are                                                               
irresolvable - sometime around year end 2010.                                                                                   
                                                                                                                                
4:24:04 PM                                                                                                                    
SENATOR  FRENCH said  he is  less concerned  about the  political                                                               
calendar  and more  concerned about  getting  the pipeline  built                                                               
calendar. He  asked what  utility there is  in keeping  taxes off                                                               
the table  while the more  business-related pipeline  vs. shipper                                                               
conditions are  worked out  - since that  is something  the state                                                               
has sovereignty over.                                                                                                           
                                                                                                                                
MR.  PALMER said  at  this point,  TransCanada  didn't know  what                                                               
conditions  will  come  with  the bids  and  what  absolutes  and                                                               
bargaining  points  will  be.  He  admitted  that  certain  items                                                               
couldn't  be resolved  because they  are  between sovereigns  and                                                               
potential customers.                                                                                                            
                                                                                                                                
4:26:03 PM                                                                                                                    
SENATOR STEDMAN said he assumed  that the AGIA terms are absolute                                                               
and non-bargaining.                                                                                                             
                                                                                                                                
MR.  PALMER responded  that TransCanada  has complied  completely                                                               
with  the  terms of  AGIA  and  they  don't  feel like  they  can                                                               
unilaterally change the  arrangement they have with  the State of                                                               
Alaska; just  like they feel  the State of  Alaska is not  in the                                                               
position  to unilaterally  change  the deal  on  them either.  If                                                               
customers want to change a term  in AGIA, TransCanada will do its                                                               
best to resolve  that. If it can't be resolved  they will have to                                                               
talk to the state.                                                                                                              
                                                                                                                                
SENATOR HUGGINS  wanted to reconfirm  that 3.5 bcf/day  is needed                                                               
for the Alberta option.                                                                                                         
                                                                                                                                
MR. PALMER  replied that all of  his numbers today were  based on                                                               
the 4.5 bcf/day  and they would lose customers  below 3.5 bcf/day                                                               
because the economies of scale would become significant.                                                                        
                                                                                                                                
4:29:17 PM                                                                                                                    
SENATOR  HUGGINS asked  if  Pt.  Thomson gas  is  needed for  the                                                               
pipeline.                                                                                                                       
                                                                                                                                
MR.  PALMER said  the pipeline  company will  seek access  to any                                                               
potential gas that exists today or  in the future. They can't say                                                               
today  how much  gas is  available from  the North  Slope or  Pt.                                                               
Thomson; the  producers, the  state, and the  AOGCC will  have to                                                               
resolve that. TransCanada wants all  the volumes available to the                                                               
pipeline from day-one; that is their goal.                                                                                      
                                                                                                                                
4:30:43 PM                                                                                                                    
Slide  7  - Mr.  Palmer  said  TransCanada has  a  comprehensive,                                                               
credible   and  competitive   open   season   plan.  Having   the                                                               
engineering  skills as  well as  the capacity  and capability  of                                                               
getting  regulatory approvals  to advance  this project  on their                                                               
schedule differentiates them from other pipeline companies.                                                                     
                                                                                                                                
4:32:03 PM                                                                                                                    
He said they had done a quarter  of a million hours of work since                                                               
getting the license  to put the application in  front of parties.                                                               
Slide 8 highlighted  the better commercial terms  and access that                                                               
TransCanada  is  putting  forward  now  than  were  in  its  AGIA                                                               
application. They  are doing  so in the  initial open  season for                                                               
parties that  commit this  summer, he said,  and this  is because                                                               
they realize  that a great number  of things have changed  in the                                                               
last two  years. They see  competition in the North  American and                                                               
global  markets  from other  sources  of  gas  -  they are  in  a                                                               
competition  and they  want  this project  to  proceed. They  are                                                               
going to offer a discount to customers that commit this summer.                                                                 
                                                                                                                                
They have comprehensive  Alberta and Valdez options  and have had                                                               
discussions  with potential  customers.  TransCanada thinks  that                                                               
the  Alberta  Hub  has  inherent advantages  -  a  hugely  liquid                                                               
market, but customers  have said they want access  to other pipes                                                               
upstream  of  it;  so  they   are  offering  that.  In  the  AGIA                                                               
application they  offered a  25-year minimum  term and  they have                                                               
reduced that to  20 years. They have  also offered interruptible,                                                               
overrun   and  park-and-loan   services  (short   term  services)                                                               
available to Alaskans and to customers  that want to go to Valdez                                                               
or Alberta.  They have offered  to share the development  cost in                                                               
the  event that  TransCanada  pulls the  trigger  on the  project                                                               
whereas the initial  AGIA application had said that  in the event                                                               
that the project  were to be halted the customers  had to pay the                                                               
full  development cost.  Next TransCanada  has offered  to reduce                                                               
the tolls by $500 million/year.                                                                                                 
                                                                                                                                
4:34:59 PM                                                                                                                    
To  put that  into context,  Mr. Palmer  explained, the  state is                                                               
putting  forward   $500  million   under  AGIA  to   assist  with                                                               
development  costs;  but  TransCanada  is  putting  forward  $500                                                               
million per year  for 25 years if the project  goes into service.                                                               
They  have  done  so  with  a couple  of  factors  primarily.  He                                                               
reminded  them that  their application  had a  formulaic approach                                                               
for  return on  equity (ROE),  which when  they filed  would have                                                               
yielded 14 percent. Now they  are proposing a flat 12-percent ROE                                                               
for  parties  that  commit  their gas  now.  Secondly,  they  had                                                               
proposed  a 100  percent  capital  recovery through  depreciation                                                               
over the initial contract term (so  if a customer had taken a 25-                                                               
year  contract term,  over that  life they  would have  recovered                                                               
their entire capital). Now they  are proposing to recover only 80                                                               
percent  through   depreciation.  So,  TransCanada   is  shifting                                                               
significant risk  to itself that  gas will be available  and that                                                               
the market will  be viable after years 2020 or  2025 depending on                                                               
the  customer's  length  of term.  Lastly,  although  it  doesn't                                                               
affect the  short term tolls  (the $500 million),  for expansions                                                               
they had  proposed a  60/40 debt/equity ratio,  and they  are now                                                               
proposing  70/30.  The lower  the  equity  ratio, the  lower  the                                                               
tolls. Pipeline companies like thick equity ratios, he said.                                                                    
                                                                                                                                
4:36:56 PM                                                                                                                    
SENATOR  STEDMAN asked  him to  estimate how  these three  things                                                               
would impact the tariff.                                                                                                        
                                                                                                                                
MR.  PALMER responded  if this  project goes  into operation  the                                                               
$500 million/year  is cold hard  cash out  of the pockets  of the                                                               
shareholders and into  the pockets of the  customers and Alaskans                                                               
as  sovereign  tax  collectors.  In other  words,  the  state  is                                                               
putting its money  up for development costs, and  if this project                                                               
does  not succeed,  those dollars  are  out of  pocket just  like                                                               
TransCanada's   development   dollars   are  -   and   the   $500                                                               
million/year never  comes to fruition. However,  if this pipeline                                                               
goes into  service, the  deal they are  offering is  to customers                                                               
that sign up this open season  - they will see $500 million/year.                                                               
In his view  they are talking cold hard cash  in service starting                                                               
2020.  The 12-percent  ROE combined  with the  80-percent capital                                                               
recovery reduce  the tolls  on the  Alberta alternative  by about                                                               
$.29/mmbtu.                                                                                                                     
                                                                                                                                
SENATOR STEDMAN wanted a further breakdown of the $.29/mmbtu.                                                                   
                                                                                                                                
MR.  PALMER answered  that  the  ROE is  $.20  and  $.09 for  the                                                               
[indisc.].                                                                                                                      
                                                                                                                                
SENATOR STEDMAN asked him about the third item.                                                                                 
                                                                                                                                
MR.  PALMER answered  that the  third items  does not  affect the                                                               
$500 million,  because it  affects expansions,  and the  tolls he                                                               
had provided  were for  the initial 4.5  bcf/day volume  only. He                                                               
didn't have an  estimate of the impact of  expansions which would                                                               
be based on volumes and timing.                                                                                                 
                                                                                                                                
4:40:02 PM                                                                                                                    
Slide 9                                                                                                                         
MR. PALMER reviewed  that two pipeline options  are being offered                                                               
for shipper  assessment in the APP  open season. Option one  is a                                                               
48  inch,  4.5 bcf/day  1700-mile  pipeline  from Alaska's  North                                                               
Slope to the  Alberta Hub, and then  into existing infrastructure                                                               
to markets  across the Lower  48. Shippers can come  off upstream                                                               
of the  Alberta Hub as  well, if they wish.  Option two is  a 48-                                                               
inch, 3 bcf/day 800-mile pipeline  from the North Slope to Valdez                                                               
where  the gas  would be  converted to  LNG in  a facility  to be                                                               
built  by   others.  He  had   not  examined  the  cost   of  the                                                               
liquifaction plant  or the ships  needed to transport the  LNG to                                                               
either  Lower 48  markets or  to  international markets,  because                                                               
that is not TransCanada's area of expertise.                                                                                    
                                                                                                                                
SENATOR  STEDMAN asked  if they  were still  looking at  2020 for                                                               
resolving Jones Act exporting to international markets issue.                                                                   
                                                                                                                                
MR. PALMER replied that TransCanada  had defined how quickly they                                                               
could  get the  pipeline in  to service,  but not  how quickly  a                                                               
potential customer would be able to get an export permit.                                                                       
                                                                                                                                
SENATOR STEDMAN  asked if someone  was to go to  Valdez, wouldn't                                                               
they have to figure out the  liquefaction plant and the Jones Act                                                               
ships,  and find  customers,  either  domestic or  international,                                                               
today to facilitate a successful  open season within a reasonable                                                               
time compared to the Alberta route.                                                                                             
                                                                                                                                
MR. PALMER  said those were  good points, but  TransCanada hadn't                                                               
made that  a requirement of foundation  customers. Clearly anyone                                                               
that wants  to go to  Valdez will  have to make  arrangements for                                                               
liquifaction  and  ships and  find  markets,  but that  is  their                                                               
business.  Likewise, anyone  who  decides to  go  down the  other                                                               
alternative will have to decide to  sell their gas at the Alberta                                                               
Hub or make arrangements to take it to market beyond there.                                                                     
                                                                                                                                
SENATOR STEDMAN said he understands  that very well, but asked if                                                               
both  options  are on  the  table  during  the open  season,  for                                                               
TransCanada  to select  the Valdez  alternative as  the preferred                                                               
alternative,  it  would have  to  have  a higher  probability  of                                                               
success and these  issues would have to be well  under way. "Help                                                               
me put those two together so this isn't a "red herring."                                                                        
                                                                                                                                
MR.  PALMER said  that potential  customers  have commented  that                                                               
TransCanada  has "stringent  credit  requirements for  foundation                                                               
customers" and have  indicated that if they are  ready to execute                                                               
the precedent  agreements and meet their  credit requirements and                                                               
they  are   a  foundation  customer  (larger   the  0.2  bcf/day)                                                               
TransCanada  will  not  impose downstream  pipeline  requirements                                                               
like  export permits  and other  obligations,  because they  will                                                               
have  an obligation  to pay  tolls to  TransCanada. He  explained                                                               
that  the   obligations  are  different  for   both  routes,  but                                                               
significant. Parties  that want  to deliver to  the Lower  48 can                                                               
find  an existing  terminal at  Costa Azul  on Baja,  Mexico, and                                                               
then they could come back into  the Lower 48 San Diego/LA markets                                                               
through existing pipelines.                                                                                                     
                                                                                                                                
SENATOR  STEDMAN said  the  Los Angeles  (LA)  Basin isn't  large                                                               
enough to handle Alaska's volume.                                                                                               
                                                                                                                                
MR. PALMER answered that is right.                                                                                              
                                                                                                                                
4:48:26 PM                                                                                                                    
SENATOR STEDMAN asked how many  companies fit into those criteria                                                               
that operate in North America.                                                                                                  
                                                                                                                                
MR. PALMER  said he didn't  know, but it  is their view  that all                                                               
major producers  on the  North Slope  fit those  criteria. Beyond                                                               
those  there are  other  highly credit  worthy  parties in  other                                                               
locations around  the world as well,  but he didn't know  if they                                                               
would show up to become a customer.                                                                                             
                                                                                                                                
CO-CHAIR  WIELECHOWSKI asked  why  anyone would  build a  48-inch                                                               
line to Valdez.                                                                                                                 
                                                                                                                                
MR. PALMER replied that some  customers specifically requested it                                                               
(48-inch, 3  bcf/day pipeline)  and TransCanada  has tried  to be                                                               
responsive to those parties.                                                                                                    
                                                                                                                                
CO-CHAIR WIELECHOWSKI  asked if it would  be cheaper to go  to 36                                                               
inches, because it doesn't make sense  to have that big of a line                                                               
for a smaller throughput.                                                                                                       
                                                                                                                                
MR. PALMER  replied if you only  wish to move 3  bcf permanently,                                                               
that  is true,  and while  he couldn't  speak to  the motives  of                                                               
potential customers, he thought they might want expandability.                                                                  
                                                                                                                                
CO-CHAIR WIELECHOWSKI asked him which customers asked for it.                                                                   
                                                                                                                                
MR. PALMER said he couldn't  respond to that, because TransCanada                                                               
treats all  of its discussions  with customers on  a confidential                                                               
basis.                                                                                                                          
                                                                                                                                
4:50:03 PM                                                                                                                    
SENATOR FRENCH asked  to make it clear that  TransCanada is ready                                                               
to build an all-Alaska pipeline from the North Slope to Valdez.                                                                 
                                                                                                                                
MR. PALMER  said yes. He  emphasized that both companies  had put                                                               
forward  this proposal  under  the  APP. So,  in  the event  that                                                               
TransCanada  gets  a 3  bcf/day  customer  that wants  a  48-inch                                                               
pipeline and will sign up  and has the creditworthiness, they are                                                               
ready to move forward with that project.                                                                                        
                                                                                                                                
SENATOR STEDMAN  asked if the  US has export restrictions  on gas                                                               
across the ocean and wouldn't  it take congressional action to do                                                               
that.                                                                                                                           
                                                                                                                                
MR. PALMER said  he didn't know for sure if  there was a specific                                                               
statutory restriction; he had heard various opinions.                                                                           
                                                                                                                                
CO-CHAIR MCGUIRE  said they  would get  some information  on that                                                               
from the  DOE. She said  that question was  asked on the  edge of                                                               
the shale discoveries. The answer was  that going to an Oregon or                                                               
Hawaii market would be acceptable, but not to a foreign country.                                                                
                                                                                                                                
4:53:01 PM                                                                                                                    
SENATOR WAGONER  said the bulk  of their discussion at  that time                                                               
centered on not  the exportability, but the  current license that                                                               
the  Port  Authority  said  it  had  to  export  gas.  They  were                                                               
questioning whether  that was going  to be honored and  were told                                                               
it would "cause a lot of heartache" at the congressional level.                                                                 
                                                                                                                                
4:53:50 PM                                                                                                                    
CO-CHAIR MCGUIRE said  a broader conversation had to  do with the                                                               
possibility of  shipping gas to  Asia as an  economic opportunity                                                               
for  Alaska. The  mood  last year  in D.C.  was  one of  national                                                               
security and not exporting. She  asked what if TransCanada gets a                                                               
division in the volume between  the Valdez option and the Alberta                                                               
option and it doesn't make economic sense.                                                                                      
                                                                                                                                
MR.  PALMER  replied  that  she   described  the  most  difficult                                                               
situation and since they don't  have sufficient volume for either                                                               
one, in  that circumstance  the tolls  would be  unacceptable for                                                               
both  parties, at  that point  they would  try to  work with  the                                                               
parties  to switch  to  the other  side so  they  could have  one                                                               
viable project.                                                                                                                 
                                                                                                                                
4:54:41 PM                                                                                                                    
SENATOR HUGGINS asked what the  psyche and excitement would be in                                                               
Alberta for this project.                                                                                                       
                                                                                                                                
MR. PALMER answered  that the economy seems to  be turning around                                                               
in the  last couple of  months, although  not in the  natural gas                                                               
side. A  number of  oil sands projects  that people  had deferred                                                               
seem   to  be   starting  to   resurrect  and   there  are   more                                                               
announcements from  major producers.  He would hope  that Alberta                                                               
citizens would  be excited  to see  this gas  come forward  in 10                                                               
years  time to  fill their  existing pipelines,  because it  will                                                               
mean lower tolls  for them. It would also mean  more business for                                                               
them in general,  but one wouldn't find a universal  view on that                                                               
issue.                                                                                                                          
                                                                                                                                
4:58:30 PM                                                                                                                    
SENATOR HUGGINS  said the Alberta  tax regime has been  "a moving                                                               
target" and  asked if they have  figured out what that  target is                                                               
and  how significant  it  was  in terms  of  the slower  business                                                               
climate over the last couple of years.                                                                                          
                                                                                                                                
MR. PALMER  answered that  it hadn't been  resolved when  he left                                                               
last Tuesday. Most  people think the Alberta  government is going                                                               
to propose  a different royalty  tax structure for natural  gas -                                                               
and soon.  They will hear  varying views  from parties as  to how                                                               
significant  that has  impacted the  Alberta economy.  Some would                                                               
say that is the major factor  for the slowdown in the natural gas                                                               
business;  others would  say  the  lower gas  price  is the  main                                                               
factor. He suspected both factors were considerations.                                                                          
                                                                                                                                
He  said that  both  options include  an  opportunity for  Alaska                                                               
communities  to  take gas  off  the  pipeline;  there will  be  a                                                               
minimum of  five off takes.  There will  be a huge  gas treatment                                                               
plant  and a  58-mile  transmission pipeline  connecting the  Pt.                                                               
Thomson field  to the plant. So,  customers that have gas  at Pt.                                                               
Thomson  may choose  to move  gas on  that pipeline.  Anyone that                                                               
solely has gas  at Prudhoe Bay would not ask  for service on that                                                               
piece of pipe. That is not AGIA reimbursable.                                                                                   
                                                                                                                                
5:01:48 PM                                                                                                                    
Slide 10                                                                                                                        
SENATOR  STEDMAN  asked the  range  of  costs for  the  treatment                                                               
plant.                                                                                                                          
                                                                                                                                
MR.  PALMER  replied  approximately   one-third  of  the  Alberta                                                               
option, or $10-13 billion.                                                                                                      
                                                                                                                                
SENATOR STEDMAN commented that is  substantially higher than they                                                               
had anticipated.                                                                                                                
                                                                                                                                
MR. PALMER  answered yes;  that was  the most  significant factor                                                               
that had changed  in terms of cost from  the original application                                                               
to today.                                                                                                                       
                                                                                                                                
SENATOR STEDMAN  asked why the state  should support construction                                                               
of this line,  because under a price prediction  for 2020-30, the                                                               
price  of  oil  would  be $110-125/barrel  and  the  state  would                                                               
essentially  be giving  gas away  as well  as offsetting  its oil                                                               
revenue.                                                                                                                        
                                                                                                                                
MR. PALMER replied that he  had provided him with USDOE forecasts                                                               
of  gas and  oil prices  and  he didn't  want to  comment on  the                                                               
state's tax structure upstream.                                                                                                 
                                                                                                                                
SENATOR STEDMAN  said they needed  to look at this  "embedded btu                                                               
multiple." He  has been told  not to  worry about it,  because it                                                               
only  happens on  occasion.  Some  have heard  that  the way  the                                                               
state's  tax is  calculated  every  month that  one  month of  no                                                               
revenue would be one month too  many. If the energy multiples are                                                               
even remotely  close to this forecast,  he said, the state  has a                                                               
substantial problem embedded within the tax structure.                                                                          
                                                                                                                                
5:04:59 PM                                                                                                                    
MR. PALMER  said he  wouldn't comment on  oil/gas ratios,  but he                                                               
would present  him with  some information as  to what  the ratios                                                               
have  been historically  and  what  they are  projected  to be  -                                                               
assuming the DOE's forecasts are perfect.                                                                                       
                                                                                                                                
Slide  13  Oil  price  forecast: DOE's  oil  price  forecast  has                                                               
changed significantly over the last  couple of years. In the fall                                                               
of  2007  when  TransCanada  made its  filing,  the  most  recent                                                               
forecast indicated  that oil  prices in 2020-30  would be  in the                                                               
$57-65  range.  It was  a  little  higher  in their  next  year's                                                               
forecast. However,  the most recent  forecast they made  in April                                                               
and  December 2009  are  "hugely  higher, significantly  higher."                                                               
The gas forecasts don't have the same divergence.                                                                               
                                                                                                                                
5:07:16 PM                                                                                                                    
He explained  that an average  of the  oil/gas ratios of  the two                                                               
forecasts that  were made in  December 2006 and December  and the                                                               
one in  the 2020/30  timeframe was  9.1/10.1. The  forecasts that                                                               
were completed in April 2009 and  December 2009 showed it will be                                                               
15.6/16.1. Because  he saw this  divergence and because  they are                                                               
talking 10  years before the  pipeline goes into service  and 25-                                                               
year contracts,  potentially, he thought  it would be  prudent to                                                               
go back  and look at  the oil/gas ratio  over the last  35 years.                                                               
So, gas  prices in 1975 were  44 cents/mmbtu and oil  prices were                                                               
$11.16/mmbtu  -  the  oil/gas  ratio   that  year  was  25.4.  It                                                               
generally ran in the high teens  through low 20s through 1981 and                                                               
subsequent to  that, they had  ratios that  ranged from 14  to as                                                               
low  as 6.4.  They  never got  to  the range  of  the DOE's  1981                                                               
forecast until  last year  when they predicted  a shift  in North                                                               
American gas price versus imported  oil. So, the ratios from 1982                                                               
- 2008 were not the ones  the DOE was predicting would take place                                                               
over the 2020/30 timeframe.                                                                                                     
                                                                                                                                
5:09:48 PM                                                                                                                    
SENATOR  STEDMAN  said  several  years ago  when  they  sat  here                                                               
looking at PPT,  they were looking at a  stranded gas arrangement                                                               
of 20 percent in kind for  gas and during that time concerns were                                                               
raised  over Cook  Inlet  and it  was  carved out  and  set at  5                                                               
percent. They basically  ignored the rest of  the gas environment                                                               
because other than  the oil and gas basin on  the North Slope and                                                               
Cook   Inlet,  there   really  wasn't   any  other   gas  around.                                                               
Legislators  thought they  would deal  with it  later if  gas was                                                               
found in the Nenana Basin or somewhere else.                                                                                    
                                                                                                                                
As the  process evolved, the  PPT was  modified and now  ACES and                                                               
AGIA are  on the table,  and they have  still not dealt  with gas                                                               
taxes.  So  the   state  still  has  this   embedded  6:1  energy                                                               
equivalency ratio.  There was  no linkage  between that  and what                                                               
was going on  in the market place then, and  he is very concerned                                                               
that if the producers show up, love  AGIA, sign up to lock in the                                                               
current tax structure,  that would put the state  in a precarious                                                               
position - because  they would have to tell the  public "not only                                                               
did we turn down one  potential arrangement where the state would                                                               
have  20 percent  of the  gas  in kind,  now we're  going to  get                                                               
absolutely zero." That is unpalatable  to industry as well as the                                                               
state,  because you  can't  have a  one-party-take-all-and-leave-                                                               
the-other-with-zero anywhere  in the world  and have it  work for                                                               
very long.                                                                                                                      
                                                                                                                                
SENATOR STEDMAN  said he  didn't know how  they would  get around                                                               
that, but  he did know there  is clearly a big  spread between 20                                                               
percent in kind and  zero. He is alarmed when he  gets told it is                                                               
just an aberration  and not to worry about it  when it appears to                                                               
not be an aberration.                                                                                                           
                                                                                                                                
MR. PALMER said he isn't  qualified to comment on upstream taxes.                                                               
He pointed  out that the DOE  had accounted for the  shale gas in                                                               
its  new forecast.  Most parties  would say  their gas  price for                                                               
North America is in the range  of most other forecasts, but it is                                                               
relatively higher  for oil than  a number of  other consultants'.                                                               
Certainly, most  parties would  say that  if this  ratio persists                                                               
for  an extended  period of  time,  people should  see a  massive                                                               
increase  in demand  for natural  gas relative  to oil  - because                                                               
it's highly  competitive. He  didn't know what  the price  of oil                                                               
will be,  but he has tried  to present a consistent  forecast for                                                               
oil and gas from the same source  he has given them for more than                                                               
two years.                                                                                                                      
                                                                                                                                
CO-CHAIR MCGUIRE commented that the  6:1 ration was heard in this                                                               
committee.                                                                                                                      
                                                                                                                                
5:16:33 PM                                                                                                                    
Still on slide 10, he  highlighted the tariff ranges that Senator                                                               
Stedman stipulated  before based  on that forecast  of $2.80-3.50                                                               
at the Hub  with a gas price of $6.25-7.65.  That leaves a margin                                                               
in the order  of $3-4 for the customers after  they have paid the                                                               
transportation. This,  in TransCanada's  view, makes  the project                                                               
technically  and  commercially  viable.  Of course,  it's  up  to                                                               
customers  to decide  if  that is  acceptable  and the  preferred                                                               
case, but that amounts to $120-150  billion over the course of 25                                                               
years. From  that customers would  have to pay their  costs, take                                                               
their profits and share with government.                                                                                        
                                                                                                                                
5:17:40 PM                                                                                                                    
He  said when  TransCanada  did its  AGIA  application, slide  11                                                               
showed that  gas prices were  running just below $6  through most                                                               
of the  range and went  up to $6.60 toward  the end of  2030. The                                                               
fall 2007 forecast was very  similar; the April 2009 forecast was                                                               
the  highest and  is based  on recent  high gas  and oil  prices;                                                               
their most  recent forecast for  2020/30 is $6.25/7.67;  about 60                                                               
cents higher  per mmbtu on  average for that 10-year  period than                                                               
what TransCanada used in its AGIA application.                                                                                  
                                                                                                                                
5:18:50 PM                                                                                                                    
Slide  12 -  the Valdez  alternative: The  capital cost  range of                                                               
$20-26  billion, in  service in  2020,  and the  tariff range  of                                                               
$2.45-3.15. Now he has to predict  where that gas would go. If it                                                               
was  going  to   go  to  the  Lower  48,  there   would  be  some                                                               
determination relative to the Henry Hub.  If it went to the Costa                                                               
Azul terminal, most parties would  say the Henry Hub prices would                                                               
have to be reduced by about 75  cents from the numbers he has. If                                                               
it  went to  Asia as  LNG, customers  would receive  an oil-based                                                               
price.  So,  customers  would  have  to  determine  if  it  would                                                               
continue  to be  an oil-based  price or  if shale  gas will  be a                                                               
phenomena only in North America or elsewhere in the world.                                                                      
                                                                                                                                
5:20:22 PM                                                                                                                    
SENATOR FRENCH  asked him  to quantify a  little better  what the                                                               
Asia premium is.                                                                                                                
                                                                                                                                
MR.  PALMER  answered  that  most  parties  would  say  that  the                                                               
"Japanese Cocktail" is  in the 80-percent range of  btu value. So                                                               
if  you  take  the  $120  and  divide it  by  the  btu  value  of                                                               
approximately 6  and multiply  that by  .8, you  would be  in the                                                               
ballpark - $15-16.                                                                                                              
                                                                                                                                
SENATOR WAGONER  said the producers  would not have a  $16 profit                                                               
because  of  all  their  other costs  -  transportation  and  LNG                                                               
trains, for instance.                                                                                                           
                                                                                                                                
5:22:04 PM                                                                                                                    
MR. PALMER agreed. On slide 14  he had highlighted what steps are                                                               
necessary  to  make  this  project  a  success.  He  recapped  if                                                               
TransCanada  gets conditioned  bids,  they will  work with  those                                                               
customers to  resolve them. They will  continue with engineering,                                                               
environmental, and  other work  to advance  the project  and meet                                                               
all the  AGIA obligations. They  will work forward  as regulatory                                                               
situations  allow  and  continue   to  seek  alignment  with  BP,                                                               
ConocoPhillips and other major players on the project.                                                                          
                                                                                                                                
5:23:36 PM                                                                                                                    
He summarized  on slide  15 what other  parties need  to achieve.                                                               
Producer/shippers will  have to resolve any  conditions they have                                                               
with   TransCanada   and   make   arrangements   for   downstream                                                               
transportation to  an ultimate market.  They will have  to secure                                                               
that market  and in  the case of  LNG, they will  have to  get an                                                               
export permit if they are  going to the international market. The                                                               
state  will need  to resolve  upstream tax  or production  issues                                                               
with  producers/shippers,   and  continue   facilitating  project                                                               
permitting. The US federal government  and FERC need to establish                                                               
the  final  loan  guarantee  levels that  are  currently  at  $18                                                               
billion. The  Senate Finance Committee  has passed a  $30 billion                                                               
guarantee and  if that  were to  become law,  it would  lower the                                                               
cost, particularly if  they have access to  the federal financing                                                               
bank.  That  means the  interest  rate  would be  lower,  another                                                               
benefit. Governments  in Canada and  Native groups on  both sides                                                               
of the  border need  to align  and continue  facilitating project                                                               
planning.                                                                                                                       
                                                                                                                                
5:25:43 PM                                                                                                                    
CO-CHAIR  MCGUIRE asked  him  to elaborate  on  the federal  loan                                                               
guarantees.                                                                                                                     
                                                                                                                                
MR. PALMER related that they  have had extensive discussions with                                                               
a  dozen  or  more  financial  institutions  as  to  what  credit                                                               
requirements will  be needed to  make this project go.  They have                                                               
also had preliminary  discussions with the DOE  and other players                                                               
in  the US  federal government  as to  how they  see the  process                                                               
moving forward  on terms and  conditions; and Congress  will have                                                               
to wrestle with the magnitude  of the loan guarantee. TransCanada                                                               
needs to  know how the loan  guarantee will be structured  - what                                                               
the fees  will be and  how they will  have access to  the federal                                                               
financing bank  - this is  critical in understanding  whether the                                                               
guarantee is valuable to the project or not.                                                                                    
                                                                                                                                
5:27:18 PM                                                                                                                    
SENATOR WAGONER said TransCanada already  had the NEB permit, but                                                               
he wanted  to know if  Nova was going to  double the size  of its                                                               
petrochemical plant in Alberta and  the status of the liquids for                                                               
it.                                                                                                                             
                                                                                                                                
MR.  PALMER answered  that TransCanada  acquired Nova's  pipeline                                                               
interest a  dozen years ago,  and sometimes TransCanada  uses the                                                               
word  "Nova"  to describe  its  pipeline  system in  Alberta.  He                                                               
stated that Nova Chemicals is  a completely separate company from                                                               
TransCanada and  has had nothing to  do with them since  1998. In                                                               
fact, they have  subsequently been acquired and  have a different                                                               
name.  He  said today  there  is  significant spare  capacity  in                                                               
Alberta to  remove liquids -  ethane, propane, butane -  from the                                                               
gas  stream.  Those liquids  need  a  petrochemical plant  to  be                                                               
processed  -  like  the  one  the Nova  owns  at  Geoffrey.  Huge                                                               
capacity is available now and going forward.                                                                                    
                                                                                                                                
SENATOR WAGONER  asked how  big the Pt.  Thomson to  Prudhoe pipe                                                               
will be.                                                                                                                        
                                                                                                                                
MR. PALMER  replied a 1.1 bcf/day  pipe and he recalled  it would                                                               
be 32 inches.                                                                                                                   
                                                                                                                                
5:30:59 PM                                                                                                                    
CO-CHAIR  MCGUIRE  thanked  Mr.   Palmer  for  his  overview  and                                                               
adjourned the meeting at 5:30 p.m.                                                                                              

Document Name Date/Time Subjects
TransCanada - Update - 02-01-10.pdf SRES 2/1/2010 3:30:00 PM