Legislature(2009 - 2010)Anch LIO Rm 220

06/23/2009 02:00 PM Senate RESOURCES


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Audio Topic
02:06:03 PM Start
02:06:14 PM Alaska Pipeline Updates
02:09:02 PM Transcanada Alignment with Exxonmobil
03:40:11 PM Bill Walker Port Authority Project
04:05:41 PM Bud Fackrell, Denali Pipeline Project,
04:49:56 PM Administration Position on Exxon Tc Agreement
05:03:51 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Joint w/Senate Energy
+ Alaska Gas Pipeline Updates TELECONFERENCED
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
              SENATE RESOURCES STANDING COMMITTEE                                                                             
               SENATE SPECIAL COMMITTEE ON ENERGY                                                                             
                 ANCHORAGE LIO CONFERENCE ROOM                                                                                
                         June 23, 2009                                                                                          
                           2:06 p.m.                                                                                            
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator Lesil McGuire, Co-Chair                                                                                                
 Senator Bill Wielechowski, Co-Chair                                                                                            
 Senator Hollis French                                                                                                          
 Senator Bert Stedman                                                                                                           
 Senator Thomas Wagoner                                                                                                         
                                                                                                                                
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
 Senator Lesil McGuire, Chair                                                                                                   
 Senator Bill Wielechowski                                                                                                      
 Senator Bert Stedman                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator Charlie Huggins, Vice Chair                                                                                            
 Senator Gary Stevens                                                                                                           
                                                                                                                                
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
 Senator Lyman Hoffman                                                                                                          
 Senator Albert Kookesh                                                                                                         
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
  Senator Joe Paskvan - via teleconference                                                                                      
  Senator Gene Therriault                                                                                                       
  Senator Johnny Ellis                                                                                                          
  Representative Berta Gardner                                                                                                  
  Representative Chris Tuck - via teleconference                                                                                
  Representative Cathy Muñoz - via teleconference                                                                               
  Representative Craig Johnson                                                                                                  
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Alaska Gas Pipeline Updates                                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
TONY PALMER, Vice President                                                                                                     
TransCanada, Alaska Development                                                                                                 
POSITION STATEMENT: Presented update of AGIA contract.                                                                        
                                                                                                                                
MARTY MASSEY, U.S. Joint Interest Manager                                                                                       
ExxonMobil Production Company                                                                                                   
POSITION STATEMENT: Commented on EM's alignment with                                                                          
TransCanada.                                                                                                                    
                                                                                                                                
BILL WALKER                                                                                                                     
Alaska Gasline Port Authority (AGPA)                                                                                            
POSITION STATEMENT: Continuing to advance their project.                                                                      
                                                                                                                                
BUD FACKRELL                                                                                                                    
Denali Pipeline Projects                                                                                                        
POSITION STATEMENT: Said BP and ConocoPhillips formed this                                                                    
company to build the Alaska gas pipeline.                                                                                     
                                                                                                                                
COMMISSIONER PAT GALVIN                                                                                                         
Department of Revenue (DOR)                                                                                                     
POSITION STATEMENT: Presented the administration's response to                                                                
the agreement between TransCanada and Exxon.                                                                                    
                                                                                                                                
KENNETH MINESINGER                                                                                                              
Greenburg Traurig, LLP                                                                                                          
States gasline team's outside counsel                                                                                           
POSITION STATEMENT: Took a careful look at TransCanada and EM                                                                 
agreement and did not see any red flags.                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
2:06:03 PM                                                                                                                    
CO-CHAIR LESIL  MCGUIRE called  the joint  meeting of  the Senate                                                             
Resources Standing Committee and  the Senate Special Committee on                                                               
Energy to  order at 2:06 p.m.  Present at the call  to order were                                                               
Senators  Stedman, Stevens,  Huggins,  Hoffman, French,  Wagoner,                                                               
Therriault, Dyson, McGuire and Representative Gardner.                                                                          
^Alaska Pipeline Updates                                                                                                        
                                                                                                                                
                  Alaska Gas Pipeline Updates                                                                               
                                                                                                                                
2:06:14 PM                                                                                                                    
CO-CHAIR  MCGUIRE  said the  subject  of  today's meeting  is  an                                                               
update on the  Alaska Gas Pipeline. This will  include the recent                                                               
alignment  of TransCanada-Alaska  (TC) with  ExxonMobil (EM);  an                                                               
update  from Bud  Fackrell with  the Denali  Project; a  briefing                                                               
from Bill Walker  with the Alaska Gasline  Port Authority (AGPA);                                                               
and Pat Galvin with the AGIA gas team.                                                                                          
                                                                                                                                
^TransCanada Alignment with ExxonMobil                                                                                          
TONY PALMER,  Vice President of Alaska  Development, TransCanada,                                                               
and  Marty  Massey,  U.S.   Joint  Interest  Manager,  ExxonMobil                                                               
Production Company, introduced themselves.                                                                                      
                                                                                                                                
MR. PALMER  explained that  the TC  presentation first  will deal                                                               
with  EM  entry into  the  TC  project.  Second it  will  address                                                               
project-specific issues. Mr. Massey would  support the first part                                                               
of the  presentation, but not  contribute to the second  part due                                                               
to  regulatory considerations.  EM is  actively participating  in                                                               
the joint  project and the  joint project team is  independent of                                                               
EM's producing and marketing interests.  The lead manager for the                                                               
project is  Paul Pike, an EM  employee and he will  report to the                                                               
management committee, which Mr. Palmer  said he would chair. Once                                                               
discussion  about the  alignment  is complete,  Mr. Massey  would                                                               
excuse himself from the table.                                                                                                  
                                                                                                                                
2:09:02 PM                                                                                                                    
MR.  PALMER said  there will  be immediate  integration with  EM;                                                               
they  are  already  working  together   to  jointly  advance  the                                                               
project.  EM is  contributing prior  study results,  particularly                                                               
the  ANS (Alaska  North  Slope) producer  study  report that  was                                                               
completed in  2001, as  well as  existing right-of-way  data from                                                               
TAPS.                                                                                                                           
                                                                                                                                
TransCanada Alaska  and Foothills  remain the AGIA  licensees, he                                                               
stated. The project  schedule and scope is unchanged  as a result                                                               
of the alignment,  and their initial open season  target is still                                                               
to be  concluded by the  end of July  2010. They are  designing a                                                               
gas treatment  plant and a  pipeline from Prudhoe Bay  to Alaskan                                                               
delivery  points, and  for LNG  via Valdez  if customers  want to                                                               
redeliver to  the Lower 48  or to Asian  markets and to  Lower 48                                                               
markets  by the  Alberta Hub.  In addition  they are  advancing a                                                               
proposal for a gas transmission line  from Pt. Thomson to the gas                                                               
treatment plant; that is outside  AGIA and therefore would not be                                                               
reimbursable. In the  open season package they  will advance next                                                               
year, customers  will have the  opportunity to select a  piece of                                                               
pipe just like  they will have the opportunity  to select service                                                               
on the gas  treatment plant, the pipeline to the  border, and the                                                               
pipeline  to  Valdez  and  then continuing  on  to  Canada.  That                                                               
section of  pipe will be offered  for service, but there  will be                                                               
no request for reimbursement under the AGIA provisions.                                                                         
                                                                                                                                
2:11:59 PM                                                                                                                    
MR. PALMER said the current  TC/EM alignment is not contingent on                                                               
any commitments  by the  state and  TransCanada can  progress the                                                               
project  independently  if  they   want  using  all  the  jointly                                                               
developed  assets and  information.  However, that  is not  their                                                               
intent; their  intent is  to work  jointly with  EM to  make this                                                               
project a  success. But  if they are  not able to  do so,  all of                                                               
those assets will  reside with the licensees  and TransCanada can                                                               
progress the project.                                                                                                           
                                                                                                                                
He said the Alaska Natural Gas  Pipeline Act (ANGPA) will be used                                                               
in Alaska  and the Northern  Pipeline Act  (NPA) will be  used in                                                               
Canada. Their proposal had a  $83-million expenditure through the                                                               
open  season,  but  that  has  increased  to  $150  million.  The                                                               
additional spending  will be on early  execution and construction                                                               
planning,  additional efforts  in  regulatory, environmental  and                                                               
lands issues,  as well  as the gas  treatment plant.  He recalled                                                               
that  this body  had appropriated  $45  million to  date for  the                                                               
project; it's  his expectation based  on their "spend"  that will                                                               
take  them through  the  end  of this  year  and  into the  first                                                               
quarter of 2010  when they will be sitting in  a regular session.                                                               
They would  expect to  ask the  administration for  an additional                                                               
authorization at that time.                                                                                                     
                                                                                                                                
MR.  PALMER  said  the  development   costs  will  be  shared  by                                                               
TransCanada and  EM, but TransCanada retains  a majority interest                                                               
and  there  will  be  no  change  to  the  state's  reimbursement                                                               
contribution of $500 million.                                                                                                   
                                                                                                                                
2:13:58 PM                                                                                                                    
To describe  how they  got to  this point,  Mr. Palmer  said they                                                               
were approved by the legislature  at the beginning of last August                                                               
and  they  commenced  discussions   with  EM.  They  went  beyond                                                               
discussions into  negotiations in the  fall, and by the  first of                                                               
May  they had  concluded an  arrangement and  were ready  to move                                                               
forward. They kept the administration  apprised that they were in                                                               
discussions with EM,  but no details were released.  In early May                                                               
they took  it (confidentially)  to the  governing bodies  of AGIA                                                               
for approval according to its  provisions. The entire transaction                                                               
was  disclosed to  the administration,  and everyone  agreed that                                                               
this  did  not constitute  a  project  change. TC  believes  this                                                               
alignment  constitutes  real  progress  to  align  all  essential                                                               
parties   necessary  for   a  successful   project  and   that  a                                                               
combination of  the two companies brings  unrivaled expertise and                                                               
experience  to the  project. TransCanada  and EM  share a  common                                                               
goal - realization of an Alaskan pipeline project.                                                                              
                                                                                                                                
2:16:34 PM                                                                                                                    
(Slide 6) Objectives of the two parties:                                                                                        
   · Perform work necessary to facilitate completion by the                                                                     
     licensees of the open season in the U.S. and Canada by the                                                                 
     July 2010 target                                                                                                           
   · Pursue the required regulatory authorizations for pipeline                                                                 
     construction.                                                                                                              
                                                                                                                                
He  recalled  that under  AGIA  they  are  going to  conduct  the                                                               
initial  open season,  but regardless  of the  outcome, they  are                                                               
proceeding  beyond that  with the  regulatory work.  He explained                                                               
that EM  and TC  have entered into  an interim  project agreement                                                               
(IPA)  that will  conduct  the  work for  the  open season.  That                                                               
project  work   will  be  transferred  to   the  project  funding                                                               
agreements to  the AGIA  licensee, and  those entities  will earn                                                               
non-voting interest  in the licensee.  At this point in  time, TC                                                               
remains  100  percent  a  voting  interest  and  the  TransCanada                                                               
licensee;  EM will  be  earning a  non-voting  interest in  those                                                               
entities as  a result of  completing the work. They  will convert                                                               
the  non-voting  interest  into   voting  interest  once  EM  has                                                               
resolved its outstanding issues with  the state. The project work                                                               
will be  completed by the IPA  parties, and in the  event that is                                                               
deemed to be  qualifying work under AGIA, those  expenses will be                                                               
passed on to the state in an invoice.                                                                                           
                                                                                                                                
2:19:23 PM                                                                                                                    
(Slide 7)  MR. PALMER  said the IPA  establishes the  basis under                                                               
which  TransCanada  and  EM are  working  together;  the  project                                                               
funding  agreements  (PFA)  are  companion  agreements  that  are                                                               
executed  simultaneously. There  is  a  separate project  funding                                                               
agreement  for  U.S. and  Canada  just  like there  are  separate                                                               
licensees for  the U.S. and  Canada. The PGA provides  the bridge                                                               
between the licensees and the  IPA parties. TransCanada licensees                                                               
are  the  interface  with  the  state and  retain  all  the  AGIA                                                               
obligations,  which   stand  unchanged   as  a  result   of  this                                                               
transaction. The licensees retain  sole discretion over requested                                                               
paid reimbursement  for qualified expenditures. So,  dependent on                                                               
what  comes  forward  from those  IPA  parties,  the  TransCanada                                                               
licensees  will  have a  judgment  call  as  to whether  they  go                                                               
forward  as  qualified  expenditures  and  the  state  will  deem                                                               
whether or  not they truly  meet the  test of qualifying,  and if                                                               
they do, there will be reimbursement.                                                                                           
                                                                                                                                
2:21:14 PM                                                                                                                    
SENATOR  THERRIAULT  asked  if  EM  performed  a  work  task  and                                                               
TransCanada  submits it  for reimbursement,  does the  state have                                                               
absolute access  to that information -  if in fact the  state has                                                               
paid for it.                                                                                                                    
                                                                                                                                
MR.  PALMER answered  "yes." (Slide  8) He  said the  TransCanada                                                               
licensees have the right to all  the work provided to them by the                                                               
IPA  parties for  the purposes  of meeting  the TransCanada  AGIA                                                               
obligations.  That is  critical not  just for  TransCanada to  be                                                               
able to meet  its obligations, but in the event  that the project                                                               
was somehow stalled, the state has  the right to take it over and                                                               
gets access to that information.                                                                                                
                                                                                                                                
All the  major project  components, including  regulatory filings                                                               
and open season  contracts, will be made and entered  into in the                                                               
name of and  on behalf of the AGIA licensees.  The FERC prefiling                                                               
was made in  the name of TransCanada Alaska;  nothing has changed                                                               
as a  result of this alignment.  The licensees have the  right at                                                               
all times to advance alone if they so choose - but, he remarked:                                                                
                                                                                                                                
     We're  not   aligning  to   then  come   apart  shortly                                                                    
     thereafter;  we're  aligning  to make  this  project  a                                                                    
     success,  but in  the event  that we  choose to  do so,                                                                    
     that we  have to do  so, we have  the right to  all the                                                                    
     jointly developed  work products and both  parties will                                                                    
     retain the  rights to the  information, but  the actual                                                                    
     assets  will  be  retained  by  TransCanada,  the  AGIA                                                                    
     licensee. And,  of course, if  we do come  apart, there                                                                    
     must  be   a  reasonable  transition  period   to  sole                                                                    
     management   by  TransCanada.   In  the   event  of   a                                                                    
     termination the EM guys can't  go home the next day. It                                                                    
     has to be a reasonable  transition in the circumstance,                                                                    
     and we've agreed to that.                                                                                                  
                                                                                                                                
During the  term of  the PFA,  the IPA  parties are  earning non-                                                               
voting  interest in  the  licensee when  they  transfer the  work                                                               
product.                                                                                                                        
                                                                                                                                
(Slide 9) When  EM becomes a participant in  the licensees, those                                                               
non-voting interests will convert  to voting interests. The state                                                               
reimbursements will  follow the  costs that  are expended  by the                                                               
parties  and the  reimbursements  will be  in  proportion to  the                                                               
participating interests.  The IPA includes typical  joint venture                                                               
terms.                                                                                                                          
                                                                                                                                
2:24:48 PM                                                                                                                    
Management Structure of the Company                                                                                           
MR.  PALMER said  the  ownership will  be  "end-to-end" and  they                                                               
intend  to operate  on an  integrated  basis; they  have a  fully                                                               
integrated team of 70 people already  up and running. The bulk of                                                               
TransCanada's  folks  are  focused  on  the  pipeline  with  some                                                               
supplement by EM,  and the bulk of the people  working on the gas                                                               
treatment plant are  EM staff supplemented by a  modest number of                                                               
TransCanada people.                                                                                                             
                                                                                                                                
EM is the  IPA lead, and Paul Pike is  responsible for day-to-day                                                               
management of  the project team.  He will report to  a management                                                               
committee made  up of  EM and  TransCanada participants  with Mr.                                                               
Palmer as  chair. Under Mr.  Pike, TransCanada is a  sub-IPA lead                                                               
for  the   Canadian  portion,  but   through  the   open  season,                                                               
TransCanada is  leading the  entire pipeline  section, and  EM is                                                               
leading the  gas treatment  plant. They have  tried to  apply the                                                               
expertise  that each  company has  to the  specific areas  of the                                                               
project.                                                                                                                        
                                                                                                                                
2:25:14 PM                                                                                                                    
(Slide  10) The  benefits  of alignment  with  EM represent  real                                                               
progress. EM  supports the  alignment and is  ready to  work with                                                               
the state  to become  a full participant  in the  AGIA licensees.                                                               
The  combination  of TC  and  EM  bring unrivaled  expertise  and                                                               
experience to the project.                                                                                                      
                                                                                                                                
MR. PALMER remarked that last  year they heard that TransCanada's                                                               
cost  estimates wouldn't  be accurate  without having  a producer                                                               
inside  the  tent, but  that  issue  is  now resolved  with  EM's                                                               
participation.  Not  only  do  they   provide  expertise  on  the                                                               
pipeline side,  but they are  an absolute industry leader  in the                                                               
gas treatment field. While EM  is involved in developing the cost                                                               
estimates across  the project, he  hoped that  similarly situated                                                               
producers  would also  see that  a forecast  and a  cost estimate                                                               
prepared by the companies has  significant credibility across the                                                               
industry.                                                                                                                       
                                                                                                                                
TransCanada  has 2,000-plus  pipeline  employees responsible  for                                                               
transporting  20 percent  of North  American  gas every  day -  a                                                               
record  he was  willing  to  match with  any  competitor here  or                                                               
across North America. While TransCanada  expanded its major North                                                               
American pipeline  system in the  90s, currently it has  the $12-                                                               
billion  Keystone project  (1 million  barrel/day) oil  pipeline,                                                               
which they now  own 100 percent of under  construction. The first                                                               
phase will  be in service in  less than 12 months.  From the date                                                               
of the announcement  to the date of in-service will  be just over                                                               
four  years  for  the  first   phase.  The  second  phase  is  in                                                               
regulatory  approvals  in  Canada  and the  U.S.  Assuming  those                                                               
approvals are obtained  on a timely basis, the  second phase will                                                               
be complete down to the Gulf Coast  market by 2012. TC also has a                                                               
large $2  billion gas pipeline project  from Northwestern Alberta                                                               
to Northeastern Alberta, a 42-inch  line being constructed in the                                                               
winter only. The Bison Project is moving Rockies gas to the Mid-                                                                
west  and  TransCanada  was recently  granted  the  authority  to                                                               
construct a pipeline from Manzanita to Guadalajara.                                                                             
                                                                                                                                
2:29:51 PM                                                                                                                    
(Slide 11) EM merits. Mr.  Palmer said that some skeptics thought                                                               
that TransCanada  might not be able  to raise the funds  to build                                                               
the project,  but in the  last seven  months in a  very difficult                                                               
environment it  has raised $7 billion  in equity. Unquestionably,                                                               
though,  EM  brings  global,  financial  and  project  management                                                               
strengths to the  table. They are the  recognized industry leader                                                               
in the execution of large  complex projects. They are the largest                                                               
holder of  discovered North Slope  natural gas resources  as well                                                               
as the  leader in  gas treatment expertise;  they have  been here                                                               
for decades and they are bringing  concrete assets to the table -                                                               
and they  are committed to  timely delivery of the  project. They                                                               
have agreed  that it is  critical to  maintain low costs  and the                                                               
schedule  for the  project.  TC and  EM share  a  common goal  to                                                               
realize and  Alaskan pipeline project  under AGIA, but  they need                                                               
they full  support of the  state, U.S. and  Canadian governments,                                                               
North  Slope  producers,  including ConocoPhillips  and  BP,  and                                                               
other interested parties.                                                                                                       
                                                                                                                                
2:31:59 PM                                                                                                                    
SENATOR  STEDMAN asked  Mr. Massey  to  clarify that  EM has  not                                                               
signed on to the AGIA "must haves."                                                                                             
                                                                                                                                
MR.  MASSEY said  EM  is  working with  TC  outside  of the  AGIA                                                               
obligations, which remain with TC.                                                                                              
                                                                                                                                
SENATOR  STEDMAN  expressed  concern   that  clearly  EM  has  no                                                               
commitment to  the AGIA  requirements, and this  appears to  be a                                                               
clever way  to get access  to some of reimbursement  funds, which                                                               
was not the intent.                                                                                                             
                                                                                                                                
MR.  PALMER   responded  that   TC  retains   all  of   the  AGIA                                                               
requirements and is  obliged to the state under  the AGIA license                                                               
-  just as  they feel  the state  is obliged  to them.  The $500-                                                               
million reimbursement will  first come to TC  and ultimately will                                                               
flow  to TC  and EM  parties and  is exactly  the same  amount of                                                               
money the  state has committed.  "That is unchanged." EM  is keen                                                               
to  become a  full licensee,  but they  do have  some outstanding                                                               
issues with the state.                                                                                                          
                                                                                                                                
2:34:14 PM                                                                                                                    
SENATOR STEDMAN directed attention to  slide 9 and commented that                                                               
the  word "when"  EM  becomes a  participant  probably should  be                                                               
"if."                                                                                                                           
                                                                                                                                
MR. PALMER  responded that perhaps  he was being  too optimistic;                                                               
clearly if  EM becomes  a participant in  the licensees  the non-                                                               
voting   interest  will   convert   to  voting.   Maybe  he   was                                                               
contemplating that  would occur, but it  has not to date.  And if                                                               
it doesn't happen, they will not convert.                                                                                       
                                                                                                                                
SENATOR STEDMAN  said he doesn't  have an issue  with reimbursing                                                               
TransCanada, but he does have  an issue with reimbursement to any                                                               
of the  other big three  producers that  have not agreed  to AGIA                                                               
requirements or accessing any portion of it.                                                                                    
                                                                                                                                
MR.  PALMER  said he  respected  Senator  Stedman's opinion,  but                                                               
commented that  the work  that is being  conducted jointly  by EM                                                               
and TransCanada  will improve the information  available to them.                                                               
EM  is  already contributing  assets  that  are not  reimbursable                                                               
including  the NS  producer study.  TransCanada  was looking  for                                                               
someone  to advance  the gas  treatment plant,  part of  the AGIA                                                               
project, and they  think they have the best possible  party to do                                                               
that   with   ExxonMobil.   Their  participation   improves   the                                                               
probability  of   success  in  the  open   season.  Taking  those                                                               
considerations  into  account,  TransCanada  hopes  that  EM  can                                                               
become a  full participant. If  that is achieved, that  will also                                                               
be an  important step  towards the success  of this  project. For                                                               
this  project to  come to  fruition it  needs both  customers and                                                               
regulatory approval. Significant advances  have been made on both                                                               
those fronts as a result of this alignment.                                                                                     
                                                                                                                                
2:36:45 PM                                                                                                                    
CO-CHAIR  MCGUIRE  noted  that   Senator  Ellis  had  joined  the                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR FRENCH said  that slide 9 looks as  though the non-voting                                                               
shares in the TransCanada licensees  at some future date could be                                                               
converted into  voting interests,  but in the  original documents                                                               
that  TransCanada supplied  to them  the percentage  of ownership                                                               
each outfit would acquire is kept secret.                                                                                       
                                                                                                                                
2:38:07 PM                                                                                                                    
MR. PALMER said  that certain things are privileged.  They are in                                                               
a very competitive environment -  first there is already a direct                                                               
competitor  for this  project and  secondly, they  would like  to                                                               
attract other parties  to join in the alignment, and  it would be                                                               
counterproductive  to  reveal  the  current  arrangement  to  the                                                               
parties they might be negotiating with.                                                                                         
                                                                                                                                
SENATOR  FRENCH  asked  the conditions  for  shifting  to  voting                                                               
shares. Is  it likely that  EM or a  subsidiary would then  own a                                                               
chunk of the license the state granted to TransCanada?                                                                          
                                                                                                                                
MR.  PALMER answered  yes, if  EM  resolves its  issues with  the                                                               
state, they  would become a  minority partner in  the TransCanada                                                               
Alaska and the Foothills subsidiary  AGIA licensees. He said they                                                               
are clearly looking for a commitment  of EM's gas to the pipeline                                                               
project and that hadn't occurred yet.                                                                                           
                                                                                                                                
SENATOR FRENCH said  that brings up the issue of  what happens if                                                               
another company wants  to acquire part of the  license that state                                                               
awarded under AGIA to TransCanada.  Provisions were inserted that                                                               
say before any of that license  leaves the grantee, there must be                                                               
commissioner approval. So, it is  curious because the eventuality                                                               
of that  transfer is  buried in  the deal  that they  haven't had                                                               
that commissioner approval.  He was told by DNR  that they looked                                                               
it over and  decided this arrangement didn't need  to be reviewed                                                               
by them  as being a transfer.  He anticipated that DNR's  view of                                                               
oversight  is  that  it  would happen  when  "that  trigger  gets                                                               
flipped."                                                                                                                       
                                                                                                                                
2:41:19 PM                                                                                                                    
MR. PALMER  said the administration  will be involved as  they go                                                               
forward, but the  department did not think the  alignment with EM                                                               
triggered a project  plan change. However, he  preferred that the                                                               
DNR respond to that.                                                                                                            
                                                                                                                                
SENATOR  FRENCH  said  the arrangement  requires  that  should  a                                                               
falling apart  take place,  the work product  is passed  along to                                                               
the state. He  asked if EM is  able to take that  work product as                                                               
well and maybe develop its own pipeline.                                                                                        
                                                                                                                                
MR. PALMER  replied that TC  and EM  will jointly have  access to                                                               
the information -  engineering and other studies -  but they will                                                               
not  have access  to the  assets. If  the IPA  is able  to secure                                                               
right-of-way regulatory  permits, they  will all reside  with the                                                               
AGIA licensees and  would have to be reconstituted by  EM if they                                                               
were no longer in the partnership and pursuing another project.                                                                 
                                                                                                                                
2:43:18 PM                                                                                                                    
SENATOR HUGGINS  asked if $75  million of the $150  million could                                                               
potentially go to EM.                                                                                                           
                                                                                                                                
MR.  PALMER  replied if  the  entire  $150 million  qualified  as                                                               
expenditures and  the state  agreed with  that, then  $75 million                                                               
would come  back to TransCanada as  the licensee and it  would be                                                               
distributed pro  rata between EM  and TransCanada based  on their                                                               
proportionate shares and TransCanada will be in the majority.                                                                   
                                                                                                                                
SENATOR HUGGINS  said assuming that  EM got $75 million  and then                                                               
did not  become a voting  interest and  went their own  way, what                                                               
happens to the $75 million?                                                                                                     
                                                                                                                                
MR. PALMER said that EM would  take the money, but TC will retain                                                               
the work  product, the  assets that  had been  jointly developed,                                                               
and  as  a  result  both  TransCanada  and  the  state  would  be                                                               
obtaining value for the monies they are expending.                                                                              
                                                                                                                                
2:45:11 PM                                                                                                                    
SENATOR  HUGGINS asked  what else  EM  wants to  become a  voting                                                               
member besides just a part ownership in the pipeline.                                                                           
                                                                                                                                
MR. PALMER answered  that TC and EM are currently  aligned on all                                                               
aspects of  the project in terms  of the work that  is under way.                                                               
If EM resolves  the issues with the state and  commits its gas to                                                               
the project, it will then become  a part owner in the license and                                                               
have a financial and a voting interest.                                                                                         
                                                                                                                                
SENATOR HUGGINS asked to hear from  Mr. Massey about what it will                                                               
take to become a voting interest.                                                                                               
                                                                                                                                
2:46:33 PM                                                                                                                    
MR. MASSEY said TransCanada retains  all of the obligations under                                                               
AGIA. EM is  eager to become an owner in  the license and resolve                                                               
their issues with the state "and  all that goes with that." A key                                                               
item  is  predictable  fiscal  terms,   and  so  far  EM  has  no                                                               
commitment  from the  administration to  address those  terms. So                                                               
they are  coming into this  arrangement with  that understanding.                                                               
EM also understands that the  administration has said if EM makes                                                               
the  case that  something  needs  to change,  they  will sit  and                                                               
listen  to  them. And  they  will  be ready  to  do  that at  the                                                               
appropriate time. EM has come to  understand that AGIA is the law                                                               
in the State of Alaska and that  is how EM has to address what is                                                               
needed from  a predictable and  durable fiscal  terms standpoint.                                                               
That  is  one of  the  main  reasons  EM  joined TC.  He  further                                                               
clarified:                                                                                                                      
                                                                                                                                
     We  have  looked at  it  from  the standpoint  that  we                                                                    
     believe that  is going to  give us the best  chance for                                                                    
     success,  really.  The  best   chance  for  success  is                                                                    
     aligning with the State of  Alaska and TransCanada, and                                                                    
     really the best chance of  success of aligning with the                                                                    
     other  parties we  need, in  particular, ConocoPhillips                                                                    
     and   BP.  That's   why  we've   done  the   deal  with                                                                    
     TransCanada.                                                                                                               
                                                                                                                                
2:48:23 PM                                                                                                                    
SENATOR HUGGINS said  he mentioned that they are  looking for two                                                               
items - equity and durable fiscal terms.                                                                                        
                                                                                                                                
MR.  MASSEY said  EM  has an  understanding  with TransCanada  in                                                               
terms of what equity they would  be entitled to under the license                                                               
- if  they were  able to  resolve the other  matters -  the other                                                               
matters  being  the predictable  and  durable  fiscal terms,  the                                                               
issues  in AGIA  they  have mentioned  from time  to  time -  and                                                               
TransCanada  is  requiring  that  EM  commit  its  gas  to  their                                                               
project. All  of those  have to  be in  place before  EM's shares                                                               
convert from a non-voting to a voting interest.                                                                                 
                                                                                                                                
2:49:17 PM                                                                                                                    
CO-CHAIR  MCGUIRE  asked,  on  that  point,  if  the  changes  he                                                               
envisions  to AGIA  would  have to  be in  place  along with  the                                                               
fiscal  certainty prior  to any  firm transportation  commitments                                                               
(FT) EM would make between May and July of 2010.                                                                                
                                                                                                                                
MR. MASSEY replied that it's  always good to resolve issues early                                                               
in the  life of  a project,  but TransCanada  is obligated  to go                                                               
forward even  if these are  not resolved  by an open  season. The                                                               
IPA  has been  structured such  that EM  can participate  past an                                                               
open  season if  it's not  totally successful.  The key  decision                                                               
point  is if  you are  going to  construct the  project or  not -                                                               
after getting the regulatory certificate.                                                                                       
                                                                                                                                
CO-CHAIR MCGUIRE said  AGIA allows a gas tax to  be locked in for                                                               
ten years,  and asked what  fiscal terms  EM is looking  for. She                                                               
also wanted to know what parts of AGIA are untenable for them.                                                                  
                                                                                                                                
MR. MASSEY  said AGIA has  a 10-year "moral obligation,"  but the                                                               
legislature  could change  that.  What is  needed  to go  forward                                                               
depends  on the  total package  of  the deal  that is  ultimately                                                               
struck -  that's what he  means when  he says durable  and fiscal                                                               
certainty.                                                                                                                      
                                                                                                                                
2:52:21 PM                                                                                                                    
CO-CHAIR MCGUIRE asked  if there was a failure to  get enough FTs                                                               
after  the first  open season  to make  the project  viable, what                                                               
would EM do.                                                                                                                    
                                                                                                                                
MR. PALMER recalled  that when AGIA passed, TC  testified that it                                                               
did not  want to go  forward beyond an unsuccessful  open season,                                                               
but that  was included  in the  law. TC had  to consider  that in                                                               
deciding  to  apply for  the  license.  They  did apply  for  the                                                               
license, at least partially, because  the state was going to make                                                               
a $500-million  contribution to the development  of this project.                                                               
In  the event  there  is  an unsuccessful  open  season, TC  will                                                               
continue with  the regulatory process.  In the event  that fiscal                                                               
certainty issue  is resolved a  year later, they will  "take them                                                               
on" and  not delay the project.  That is one of  the strengths of                                                               
AGIA.  However,  he explained  that  the  obligation to  continue                                                               
means that  his shareholders  are exposed to  risk just  like the                                                               
State of Alaska is.                                                                                                             
                                                                                                                                
2:55:34 PM                                                                                                                    
CO-CHAIR MCGUIRE  observed and  questioned that  EM will  have an                                                               
unspecified equity  position commensurate with the  FT commitment                                                               
they might make in July 2010.                                                                                                   
                                                                                                                                
MR. PALMER responded  that TransCanada and EM  as project sponsor                                                               
intend to continue the project as pipeline developers.                                                                          
                                                                                                                                
CO-CHAIR  MCGUIRE  asked  Mr.  Massey   to  respond  as  producer                                                               
shipper.                                                                                                                        
                                                                                                                                
MR. MASSEY said it's hard as  a producer shipper to know what the                                                               
pipeline company  might do. He  understands that under  AGIA they                                                               
will continue  to go forward. The  IPA can continue past  an open                                                               
season essentially on behalf of the AGIA licensees.                                                                             
                                                                                                                                
SENATOR  HOFFMAN stated  that  on  one hand  Mr.  Massey says  he                                                               
understands AGIA is  the letter of the law, and  that is why they                                                               
have  entered this  venture with  TransCanada, but  on the  other                                                               
hand he  says some  things are  still unresolved.  "So, obviously                                                               
you think  that AGIA isn't  still the complete answer."  It seems                                                               
as though  EM is still in  the same position it  was before while                                                               
AGIA was being developed.                                                                                                       
                                                                                                                                
He stated  that EM still wants  the state to make  changes to its                                                               
tax structure.  That was  the downfall  of the  negotiations they                                                               
had under the Murkowski administration  and one of the provisions                                                               
that the  Palin administration insisted  on not  addressing. That                                                               
continues to be their number-one  issue. How did he envision that                                                               
being resolved and getting the administration on board?                                                                         
                                                                                                                                
MR. MASSEY  responded that AGIA  is the law and  TransCanada will                                                               
execute  that  project  according  to its  obligations.  He  also                                                               
understands  that AGIA  is the  framework under  which the  state                                                               
wants to address  the project and he is hopeful  that EM can have                                                               
a conversation  under that framework  about what can be  done for                                                               
predictable and  durable terms to  make the  project commercially                                                               
viable, but  he has  no commitment  from the  administration that                                                               
that  will occur.  However, as  they have  all heard,  if EM  can                                                               
prove  to the  administration that  something needs  to be  done,                                                               
they are  willing to  listen. EM  is willing  to move  forward on                                                               
that basis.                                                                                                                     
                                                                                                                                
3:00:54 PM                                                                                                                    
SENATOR THERRIAULT said some detractors  have said that TC as the                                                               
state's  partner is  now the  message  carrier for  EM and  other                                                               
potential producers to  pressure the state into  changing the tax                                                               
structure and give  commitment on certainty. Yet  TC committed to                                                               
the legislature  that it would  not allow  itself to be  put into                                                               
that position.  He asked Mr. Palmer  if there is anything  in the                                                               
agreement with EM that will get TC into the middleman position.                                                                 
                                                                                                                                
MR. PALMER  responded that  TC has  committed in  its application                                                               
and  through  testimony that  it  will  not  be party  to  fiscal                                                               
discussions. Those discussions will  be between the sovereign and                                                               
the producer-shippers and not the  pipeline company. The pipeline                                                               
company has no role in that,  but will be an interested observer.                                                               
"I will not  participate in it, TransCanada  will not participate                                                               
in that  and our commitment  that we  made last year  stands," he                                                               
said.                                                                                                                           
                                                                                                                                
SENATOR THERRIAULT said  on the issue of EM  being reimbursed for                                                               
some of  the work - that  TC always spoke about  reserving equity                                                               
ownership for partners to come on board.                                                                                        
                                                                                                                                
MR.  PALMER  explained  that   TransCanada  has  contracted  with                                                               
certain large  contractors to do the  pre-FEED (final engineering                                                               
and design) work. Subsequent to the  open season, there will be a                                                               
separate request for contractors for  the actual FEED work; those                                                               
may be  different parties and  the parties that perform  the pre-                                                               
FEED work  may be competitors. That  occurs all the time  as they                                                               
hire engineering  and environmental firms.  So, the fact  that EM                                                               
will be  reimbursed, while they  are not just like  a contractor,                                                               
they are  providing work  that is good  and valuable  for getting                                                               
them  to a  successful open  season -  in the  same fashion  that                                                               
URF's  work  is for  the  gas  treatment  plant and  Colt  Worley                                                               
Parsons' work is for the pipeline.                                                                                              
                                                                                                                                
3:05:08 PM                                                                                                                    
SENATOR THERRIAULT said in  their initial application TransCanada                                                               
always  spoke about  reserving equity  ownership for  partners to                                                               
come on board.                                                                                                                  
                                                                                                                                
MR.  PALMER affirmed  that and  said they  always described  that                                                               
they  wanted another  party to  handle the  gas treatment  plant,                                                               
because  that  wasn't their  core  area  of expertise,  and  with                                                               
regards to  the entire project,  particularly the  pipeline, they                                                               
indicated  they  would  be  available to  talk  about  an  equity                                                               
participation  to parties  that  commit  a significant  threshold                                                               
volume.                                                                                                                         
                                                                                                                                
SENATOR  THERRIAULT said  in one  of his  slides he  talked about                                                               
going up  to 100 percent  ownership in  Keystone and he  asked if                                                               
TransCanada was actively looking for  100 percent ownership or if                                                               
ConocoPhillips was just actively looking for a buyer.                                                                           
                                                                                                                                
MR.  PALMER  said  he  couldn't   discuss  the  details  of  that                                                               
transaction,  but  TransCanada  is  in  the  process  of  getting                                                               
approval for 100 percent ownership.                                                                                             
                                                                                                                                
SENATOR THERRIAULT asked  Mr. Massey when the  state was apprised                                                               
of  this arrangement  and looked  at the  details, was  there any                                                               
discussion about a link between this and Pt. Thomson.                                                                           
                                                                                                                                
MR. MASSEY answered no.                                                                                                         
                                                                                                                                
3:07:04 PM                                                                                                                    
SENATOR PASKVAN  asked if  EM retains  the right  to use  its own                                                               
work product if it has received  $30 million, but does not become                                                               
a participant in the TransCanada licensee.                                                                                      
                                                                                                                                
MR. PALMER  replied that  EM would  retain the  right to  use the                                                               
information (engineering  and other  studies), but not  the right                                                               
to the assets, either regulatory  or physical. Those would remain                                                               
with the TransCanada licensees.                                                                                                 
                                                                                                                                
SENATOR PASKVAN  asked if EM  work could be  viewed in part  as a                                                               
contribution for equity ownership under the current agreement.                                                                  
                                                                                                                                
MR.  PALMER answered  that EM  is earning  a non-voting  interest                                                               
today,  and if  issues with  the state  are resolved,  their work                                                               
will be converted into common  shareholding interest at the time.                                                               
They are obtaining  a financial interest today, but  not a voting                                                               
interest. If they  resolve issues and become  a full participant,                                                               
that work will  in effect cause them to become  a voting interest                                                               
if they have committed their gas.                                                                                               
                                                                                                                                
3:09:06 PM                                                                                                                    
SENATOR PASKVAN  asked specifically  as far as  a percentage-vote                                                               
equity  ownership in  the  new  entity if  EM's  current work  is                                                               
viewed in part as a  contribution for that equity ownership under                                                               
the current agreement.                                                                                                          
                                                                                                                                
MR. PALMER  answered using  his example of  $30 million  worth of                                                               
work. If that  were EM's contribution and in the  event that they                                                               
did  resolve things,  that $30  million  worth of  work, if  they                                                               
become  a full  participant, would  become $30  million worth  of                                                               
voting shares.                                                                                                                  
                                                                                                                                
3:10:41 PM                                                                                                                    
SENATOR  FRENCH  asked  how  EM stands  in  this  arrangement  in                                                               
comparison  to a  subcontractor that  might be  hired to  do some                                                               
engineering  work  on  the  pipeline.   They  might  authorize  a                                                               
subcontractor  to  do  work,  for  instance,  but  not  take  the                                                               
information that they  performed with them when  the contract was                                                               
over.                                                                                                                           
                                                                                                                                
MR.PALMER answered, "To some degree,  that's accurate." But major                                                               
consulting firms  often have  proprietary technology;  they often                                                               
supplement  that   for  a  specific   job.  They   will  restrict                                                               
information they are  willing to isolate because they  are in the                                                               
consulting  business on  a  long term  basis  and won't  preclude                                                               
themselves from being in that  consulting business as a result of                                                               
one particular  task they undertake.  In many cases they  want to                                                               
be free to conduct the next piece of work for the next client.                                                                  
                                                                                                                                
SENATOR STEDMAN  said while he  is glad  Exxon is on  board, this                                                               
early disbursement  seems like a  step around the intent  of AGIA                                                               
that  they "cooked  up" just  to get  to the  reimbursement. They                                                               
hadn't signed on to the AGIA requirements.                                                                                      
                                                                                                                                
MR. PALMER said it's important to  remember that EM as a producer                                                               
shipper  still   has  issues  with  the   state.  However,  their                                                               
commitment towards  developing a  high quality cost  estimate for                                                               
this project  is also clear.  And they are doing  that separately                                                               
and  distinctly from  their  producer-shipper  role. He  believes                                                               
this will improve  the quality of the work and  that will improve                                                               
the likelihood of  success in the open season. This  is what they                                                               
are  seeking reimbursement  for, not  the other  issues that  Mr.                                                               
Massey described that  he has to resolve  in his producer-shipper                                                               
role.                                                                                                                           
                                                                                                                                
SENATOR STEDMAN  asked for help  in understanding the  voting and                                                               
non-voting shares.                                                                                                              
                                                                                                                                
3:15:05 PM                                                                                                                    
MR. PALMER answered that the  non-voting shares are common shares                                                               
in the Canadian section and preferred in the U.S. section.                                                                      
                                                                                                                                
SENATOR STEDMAN said  he would want help with  legal expertise on                                                               
this issue.                                                                                                                     
                                                                                                                                
3:16:05 PM                                                                                                                    
SENATOR  WAGONER   said  the   administration  spent   six  weeks                                                               
reviewing  the   agreements  between  TransCanada  and   EM.  The                                                               
legislature   granted   the  license,   but   it's   up  to   the                                                               
administration to administer it.                                                                                                
                                                                                                                                
CO-CHAIR MCGUIRE said this is the  point at which Mr. Massey will                                                               
have to excuse himself.                                                                                                         
                                                                                                                                
SENATOR THERRIAULT said  he had a question for  Mr. Massey before                                                               
he leaves.  He said Exxon  had always been upright  about wanting                                                               
fiscal terms,  but his  response has  always been  he understands                                                               
why he would ask  for it, but the state doesn't  have the data to                                                               
make that  decision. As  they move  towards open  season, perhaps                                                               
the state  will get  a much better  idea of the  cost of  the gas                                                               
treatment plant  and the resulting tariff,  perhaps that question                                                               
will come  much more in  focus. So the  state will have  then the                                                               
data it needs to evaluate  their requests. Without it, they would                                                               
be setting a tax just because  somebody asked for it. He asked if                                                               
he agreed.                                                                                                                      
                                                                                                                                
3:18:19 PM                                                                                                                    
MR. MASSEY responded  that as things firm up,  you obviously have                                                               
better information,  but that doesn't  mean you can't do  it with                                                               
that  uncertainty -  for  instance through  how  the terms  might                                                               
change associated with the uncertainty  and cost. Many ways exist                                                               
to address this issue, if you put  your mind to it, and it should                                                               
be done as soon as possible.                                                                                                    
                                                                                                                                
SENATOR THERRIAULT said  both Mr. Massey and Mr.  Hames have both                                                               
said the sovereign  made a decision, and from EM's  point of view                                                               
that is the  new lay of the  land. And Exxon decided  to play. He                                                               
asked  if they  are  having good  communications  with the  state                                                               
agency now, because they weren't before.                                                                                        
                                                                                                                                
MR.  MASSEY said  they  are having  good  communication with  the                                                               
state agencies,  but they  have made no  commitment to  enter any                                                               
sort of  fiscal discussion. He hoped  to be able to  present that                                                               
issue to them.                                                                                                                  
                                                                                                                                
CO-CHAIR MCGUIRE thanked Mr. Massey for his updates.                                                                            
                                                                                                                                
3:21:10 PM                                                                                                                    
MR. PALMER continued his presentation:                                                                                          
(Slide 12) TransCanada map of pipeline project.                                                                                 
                                                                                                                                
(Slide 13) Project schedule. The  FERC pre-filing request used to                                                               
be  in 2011,  but  that has  been advanced  to  April 2009.  FERC                                                               
approved  it on  May 1.  The only  other change  is the  Canadian                                                               
counterparts  to the  U.S. timeframes.  The open  season will  be                                                               
complete  by the  end of  July 2010,  and they  will continue  to                                                               
solicit the market at least every two years.                                                                                    
                                                                                                                                
(Slide 14)  Project Accomplishments  in June 2008.  Alignment was                                                               
achieved  with  issuing  the  license on  December  5;  the  AGIA                                                               
coordinator, Mark Myers, is now  in place, and the alignment with                                                               
EM  is  significant. They  began  work  in  August last  year  to                                                               
maintain  schedule. Pre-FEED  contractors have  been retained;  a                                                               
significant  number of  them are  Alaskans. As  the project  gets                                                               
ramped up that number will increase.                                                                                            
                                                                                                                                
3:23:21 PM                                                                                                                    
(Slide  15) He  said again  that bringing  EM personnel  on board                                                               
broadens the expertise. They are  having ongoing discussions with                                                               
potential  customers  for  deliveries   in  Alaska  for  the  LNG                                                               
alternative  and for  Lower 48  markets by  the Alberta  Hub, but                                                               
those discussions have not turned  to negotiations with any other                                                               
party but EM.  He reminded the committee that  when they received                                                               
the license  last year, they were  commencing on a project  to be                                                               
in service in  2018. This is what has occurred  in just the first                                                               
year.                                                                                                                           
                                                                                                                                
3:24:52 PM                                                                                                                    
On  the  LNG  side,  cost estimation  and  commercial  terms  are                                                               
underway.  Their   application  under   AGIA  had  a   2  bcf/day                                                               
alternative,  but  after  discussions with  potential  customers,                                                               
that  was revised  to 3  bcf/d,  and that  is what  they will  be                                                               
designing. Potential customers can  select Valdez as the delivery                                                               
point  if that  is  the best  alternative for  them  or they  can                                                               
select the one going through Alberta if that is better.                                                                         
                                                                                                                                
3:25:47 PM                                                                                                                    
(Slide  16) Mr.  Palmer said  he was  questioned last  year about                                                               
Canadian regulatory issues and  the applicability and feasibility                                                               
of the Northern  Pipeline Act (NPA), and now EM  has reviewed and                                                               
endorsed that structure as the  Canadian regulatory model for the                                                               
project.  Re-staffing  of  that  agency is  underway  and  it  is                                                               
coordinating within the government  of Canada and across Canadian                                                               
provinces.  Multi-department meetings  have  been completed  with                                                               
other  federal   agencies,  British   Columbia  and   Yukon,  and                                                               
individual meetings are underway.                                                                                               
                                                                                                                                
SENATOR  THERRIAULT  asked  when   they  will  be  entering  into                                                               
agreement with FERC on the third-party contractor.                                                                              
                                                                                                                                
MR. PALMER  replied that they  are still having  discussions with                                                               
FERC on that.  If TransCanada's preference is  honored, that will                                                               
come later in 2010 rather than this year.                                                                                       
                                                                                                                                
3:27:06 PM                                                                                                                    
(Slide 17)  He was also asked  what relations they have  had with                                                               
Canadian First Nations;  terms and conditions have  been in place                                                               
for   30  years   that  give   them  specific   rights.  However,                                                               
TransCanada  has moved  forward and  they have  put proposals  in                                                               
front of all those right-of-way  First Nations to negotiate. Five                                                               
of  eight   have  indicated  they   are  ready  to   discuss  and                                                               
negotiations have been commenced with some of them.                                                                             
                                                                                                                                
He  was also  asked if  they  would not  be able  to advance  the                                                               
project  because of  the original  partnership (ANNGTC  withdrawn                                                               
partners) in Alaska.  But all the individual  regulatory assets -                                                               
the  FERC  conditional  certificate,  the  federal  right-of-way,                                                               
Section 404  water rights - that  were owned by ANNGTC  have been                                                               
returned  to  government.  That Partnership  is  in  dissolution.                                                               
TransCanada  is  seeking mutual  releases  from  all six  of  the                                                               
withdrawn parties and  have five in hand; one is  remaining - and                                                               
he assured them  that they were working hard to  get it. This has                                                               
not in any way stalled the project.                                                                                             
                                                                                                                                
3:29:10 PM                                                                                                                    
MR. PALMER  said that  Fort Nelson  is about  200 miles  from the                                                               
Alberta/B.C. border  and they described  a way the cost  could be                                                               
commercially averaged downstream into  the Alberta section of the                                                               
pipeline.  That  would  save  18  cents/mmbtu/day  -  about  $300                                                               
million  per  year.  It  was   not  something  TransCanada  could                                                               
provide; first they had to  get regulatory approval in Canada. He                                                               
described  their  advancements   so  far.  TransCanada's  Alberta                                                               
system has been provincially regulated  for 50 years. TransCanada                                                               
made an application to the  government of Canada and the National                                                               
Energy Board (NEB)  to put into regulation that  the system could                                                               
go outside of Alberta both  physically and commercially, and they                                                               
have been successful  in getting their decision  to advance that.                                                               
So  it is  now federally  regulated, a  significant advance  that                                                               
improves the chances of achieving Fort Nelson upside.                                                                           
                                                                                                                                
TransCanada also  is proposing a  couple of small  pipelines into                                                               
the  shale  gas   regions  of  British  Columbia.   If  they  are                                                               
successful  in completing  those  projects and  can average  them                                                               
into  the  Alberta, those  are  good  precedents for  the  Alaska                                                               
project.  He couldn't  guarantee  anything, but  they are  making                                                               
good progress towards that goal.                                                                                                
                                                                                                                                
3:30:43 PM                                                                                                                    
(Slide  18)  FERC required  TransCanada  to  do an  in-state  gas                                                               
study; they  have contracted with  Northern Economics to  do that                                                               
and it is now underway. It  will be completed and available later                                                               
this year. This  will assist TransCanada in  identifying the five                                                               
or  more in-state  gas locations  for off-takes.  Their Anchorage                                                               
office was opened early in 2009 as agreed in AGIA.                                                                              
                                                                                                                                
3:31:38 PM                                                                                                                    
(Slide 19)  He said over  the next  13 months they  will complete                                                               
the  capital   cost  estimate  (end  of   March  2010),  finalize                                                               
commercial  terms and  precedent agreements  to put  in front  of                                                               
FERC  and potential  customers,  advance  Canadian First  Nations                                                               
participation agreements and the  Fort Nelson issue, complete the                                                               
in-state   gas  study,   continue   discussions  with   potential                                                               
customers, and maybe  EM will have discussions with  the state on                                                               
their unresolved issues.                                                                                                        
                                                                                                                                
3:33:03 PM                                                                                                                    
SENATOR WAGONER  asked the breadth  of their  environmental field                                                               
work.                                                                                                                           
                                                                                                                                
MR. PALMER replied it has been  somewhat limited so far; the bulk                                                               
of  the  field work  will  start  in  2010  - post  open  season.                                                               
Geotechnical bore holes will be completed this winter.                                                                          
                                                                                                                                
SENATOR  THERRIAULT  asked if  cap  and  trade discussions  would                                                               
affect the pipeline.                                                                                                            
                                                                                                                                
3:34:15 PM                                                                                                                    
MR. PALMER said the carbon legislation  might be put in place and                                                               
that  could have  an impact,  but  that should  favor gas,  which                                                               
should mean an  increase in the demand for gas  generically - and                                                               
therefore increase them demand for this project as well.                                                                        
                                                                                                                                
SENATOR  THERRIAULT asked  if anything  else is  in the  works in                                                               
D.C. besides Senator Murkowski's  initiative to increase the loan                                                               
guarantee to $30 billion.                                                                                                       
                                                                                                                                
MR.  PALMER responded  that TransCanada  has  been supportive  of                                                               
increasing  the  federal  loan guarantee  as  well  as  providing                                                               
access  to the  federal financing  banks.  It has  passed out  of                                                               
committee, but  it still needs  to pass  the body. That  would be                                                               
positive for the  project. As a rule of thumb  for what the value                                                               
could be  as the federal  government moves forward on  that front                                                               
he said  a 1  percent decrease  in the  interest rate  lowers the                                                               
toll by 9  cents/mmbtu, about $150 million  per year. TransCanada                                                               
has  not been  active  on other  fronts in  D.C.  since the  last                                                               
election.                                                                                                                       
                                                                                                                                
SENATOR THERRIAULT asked his view of the shale gas development.                                                                 
                                                                                                                                
MR.  PALMER said  shale gas  will be  a significant  player going                                                               
forward in  terms of  providing natural gas  to markets  in North                                                               
America, but  it doesn't  have a  dedicated market.  Neither does                                                               
Alaskan gas. It is a new low  cost source of natural gas; so they                                                               
will be  competing. If this  project has  gas prices at  $6-8 and                                                               
can  maintain  costs  at  $3  or   less,  he  thinks  it  can  be                                                               
competitive.  But  it  is  critical  to  maintain  the  schedule,                                                               
maintain alignment and keep the costs low.                                                                                      
                                                                                                                                
3:38:05 PM                                                                                                                    
SENATOR THERRIAULT asked  what the advantage is  for getting FERC                                                               
approval for a third party later.                                                                                               
                                                                                                                                
MR. PALMER  explained that it  is unusual that a  prefiling would                                                               
occur this early  in the game; usually they occur  after the open                                                               
seasons  has been  conducted and  after a  significant amount  of                                                               
environmental  work has  been completed.  However, FERC  strongly                                                               
expressed  a desire  that they  prefile  early and  they did  so.                                                               
Hiring  a third-party  contractor needs  to be  aligned with  the                                                               
timing of the project, and is  a significant cost for any project                                                               
proponent. The  appropriate time  to retain  that group  is later                                                               
rather than now  so the cost of the project  can be lowered while                                                               
meeting all the requirements of FERC.                                                                                           
                                                                                                                                
^BILL WALKER PORT AUTHORITY PROJECT                                                                                             
                                                                                                                                
3:40:11 PM                                                                                                                    
BILL WALKER, Alaska Gasline Port  Authority (AGPA), said they are                                                               
continuing  to advance  a project  that gets  gas to  Alaskans as                                                               
quickly as possible  at the lowest possible price  anchored by an                                                               
anchor  tenant on  the  west  coast of  the  U.S.,  the State  of                                                               
Hawaii, Asia or  the world. Alaska has two options,  the ACCO Hub                                                               
and a  world market.  It is fortuitous  that TransCanada  has the                                                               
LNG alternative in its application.                                                                                             
                                                                                                                                
MR. WALKER  said they  have reviewed  the TransCanada  filing and                                                               
their  efforts  to  advance  the  LNG  option  early  with  FERC.                                                               
Legislative  intent language  continues to  be beneficial  to the                                                               
Port  Authority  as  their  partners   continue  to  review  this                                                               
project.                                                                                                                        
                                                                                                                                
He  said that  Sempra LNG  just opened  its second  LNG receiving                                                               
terminal  in Louisiana  on  the  Gulf Coast  and  entered into  a                                                               
contract to bring LNG in from  Qatar. Their other terminal is the                                                               
only one  on the West  Coast in Mexico  that brings gas  into the                                                               
California market from there.                                                                                                   
                                                                                                                                
He said  the Port Authority  has used  the Governor's AO  242 and                                                               
have had talks  with Commissioner Irwin to get to  an open season                                                               
for a pipeline only to Valdez,  not the liquifaction piece of it.                                                               
They  continue to  ask the  administration for  participation and                                                               
assistance in that process.                                                                                                     
                                                                                                                                
They  continue  to  work with  Mitsubishi  Corporation,  a  major                                                               
player in  the world market  that brings  over 50 percent  of the                                                               
LNG into  the Asian  market. They have  been in  frequent contact                                                               
with terminals  on the U.S.  West Coast to  see if there  is more                                                               
interest  in  bringing   LNG  to  the  West   Coast.  The  recent                                                               
announcement from the Department of  Energy that the U.S. has 116                                                               
years of self-sufficiency  in gas is pretty  long-term, but ships                                                               
go wherever they  are needed to go. That's the  beauty of LNG; if                                                               
there is a need on the West  Coast, one of their partners has the                                                               
only  receiving   terminal.  While  three  are   currently  being                                                               
negotiated in Oregon,  two on the Columbia River and  one at Coos                                                               
Bay, realistically  only one will  be built. They  are encouraged                                                               
that an open season is scheduled  for July and they will continue                                                               
to do what they can to advance getting gas to Alaskans.                                                                         
                                                                                                                                
SENATOR  THERRIAULT   asked  if   TransCanada  should   be  doing                                                               
something  they are  not now  doing to  accommodate a  project to                                                               
tidewater.                                                                                                                      
                                                                                                                                
MR.  WALKER answered  that they  are  doing what  they said  they                                                               
would do.                                                                                                                       
                                                                                                                                
3:46:42 PM                                                                                                                    
CO-CHAIR MCGUIRE announced a break.                                                                                             
^BUD FACKRELL, Denali Pipeline project,                                                                                         
                                                                                                                                
4:05:41 PM                                                                                                                    
CO-CHAIR MCGUIRE called the meeting back to order at 4:05.                                                                      
                                                                                                                                
BUD   FACKRELL,   Denali   Pipeline   Projects,   said   BP   and                                                               
ConocoPhillips  formed  this  company  to build  the  Alaska  gas                                                               
pipeline. Nothing has changed, and they are on track.                                                                           
                                                                                                                                
(Slide 2)  Denali is uniquely  qualified to deliver  this complex                                                               
project  and  has  unparalleled   North  Slope  (NS)  Arctic  and                                                               
worldwide  construction  experience  and  as  well  as  a  strong                                                               
balance sheet. They  are positioned to conduct  their open season                                                               
in 2010; the economy has not changed their focus.                                                                               
                                                                                                                                
4:07:09 PM                                                                                                                    
(Slide 3) He said  it is important to focus on  where the gas and                                                               
operations  are on  the  North Slope.  There are  35  tcf of  gas                                                               
resources  that  have been  discovered  on  the NS  primarily  at                                                               
Prudhoe Bay  and Pt. Thomson;  BP and ConocoPhillips  hold leases                                                               
on half of  that. They also operate 99 percent  of the current NS                                                               
production;  the  only field  they  do  not  operate that  is  on                                                               
production is  the Oooguruk Field  that Pioneer operates.  So, BP                                                               
and  ConocoPhillips  essentially  built   the  North  Slope,  its                                                               
infrastructure and its  gas plants and Denali brings  all of that                                                               
to bear on this project.                                                                                                        
                                                                                                                                
(Slide 4)  Regulatory Frameworks.  The pipeline  will have  to be                                                               
approved by FERC in the U.S.  and the National Energy Board (NEB)                                                               
in Canada. AGIA is not an  exclusive license to build a pipeline;                                                               
Denali can  proceed outside  of AGIA  and that  is what  they are                                                               
doing with their  own money. NEB and FERC have  a long history of                                                               
cross-border projects.                                                                                                          
                                                                                                                                
4:08:51 PM                                                                                                                    
(Slide  5) Denali  Terms  of Service.  Denali  is an  open-access                                                               
pipeline; that's the law. Their  project includes a gas treatment                                                               
plant and it  has distance sensitive rates for local  use, and it                                                               
will use  the FERC-mandated  rolled in rates.  The design  of the                                                               
project is  efficient for expansion  and they plan  on soliciting                                                               
expansion every  two years so  those individuals  or corporations                                                               
who don't have  gas initially will have an opportunity  to get in                                                               
the pipeline.  This is  important because only  35 tcf  have been                                                               
discovered, enough for the first  15-20 years at 4.5 bcf/day. So,                                                               
more gas will be needed.                                                                                                        
                                                                                                                                
Denali  will have  at least  five off-take  points in  Alaska and                                                               
they will look at an appropriate number for Canada.                                                                             
                                                                                                                                
4:10:05 PM                                                                                                                    
(Slide 6) Over the last year  Denali has spent $100 million. They                                                               
have mobilized their  project team and have a core  team of 80-90                                                               
people  located  in  their  Anchorage  headquarters  and  Calgary                                                               
office.  They  prefiled  over  one   year  ago  and  have  weekly                                                               
conversations with FERC. They have  also filed a right-of-way for                                                               
the federal  lands in Alaska  with the Bureau of  Land Management                                                               
(BLM),  about  a  third  of   the  pipeline  length  and  have  a                                                               
reimbursable service agreement with BLM  that allows them to work                                                               
together on a regular basis as the right-of-way is progressed.                                                                  
                                                                                                                                
MR. FACKRELL  said they  have had a  very successful  2008 summer                                                               
field program;  it was focused  on the 200-mile  corridor between                                                               
Delta  Junction  and the  Canadian  border.  They did  hydrology,                                                               
archeology work, contaminated  sites and so forth.  They also did                                                               
spot work  up and  the down  corridor from  Prudhoe Bay  to Delta                                                               
Junction filling in  the gaps. They have  had continual community                                                               
outreach programs  in both Alaska  and Canada.  A piece of  it is                                                               
working  with entities  on workforce  development. For  instance,                                                               
they  have  funded a  program  with  UAF training  archaeological                                                               
assistants in  a field camp rather  than in the class  room. They                                                               
also  have agreements  with  a number  of  agencies for  surveyor                                                               
training apprentices and have graduated  10 this summer. This was                                                               
a combined  effort between  the Alaska  Department of  Labor, the                                                               
federal government,  the Tanana Chiefs Conference,  the Teamsters                                                               
and a number of private companies in the state.                                                                                 
                                                                                                                                
MR. FACKRELL  said Denali  has met  with all  of the  federal and                                                               
local state  agencies and  they have  awarded two  very important                                                               
contracts, one was a contract  to Fluor/Worley Parsons on the gas                                                               
treatment plant  and the second  was to Bechtel on  the pipeline.                                                               
These  are   important  because   Denali's  workforce   is  being                                                               
augmented with world-class engineering skills.                                                                                  
                                                                                                                                
4:13:38 PM                                                                                                                    
(Slide 8) They are very focused  on their open season in 2010 and                                                               
are  working  on  refining  the cost  estimates  that  will  give                                                               
everyone confidence, particularly the  shippers. They continue to                                                               
work with all departments and  agencies and are working with FERC                                                               
on pre-filing requirements  and are in the process  of engaging a                                                               
third-party environmental  contractor, Argon National  Labs. FERC                                                               
guides the work they are going to do.                                                                                           
                                                                                                                                
4:14:43 PM                                                                                                                    
Denali  is   working  with  the  Alaska   DOT  on  infrastructure                                                               
requirements. Existing infrastructure is  quite old; it all needs                                                               
to be upgraded  before turning dirt and  moving pipe. Stakeholder                                                               
engagement continues  to be a  major focus  in Alaska as  well as                                                               
Canada.  BP and  ConocoPhillips have  large operations  in Canada                                                               
and they  have been  able to  "piggyback" on  those relationships                                                               
and  build  their  own  relationships   with  First  Nations  and                                                               
Aboriginal  groups there.  Finally,  they  are progressing  their                                                               
commercial work getting ready for open season.                                                                                  
                                                                                                                                
4:15:50 PM                                                                                                                    
SENATOR  WAGONER  said  TransCanada  is a  Canadian  company  and                                                               
already  has  the right-of-way  by  treaty  all the  way  through                                                               
Canada.  They  feel  fairly  comfortable they  will  be  able  to                                                               
negotiate  with the  First  Nations.  He asked  if  Denali has  a                                                               
Canadian  partner,  and  how  they will  address  the  fact  that                                                               
TransCanada has the existing right-of-way.                                                                                      
                                                                                                                                
MR. FACKRELL replied  they established an office  in Canada eight                                                               
months  ago and  have  existing relationships  with the  Canadian                                                               
officials. They  have also had  very good conversations  with the                                                               
NEB  and other  ministries  inside Canada  on  how their  project                                                               
would proceed.                                                                                                                  
                                                                                                                                
4:17:47 PM                                                                                                                    
SENATOR  THERRIAULT  asked on  page  2  when they  say  "superior                                                               
commercial offering" does that mean a lower tariff.                                                                             
                                                                                                                                
MR. FACKRELL  replied an offering  includes the tariff  and other                                                               
terms  and  conditions.  Denali   believes  they  will  have  the                                                               
fundamentals in place to have a superior offer.                                                                                 
                                                                                                                                
SENATOR THERRIAULT asked  if FERC would allow a  small percent of                                                               
added compression before something is  determined to be a subsidy                                                               
for new shippers.                                                                                                               
                                                                                                                                
MR. FACKRELL  answered that  FERC hasn't  issued anything  on how                                                               
they  define "subsidizing  tariffs." They  have said  there is  a                                                               
presumption of rolled  in tariffs. They are going to  have to act                                                               
on the  cases as they come  forward. So, they are  working up the                                                               
engineering for  various physical parameters on  the pipeline and                                                               
are discussing  those with shippers.  Their base design  case has                                                               
expansion capability built into it,  and they expect when they go                                                               
to expansion, those rolled in tariffs might be lower.                                                                           
                                                                                                                                
4:23:32 PM                                                                                                                    
(Slide  9)  Mr. Fackrell  summarized  that  they are  essentially                                                               
moving forward and they are on track.                                                                                           
                                                                                                                                
SENATOR FRENCH  said he didn't know  if it was fair  to the other                                                               
participants for  EM to  be able  to discuss  terms of  AGIA with                                                               
TransCanada "on the pipeline landscape."  What did he think about                                                               
a possible change  of rules downstream of when  his two companies                                                               
made  their  decision  to participate  in  the  AGIA  application                                                               
process?                                                                                                                        
                                                                                                                                
MR. FACKRELL answered  that BP and ConocoPhillips  did not submit                                                               
an  application  under  AGIA  because  they  didn't  believe  its                                                               
conditions  would result  in a  profitable  pipeline project.  So                                                               
they struck  out on their own  without any funding, and  they are                                                               
not bound  by the terms of  AGIA. He viewed Exxon  coming on with                                                               
TransCanada  as a  positive because  now  they are  at the  table                                                               
playing with  everyone else. Nothing  else has changed.  They are                                                               
moving  forward  to  open  season;   their  goal  is  to  attract                                                               
customers to the pipeline.                                                                                                      
                                                                                                                                
SENATOR FRENCH  said he  didn't understand if  he would  agree or                                                               
disagree that  the deal has  been sweetened for  another economic                                                               
entity.                                                                                                                         
                                                                                                                                
MR.  FACKRELL replied  as he  understands that,  that would  mean                                                               
they are changing  the terms and conditions of AGIA.  And if they                                                               
were  going  to  do  that,  other parties  might  be  willing  to                                                               
participate in it. He said he  is always asked, "When are you and                                                               
TransCanada  going to  join together."  The problem  is that  his                                                               
owners do  not agree with  the terms  and conditions of  AGIA and                                                               
that  keeps them  from joining  with TransCanada.  "If they  were                                                               
changed, then it's a bit of a new ballgame."                                                                                    
                                                                                                                                
SENATOR FRENCH asked if it were  changed, would that make it more                                                               
likely that Denali would join the effort.                                                                                       
                                                                                                                                
MR. FACKRELL replied they would  see what happens. Right now they                                                               
clearly have two competing projects.                                                                                            
                                                                                                                                
SENATOR WAGONER asked how many  of their employees work in Alaska                                                               
and Canada.                                                                                                                     
                                                                                                                                
MR.  FACKRELL  replied about  75  percent  work in  Alaska.  It's                                                               
primarily an Alaskan company based in Anchorage.                                                                                
                                                                                                                                
SENATOR WAGONER asked for a specific date for their open season.                                                                
                                                                                                                                
MR. FACKRELL  answered they  have committed  to commence  with it                                                               
before the end  of the year. He  doesn't view this as  a race and                                                               
wants  to  be  ready  with   the  very  best  cost  estimate  and                                                               
alignments  when they  go  to  open season.  If  they  can do  it                                                               
earlier than that they will.                                                                                                    
                                                                                                                                
4:25:43 PM                                                                                                                    
SENATOR THERRIAULT asked if he  meant they had spent $100 million                                                               
so far or what.                                                                                                                 
                                                                                                                                
MR. FACKRELL  replied they  have spent $100  million in  the last                                                               
year - $55 million since June  of last year and about $45 million                                                               
this year. Their  plan in 2009 is to spend  about 50 percent more                                                               
than they did last year.                                                                                                        
                                                                                                                                
SENATOR  THERRIAULT  said  he  talked   to  some  contractors  in                                                               
Fairbanks  whose  contracts had  been  cancelled.  What was  that                                                               
about?  Also  when  BP  joined  the Denali  effort  there  was  a                                                               
statement about having  a target spend of  $600 million-plus; was                                                               
that  up to  certification or  to open  season? Has  that planned                                                               
expenditure changed?                                                                                                            
                                                                                                                                
MR.  FACKRELL  explained  that  their program  in  2009  is  much                                                               
broader than  what they  had in  2008, which  was focused  on the                                                               
field program  to close the  gap they had between  Delta Junction                                                               
and the Canadian  border. A lot of extra  contractors were needed                                                               
to  do that  field  work. The  focus  now is  broader  - on  cost                                                               
estimates,   putting   commercial   work   together,   furthering                                                               
engagement with the shareholders along  the route - getting ready                                                               
for an  open season. Maybe they  will spend over $100  million at                                                               
the end  of this year.  They are on  track with the  schedule and                                                               
are spending the money they need to.                                                                                            
                                                                                                                                
SENATOR THERRIAULT asked what the total  spend will be up to open                                                               
season.                                                                                                                         
                                                                                                                                
MR. FACKRELL  replied they hadn't  put their budget  together for                                                               
next year  yet, but  well over  $100 million by  the end  of this                                                               
year.                                                                                                                           
                                                                                                                                
4:28:55 PM                                                                                                                    
CO-CHAIR MCGUIRE asked  if they will enter  into discussions with                                                               
TransCanada  Alaska  and EM  this  summer  and  fall to  look  at                                                               
whether or not the project could come together.                                                                                 
                                                                                                                                
MR.  FACKRELL   answered  they   haven't  had   discussions  with                                                               
TransCanada because  they are the  AGIA licensee, and  his owners                                                               
do  not agree  with its  terms and  conditions. As  long as  they                                                               
exist as  they are today,  they probably won't  have discussions.                                                               
"If it changes, then we'll have to reconsider that."                                                                            
                                                                                                                                
CO-CHAIR MCGUIRE said  one opinion in the Exxon case  is that the                                                               
state  has allowed  them to  be an  equity partner  without being                                                               
subject to AGIA on some level.                                                                                                  
                                                                                                                                
SENATOR WAGONER  asked where  it leaves  everybody if  EM commits                                                               
its  gas to  the TransCanada  project and  BP and  ConocoPhillips                                                               
commit its gas to their project.                                                                                                
                                                                                                                                
MR. FACKRELL replied, "First of all  there's only going to be one                                                               
pipeline  built  here, and  as  I've  stated before  there's  not                                                               
enough gas for  two. And we need to get  some more discoveries to                                                               
fill this  one up for  50 years."  Denali is a  pipeline company,                                                               
separate  from the  shippers of  BP and  ConocoPhillips. So  they                                                               
haven't committed  their gas  to Denali as  EM has  not committed                                                               
its gas  to TransCanada.  So they  are both  going about  an open                                                               
season to  attract these  customers to  have the  best commercial                                                               
offering  possible. All  of the  pipeline  companies -  Enbridge,                                                               
TransCanada  MidAmerican,  Denali  -   have  testified  that  the                                                               
shippers are  going to  want to have  some fiscal  certainty. So,                                                               
they are hoping for something in that arena.                                                                                    
                                                                                                                                
SENATOR WAGONER said the Keystone  Project was originally a 50/50                                                               
project with TransCanada and  ConocoPhillips, and now TransCanada                                                               
is going to  end up with a purchase agreement  for the 50 percent                                                               
ConocoPhillips  has.   How  was  that  set   up  originally?  Did                                                               
TransCanada have a  separate pipeline company under an  LLC to do                                                               
the Keystone part of that pipeline?                                                                                             
                                                                                                                                
4:32:36 PM                                                                                                                    
MR. FACKRELL said he wasn't  privy to that information; he worked                                                               
for BP before he came to Denali.                                                                                                
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if BP's  and ConocoPhillips'  boards                                                               
have any influence over Denali.                                                                                                 
                                                                                                                                
MR. FACKRELL explained  under FERC regulations there has  to be a                                                               
separation   the  pipeline   company  and   the  shippers.   FERC                                                               
understands  and  the  rules  for   open  season  recognize  that                                                               
companies can  be vertically integrated  and have  both pipelines                                                               
and  resources.  So  they  are   going  through  the  process  of                                                               
separating  themselves from  the  shipping arms  of the  company,                                                               
"and so we don't speak for  the shippers and they don't speak for                                                               
us."  TransCanada and  Denali both  have to  submit a  compliance                                                               
plan and code of conduct for the  open season to the FERC for its                                                               
endorsement.  That ensures  that the  information to  shippers is                                                               
shared fairly. In  his case, BP and ConocoPhillips  does not have                                                               
an unfair advantage over anyone else  out there in the market and                                                               
that will  apply to  any pipeline company.  For that  reason they                                                               
are being very careful to put up firewalls.                                                                                     
                                                                                                                                
4:34:48 PM                                                                                                                    
SENATOR WIELECHOWSKI asked with  these firewalls in place, Denali                                                               
itself has never itself built a pipeline.                                                                                       
                                                                                                                                
MR.  FACKRELL replied  that  Denali  is a  new  company, but  the                                                               
people  on his  team have  built pipelines  - like  its operation                                                               
manager  who  built  the  Caspian Pipeline  that  goes  from  the                                                               
Caspian Sea to  the Mediterranean - they are  fine people. Denali                                                               
has the two companies that built  the North Slope; it already has                                                               
Arctic and Alaskan experience.                                                                                                  
                                                                                                                                
SENATOR   WIELECHOWSKI  said   the   firewall   between  BP   and                                                               
ConocoPhillips is an important point.                                                                                           
                                                                                                                                
MR. FACKRELL  said most of the  people in Denali came  from those                                                               
two companies.                                                                                                                  
                                                                                                                                
CO-CHAIR  MCGUIRE  said  they  continue   to  hear  rumors  about                                                               
Enbridge partnering with Denali.                                                                                                
                                                                                                                                
MR. FACKRELL said he wouldn't comment on private conversations.                                                                 
                                                                                                                                
4:36:51 PM                                                                                                                    
MR. FACKRELL said Denali is on  track, moving ahead to conduct an                                                               
open season, and  it is positioned to have  a superior commercial                                                               
offering. They are not requiring  anything from the state and the                                                               
economy and competition has not changed their focus.                                                                            
                                                                                                                                
CO-CHAIR MCGUIRE  asked how the  Prudhoe Bay  operating agreement                                                               
which links  them all together  plays out  in coming to  the open                                                               
season.                                                                                                                         
                                                                                                                                
MR.  FACKRELL  replied  how  the   separation  works  is  a  very                                                               
important point.  BP operates Prudhoe  Bay on behalf of  a number                                                               
of other companies, and BP has  set up an information protocol to                                                               
go through to  insure that everyone has equal access  to the same                                                               
information.                                                                                                                    
                                                                                                                                
4:39:31 PM                                                                                                                    
CO-CHAIR  MCGUIRE  asked  how  one   could  break  off  from  the                                                               
operating agreement  if gas could be  economically delivered. Who                                                               
is  obligated or  is everyone  open to  bid on  whatever projects                                                               
they choose in that first open season?                                                                                          
                                                                                                                                
MR. FACKRELL  explained that  first of all  you have  to separate                                                               
producer-shippers  from   the  pipeline  company.  Denali   is  a                                                               
pipeline company,  so it has no  say in how the  owners, shippers                                                               
and producers are  going to distribute their gas or  who they are                                                               
going to  go to.  They make those  choices themselves.  So, under                                                               
FERC regulation  Denali has to  go out  and offer space  in their                                                               
pipeline  to everyone.  EM and  TransCanada will  have to  do the                                                               
same  thing;  the  shippers  on  the  other  side  will  have  to                                                               
individually decide  what they  are going to  do in  that regard.                                                               
The AOGCC inside  Alaska has a role in saying  how Prudhoe Bay is                                                               
produced to  insure that the resources  are efficiently produced.                                                               
FERC ensures that it is fair to  all parties. In the end they are                                                               
trying  to attract  customers and  they  all have  to be  treated                                                               
equally.                                                                                                                        
                                                                                                                                
CO-CHAIR MCGUIRE  asked if one  of the open seasons  fails, would                                                               
the legal  question come  up about  whether or  not there  was an                                                               
obligation by someone to bid for capacity.                                                                                      
                                                                                                                                
4:43:24 PM                                                                                                                    
MR.  FACKRELL  replied  that  it  is the  role  of  the  shipper-                                                               
producers  to meet  their own  obligations, not  the role  of the                                                               
pipeline. "The  role of the  pipeline is to insure  that everyone                                                               
has free and open access to bid on space on our pipeline."                                                                      
                                                                                                                                
SENATOR  WIELECHOWSKI said  he has  heard two  interpretations of                                                               
the Prudhoe  operating agreement.  Interpretation one is  that no                                                               
gas  can  be  bid  unless  everyone  agrees  to  bid  their  gas.                                                               
Interpretation  two  is exactly  the  opposite  which is  if  one                                                               
company bids a  certain amount, then all the  other companies are                                                               
required to bid their gas.                                                                                                      
                                                                                                                                
MR.  FACKRELL said  he was  sure the  shippers and  the operators                                                               
would answer that question for him.                                                                                             
                                                                                                                                
4:44:19 PM                                                                                                                    
SENATOR THERRIAULT said he has  still heard concerns over the one                                                               
withdrawn partner. Is it still a concern?                                                                                       
                                                                                                                                
MR. FACKRELL replied  that five of the six had  been resolved and                                                               
perhaps that one would go away.                                                                                                 
                                                                                                                                
CO-CHAIR MCGUIRE thanked  him for his presentation  and asked him                                                               
to keep them updated. She wished them luck.                                                                                     
                                                                                                                                
^Administration position on Exxon TC agreement                                                                                  
COMMISSIONER  PAT GALVIN,  Department of  Revenue (DOR),  said he                                                               
was  asked  to  present  the  administration's  response  to  the                                                               
agreement  between TransCanada  and ExxonMobil.  He was  asked if                                                               
the  state  needed to  do  anything  at  this point  under  AGIA,                                                               
Section  210,  which  requires   commissioner  approval  for  any                                                               
modification of  the license itself.  So, he put together  a team                                                               
on legal  issues that may  be impacted by this  transaction. They                                                               
got documents, asked  clarifying questions and got  both oral and                                                               
written answers  to better understand the  transaction. The legal                                                               
team  determined that  because there  was no  actual control,  no                                                               
voting  interest that  was being  created  under this  agreement,                                                               
that it didn't diminish the state's rights under AGIA.                                                                          
                                                                                                                                
4:49:56 PM                                                                                                                    
However,  if  ExxonMobil  moved  into  a  voting  interest,  that                                                               
couldn't happen until  the state did public  notice, notified the                                                               
legislature and  was approved  by the  commissioners. So,  at the                                                               
end of  the day they  determined no  action was required  at this                                                               
time based on these agreements.  The administration is supportive                                                               
and excited  by this  event, and  they believe  it is  in keeping                                                               
with  AGIA's intent,  which was  to keep  the project  moving and                                                               
allowing it to advance on commercial terms.                                                                                     
                                                                                                                                
4:51:25 PM                                                                                                                    
SENATOR FRENCH said he was worried  about AGIA losing some of its                                                               
integrity  if Exxon  wants  to  talk to  the  state about  fiscal                                                               
certainty and a couple of other  AGIA must-haves to reach sort of                                                               
a global  solution that  would allow them  to convert  those non-                                                               
voting  shares  into  voting  shares,  acquire  a  piece  of  the                                                               
license,  commit their  gas and  move forward.  Because the  AGIA                                                               
statutes require  the commissioner to bless  that transfer should                                                               
it occur, he  is concerned there may be some  sort of slippage of                                                               
his role as an  umpire of whether or not that  transfer is a good                                                               
idea.                                                                                                                           
                                                                                                                                
COMMISSIONER  GALVIN responded  that  there is  a whole  unending                                                               
variety of ways in which they  can move forward from here that is                                                               
not   laid  out   in  any   particular   way.  It   is  not   the                                                               
administration's intent to undermine  the responsibilities of the                                                               
legislature to  exercise its right  to change statute.  He didn't                                                               
see the  linkage that Senator  French was describing.  He further                                                               
explained:                                                                                                                      
                                                                                                                                
     If there  is a recognition  by the state at  some point                                                                    
     in the  future that adjustments to  the upstream fiscal                                                                    
     terms are appropriate and are  needed by the companies,                                                                    
     that  that  would  be something  that  the  legislature                                                                    
     would  be  fully  involved  in,   and  it  wouldn't  be                                                                    
     something  that we  end up  being the  sole arbiter  or                                                                    
     umpire in determining.                                                                                                     
                                                                                                                                
SENATOR FRENCH  said they  are moving  towards a  strong producer                                                               
interest  in  the pipeline,  if  not  ownership. The  legislature                                                               
wrestled  with this  a  lot in  passing AGIA.  He  came across  a                                                               
fascinating presentation  called "How AGIA  Addresses Competitive                                                               
Issues  Raised by  a Producer-Owned  Pipeline"  presented in  his                                                               
Judiciary  Committee in  May 2007.  He  felt like  he achieved  a                                                               
trifecta today when  Mr. Minesinger walked in, because  he is the                                                               
person who gave it.                                                                                                             
                                                                                                                                
COMMISSIONER  GALVIN  said a  producer  being  in a  position  of                                                               
influence or control over this  project is not precluded by AGIA.                                                               
Further, he stated:                                                                                                             
                                                                                                                                
     The  purpose of  AGIA was  to insure  that any  project                                                                    
     that comes out of this  process would act like a third-                                                                    
     party  pipeline regardless  of  who  actually owns  it.                                                                    
     That the bulk  of the defenses, the  bulwarks that have                                                                    
     been built into  AGIA, that have been  built into those                                                                    
     must-haves,  have  anticipated  that  the  pipeline  is                                                                    
     going to be motivated  elsewhere than as an independent                                                                    
     pipeline. The bulk  of that has been put  in place with                                                                    
     the  anticipation   of  producer  involvement   in  the                                                                    
     decisions of  the pipeline.  The state's  interests are                                                                    
     protected  through those  contractual obligations  that                                                                    
     are imbedded  in AGIA  regardless of  who the  owner of                                                                    
     the pipeline will ultimately be.                                                                                           
                                                                                                                                
4:57:37 PM                                                                                                                    
SENATOR WIELECHOWSKI asked  what happens when producers  put in a                                                               
bid contingent on  fiscal certainty or new  terms negotiated with                                                               
the state.                                                                                                                      
                                                                                                                                
COMMISSIONER  GALVIN replied  their view  is the  same; that  the                                                               
state has  an existing legitimate  and sufficient  fiscal system.                                                               
AGIA  provides  what they  consider  to  be an  adequate  durable                                                               
upstream  inducement. If  the producers  feel  something else  is                                                               
needed,  they need  to  tell  them. The  timing  of whether  that                                                               
happens before  the open  season or  after is  a matter  of other                                                               
factors  that   are  going  to   play  out.  The   state  doesn't                                                               
necessarily have to set it.                                                                                                     
                                                                                                                                
The purpose of AGIA and TransCanada  having to come to grips with                                                               
the  obligation to  move  the project  through  the initial  open                                                               
season, even if  it fails, is to protect the  state's interest to                                                               
see the  project continue to  advance even after  an unsuccessful                                                               
open season.                                                                                                                    
                                                                                                                                
He said the  producer's fiscal system doesn't have  to take place                                                               
until they get to project  sanction. Having that unresolved until                                                               
that time  will not slow  the project. But  it's in all  of their                                                               
interests to  not have to  fret about it  that whole time  and it                                                               
would be  nice to have  it get out  of the  way. But there  is no                                                               
obligation  or necessity  for  the  state to  put  itself in  the                                                               
position  of  becoming desperate  for  a  deal.  This is  a  very                                                               
important point. If  they end up reaching a fiscal  deal, it will                                                               
be based  upon the  best information  available. That's  going to                                                               
continue to  evolve and the  state will  be in a  better position                                                               
moving forward than it is in today.                                                                                             
                                                                                                                                
5:00:27 PM                                                                                                                    
SENATOR THERRIAULT asked  if Mr. Minesinger was part  of the team                                                               
that evaluated  the TransCanada  EM deal and  if he  saw anything                                                               
that raised red flags.                                                                                                          
                                                                                                                                
KEN  MINNESINGER,  Greenburg  Traurig,  LLP,  the  State  gasline                                                               
team's outside counsel, answered no;  they took a careful look at                                                               
it and did  not see any red flags. TransCanada  and EM have taken                                                               
a step  towards bringing one  of the  producers on board,  and so                                                               
there is minority  producer ownership on the project  in a sense.                                                               
"But AGIA  did contemplate that.  This isn't a case  of something                                                               
the administration didn't expect." AGIA  was open for any company                                                               
to come in and  bid - whether it be an  independent pipeline or a                                                               
producer. The  must-haves insured  that regardless  which company                                                               
came in, they would effectively  act like an independent pipeline                                                               
in various ways  - for lowering the  tariff, expansion provisions                                                               
and  so forth  that benefit  the state.  Nothing in  this changes                                                               
that.                                                                                                                           
                                                                                                                                
5:03:51 PM                                                                                                                    
CO-CHAIR MCGUIRE thanked everyone and said they would keep                                                                      
getting updates. There being no further business to come before                                                                 
the committee, she adjourned the meeting at 5:03 p.m.                                                                           
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
Denali Update - June 23, 2009.pdf SRES 6/23/2009 2:00:00 PM
TC-XOM Alignment Summary.pdf SRES 6/23/2009 2:00:00 PM
TransCanadaExxonPresentation - June 23, 2009.pdf SRES 6/23/2009 2:00:00 PM